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The Guiliano Law Group. P.C. has announced the filing of securities arbitration claims before the Financial Industry Regulatory Authority (FINRA) on behalf of investors suffering losses in Inverse and Leveraged Exchange Traded Funds or ETFs.

Many investors were sold these securities based upon the notion that they could be a long term hedge. Most ETFs track an index, such as the S&P 500. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. However, leveraged ETFs are controversial trading instruments. Leveraged ETFs are meant to double, or in some cases triple, the daily performance of a particular index. Because leveraged ETFs are bundles of derivatives, investors cannot buy and hold them the way they do similarly benchmarked ETFs.  Derivatives have a time value portion that decays as each day goes by, and are not appropriate long term investments.


Both FINRA and the SEC found that certain leveraged ETFs produced negative returns, are too complicated and too risky for most retail investors, and typically are not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.

FINRA Reminder to Firms

In June 2009, FINRA reminded firms of their sales practice obligations in connection with leveraged and inverse ETFs. In particular, recommendations to customers must be suitable and based on a full understanding of the terms and features of the product recommended; sales materials related to leveraged and inverse ETFs must be fair and accurate; and firms must have adequate supervisory procedures in place to ensure that these obligations are met.

In August 2009, most major brokerage stopped permitting solicited purchases of these ETFs in traditional brokerage accounts and also told investors and regulators that: “Unsolicited purchases will be permitted only subject to enhanced oversight and review.”

Guiliano Law Group

Nicholas J. Guiliano has extensive experience in the litigation of securities related matters as a stockbroker fraud lawyer in customer claims against brokerage firms for fraud in connection with the sale of securities principally in arbitration before FINRA and the NYSE Department of Arbitration. Where permitted by law, The Guiliano Law Group represents brokerage customers in FINRA securities arbitrations in venues and hearing locations throughout the country. Investors suffering losses or damages from such conduct may be able to recover their investment losses. Our practice is limited to the representation of investors in claims, for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.