| Notice to All Investors Who Invested in Leveraged and Inverse Exchange-Traded Funds |
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| Written by Klayman & Toskes | |
| Wednesday, 05 August 2009 | |
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New York, New York - The Securities Law Firm of Klayman & Toskes, P.A. announced today that it is investigating the trading practices and supervision by major retail brokerage firms in connection with their sales of leveraged and inverse exchange-traded funds ("ETFs").
K&T has received inquires from investors who sustained losses as a result of investing in these products. In fact, K&T is preparing to file a securities arbitration claim with the Financial Industry Regulatory Authority ("FINRA"), against Morgan Stanley (NYSE:MS) for unsuitable recommendations to invest in several leveraged and inverse ETFs. The claim seeks damages of about $1.5 million. In that case, the financial advisor devised a strategy of short selling ETFs which were held long term. However, according to FINRA, long term investments in EFTs can be unsuitable.
In June of 2009, FINRA issued a Regulatory Notice on Non-Traditional ETFs, reminding firms of the sales practice obligations relating to leveraged and inverse ETFs. The notice noted that these products are "highly complex financial instruments that are typically designed to achieve their stated objectives on a daily basis." Because of the effects of compounding, the performance of these investments "over longer periods of time can differ significantly from the stated daily objective." As a result, "inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets." Because the objective of leveraged ETFs is to deliver a multiple of the underlying index's daily performance, they should only be held on a short-term basis. For example, from November 28, 2008 through February 27, 2009, while the Russell 2000 gained 2.38%, the UltraShort Russell 2000 ProShares (NYSEArca:TWM) lost 25%. Similarly, from November 21, 2008 to March 3, 2009, the Russell MidCap experienced a gain of 2.77%, while the UltraShort Russell MidCap ProShares (NYSEArca:SDK) dropped 28%. Finally, The UltraShort Financials ProShares (NYSEArca:SKF) lost 46%, while, during the same time period, the iShares Dow Jones U.S. Financial Sector index broke even. Retail and institutional investors who invested in leveraged and inverse ETFs through Citigroup (NYSE:C), Merrill Lynch (NYSE:MER), Morgan Stanley, Wachovia Securities n/k/a Wells Fargo Advisors (NYSE:WFC), UBS (NYSE:UBS), Ameriprise Financial (NYSE:AMP), Edward Jones, or other brokerage firms, and who have sustained investment losses, can contact K&T to explore their legal rights and options. The attorneys at K&T are dedicated to pursuing claims on behalf of investors who have suffered investment losses. K&T, an experienced, qualified and nationally recognized securities litigation law firm, practices exclusively in the field of securities arbitration and litigation. It continues its representation of investors throughout the world in securities arbitration and litigation matters against major Wall Street brokerage firms. If you wish to discuss this announcement or have information relevant to our investigation, please contact Steven D. Toskes, Esquire or Jahan K. Manasseh, Esquire of Klayman & Toskes, P.A. at 888-997-9956, or visit us on the web at http://www.nasd-law.com. |
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