Massachusetts regulators sent subpoenas to four brokerage firms July 31 seeking information about the way they sold inverse and leveraged exchange traded funds. The subpoenas were issued weeks after the firms restricted the sale of the products or stopped selling them altogether.
The firms are Ameriprise Financial Inc. of Minneapolis, Edward D. Jones & Co. LP of St. Louis, LPL Investment Holdings Inc. of Boston and UBS Financial Services Inc. of New York.
“The concern is that [inverse and leveraged ETFs] are, or can be, very volatile funds, very risky, and that they are being offered to investors who aren't sophisticated and may not be aware of the risks they are getting into,” said Brian McNiff, a spokesman for Secretary of the Commonwealth William F. Galvin.
Direxion Funds of Newton, Mass., ProFund Advisors LLC of Bethesda, Md., and Rydex SGI of Rockville, Md. — the primary providers of inverse and inverse ETFs — also received letters from Mr. Galvin asking for similar information, Mr. McNiff said.
The investigation follows a warning last month from the Financial Industry Regulatory Authority Inc. of New York and Washington that inverse and leveraged ETFs “typically are unsuitable for retail investors” who hold them longer than a day.
Finra clarified its position on such ETFs during a podcast on July 13 in which it said that member firms could recommend that a retail investor hold the ETFs for longer than one day, provided a suitability assessment is conducted with respect to such an investor and the ETF.
But that didn't stop Ameriprise, Edward D. Jones, LPL and UBS from restricting the sale of leveraged and inverse ETFs or stopping their sale all together.
E-mail David Hoffman at [email protected]
