LPL Financial Agrees to $1.8 Million Penalty for Unsuitable Leveraged ETF Sales
Brokerage firm LPL Financial has agreed to pay $1.8 million to settle Massachusetts regulatory charges that the firm improperly marketed and sold risky exchange-traded funds (ETFs) to 200 Massachusetts investors. Massachusetts securities regulators claimed that LPL violated securities laws concerning the sales, marketing, training and supervision over leveraged ETFs.
Because leveraged ETFs are complex and risky, a number of brokerage firms prohibit their brokers from selling leveraged ETFs to retail investors. But Massachusetts regulators found that LPL Financial permitted its brokers to sell the risky, leveraged Pro Shares Ultra S&P 500 ETF and the Pro Shares Ultra Silver ETFs to retail investors, some of whom had conservative investment objectives.
Leveraged ETFs are designed to be bought and sold in short periods of time. While many sophisticated investors understand the nature of leveraged ETFs, many retail investors mistakenly purchased leveraged ETFs and hold them for long periods of time, as they would with a mutual fund. But holding leveraged ETFs for an extended period of time exposes investors to significant risk of loss. Massachusetts securities regulators found that LPL permitted some customers to hold leveraged ETFs for a year or more. This can happen when brokers do not understand the products and fail to inform investors that leveraged ETFs should not be held long term.
As part of the settlement, LPL will pay $1.6 million in restitution to investors who lost money and $200,000 to the attorney general’s office.
It is important to note that this settlement will not result in payments being made to leveraged ETF investors in other parts of the country. If you lost money in a leveraged ETF call a Los Angeles stockbroker negligence and investment fraud lawyer today for a free case evaluation.