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TAG | ETFs

Mar/13

21

Leveraged ETFs Are Highly Speculative and Complex Investments

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The Financial Industry Regulatory Authority, or FINRA, has been warning broker/dealers about the dangers of selling ETFs (Exchange Traded Funds) to their investors. FINRA has said that leveraged ETFs are unsuitable for investors who plan to hold them longer than one trading session, especially in the volatile markets. FINRA also said that the purpose of a leveraged ETF is to have investment results for a single day only and it is to be monitored extremely actively.  Many brokers do not understand these complex and highly speculative investments.  When ETFs are held for weeks or months it can cause greater losses due to the investments’ use of leverage.  Often the broker does not adequately explain the potential risks and ultimately loss of investments.

Investors are bringing litigation over leveraged ETFs countrywide. For example, in February a FINRA arbitration panel awarded investors 100% of their requested damages, plus punitive damages, against Delphi Wealth Advisors for the sale of Direxion leveraged ETFs.

We remind investors that many obscure ETFs like Direxion,  can be hazardous to investors who aren’t careful. These leveraged funds are designed for day-traders and backed by derivatives.  Many investors miss the ‘fine print’ or are not given adequate information by their broker/dealers.

If you have invested in ETFs and lost your investment, call a Securities Arbitration Lawyer at Soreide Law Group for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552.

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May/11

30

Have you Invested in Outrageous ETFs?

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In an article from Forbes.com, May 27, 2011, Zack O’Malley Greenburg writes that a little over a year ago, fund provider Direxion launched an ETF (Exhange Traded Fund) called the Daily Semiconductor Bull 3x Shares. Its aim was to triple the performance of the PHLX Semiconductor Sector Index. Not as simple a task as it seems, apparently: Over the next seven months the index rose 5%, while the Direxion fund returned -6.25%.

Maybe investors should have heeded Direxion’s own disclaimer: “There is no guarantee the fund will meet its stated investment objective.”

This is the way of things in the world of ETFs, writes Greenburg, where offerings have exploded in recent years. Nearly 900 ETFs have been launched over the past five years, leading to a preponderance of funds that straddle the line from obscure to downright bizarre. Among them are leveraged ETFs like the aforementioned semiconductor fund that seek to double or triple the performance of sectors–and don’t always succeed. Examples range from the ProShares Ultra KBW Regional Banking ETF, to the Direxion Daily Agribusiness Bear 3x Shares ETF, which trades under ticker symbol COWS. There is also a smattering of international offerings, which comprised half of all new S&P-based index funds launched last year. Market Vectors parent Van Eck recently announced plans to launch a Mongolia ETF.

Forbes.com writes that there are a few ETFs so outrageous that they’ve already been shut down–for example, the HealthShares Dermatology and Wound Care ETF, shuttered in 2008 due to lack of demand. Others, like the PowerShares Dynamic Brand Name Products Portfolio and the PowerShares Autonomic Allocation Research Affiliates Portfolio, never even made it past the planning stages.

We are reminded that many obscure ETFs like Direxion’s leveraged semiconductor fund can be hazardous to investors who aren’t careful. These leveraged funds are designed for day-traders and backed by derivatives. Though providers warn that these funds are not meant to be held as long-term assets, many investors miss the fine print.

The Forbes.com article says that the SEC launched a review of all funds last March, deferring applications for “actively managed and leveraged ETFs that particularly rely on swaps and other derivative instruments to achieve their investment objectives” in the meantime. There has been a lot of concern generally about derivatives in the last few years, and specifically in our division about the use of derivatives by investment companies, including ETFs,” says Elizabeth Osterman, head of the exemptive applications office of SEC’s Division of Investment Management. “Our decision to defer the review of exemptive applications for derivatives-based ETFs reflects concerns about whether granting exemptive relief for those funds would be consistent with required regulatory standards in light of those concerns.”

Greenburg goes on to say that the SEC hasn’t yet resumed allowing providers to launch new leveraged ETFs, but it hasn’t banned existing products or disallowed existing issuers from creating new ones. The three leading providers of such funds–Direxion, Rydex and ProShares–now have something of a lock on leveraged ETFs. And no matter how outlandish their products may sound, they continue to be popular.

If you have invested in an ETFs and lost your investment, you may have valuable legal rights to be compensated for your losses. Call a Securities Arbitration Lawyer at Soreide Law Group for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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May/11

6

After Commodities Selloff, Funds Affected

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Today, in an article in InvestmentNews.com, we learn that the emerging-markets mutual funds managed by Goldman Sachs Group Inc. and Franklin Resources Inc., along with leveraged raw material ETFs, were among the U.S.-registered funds affected the most in this week’s commodities selloff.

It was noted that the mutual funds and exchange-traded funds dedicated to commodities, including index-based products, suffered steeper declines. The ProShares Ultra Silver ETF, designed to return twice the daily performance of silver, plummeted 51 percent from Monday to Thursday, although it was up 2.85% as of midday on Friday. Non-leveraged silver ETFs fell about 30 percent.

In the $831 million Goldman Sachs BRIC Fund and the $825 million Templeton BRIC Fund, which focus on Brazil, China, India and Russia, both fell 5.7 percent in the week ended yesterday. The funds, from New York-based Goldman Sachs Group Inc. and San Mateo, California’s Franklin Resources Inc., lost the most among diversified equity funds with more than $500 million in assets and at least 20 percent in energy or basic materials stocks, according to data compiled by Bloomberg.

The InvestmentNews.com article says that Bill Miller, manager of the $3.94 billion Legg Mason Capital Management Value Trust, said in an April 19 letter to investors that he saw little value in commodities. He pointed to research from Stifel, Nicolaus & Co. showing that commodity returns relative to stock returns were at a 200-year high on a rolling 10-year basis.

“One thing is clear from the analysis of long-term commodity returns: they are cyclical,” Miller wrote.

Commodities plunged yesterday as investors accelerated sales following year-to-date gains through April of more than 23 percent for silver, oil, gasoline and coffee. The Standard & Poor’s GSCI index of 24 commodities sank 6.5 percent at 4:32 p.m. New York time in the biggest one-day drop since January 2009, bringing its loss this week to 9.9 percent.

“It’s panic,” said Michael Shaoul, chairman of Marketfield Asset Management, which oversees $1 billion in New York. “There’s nothing to do with weak U.S. economic data. It’s not a global financial crisis. It’s a classic liquidation move in a crowded trade.”

Oil tumbled 8.6 percent yesterday, the most in two years, to $99.80 a barrel. Silver dropped 8 percent, extending the worst four-day slump since 1983 to 25 percent. The Dow Jones BRIC 50 Index declined 5.1 percent from April 28 through yesterday.

These leaders of the four countries plus South Africa, a group known as the BRICS, said last month that excessively volatile commodity prices pose “new risks for the ongoing recovery of the world economy.”

The $726 million DWS Latin America Equity Fund, managed by the funds unit of Frankfurt’s Deutsche Bank AG, fell 5.4 percent in the past week. Boston-based Fidelity Investments’ $5.46 billion Canada Fund lost 5.3 percent, and the $1.4 billion FPA Capital Fund, run by Los Angeles-based First Pacific Advisors LLC, dropped 4.6 percent.

Open interest in silver futures has tumbled about 15 percent since the Comex exchange in New York began raising margin requirements on April 25. Futures on Brent crude, crude oil, heating oil, gasoline and natural gas plunged more than 6.9 percent yesterday.

Also, crude oil dropped below $100 a barrel for the first time since March 17. Copper futures slumped 3.3 percent, falling below $4 a pound for the first time in five months. Among agricultural commodities, cocoa, cotton, corn and weak retreated more than 2.3 percent in futures trading.

If you have invested in ETFs or mutual funds and lost money, you may have valuable legal rights to be compensated for your losses. Call a Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

8

FINRA Fines and Suspends Eric Damien Kallies

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The following was obtained on FINRA’s website:

Eric Damien Kallies (CRD #4753714, Registered Representative, Waunakee, Wisconsin)

submitted a Letter of Acceptance, Waiver and Consent in which he was fined $15,000 and suspended from association with any FINRA member in any capacity for 30 business days. The fine must be paid either immediately upon Kallie’s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Kallies consented to the described sanctions and to the entry of findings that he executed purchases of exchange-traded fund (ETFs) in a managed joint account of public customers without the customers’ knowledge or consent, and without having obtained the customers’ prior written authorization to exercise discretion and his firm’s prior written acceptance of the account as discretionary. The findings stated that Kallies made a presentation consisting of several slides to the customers in connection with an investment strategy program he was recommending and was considered “sales literature.” 

The findings also stated that Kallies made the presentation without first obtaining approval from the appropriate registered principal of the firm, and it was never filed with FINRA within 10 business days of its first use. The findings also included that the presentation generally failed to disclose the risks of investing in the securities that were discussed, failed to disclose the general risks associated with investing in mutual funds and ETFs, and failed to disclose the heightened risk of investing in inverse types of ETFs.

FINRA found that the absence of certain disclosures resulted in the presentation not being fair and balanced and not providing the investor with a sound basis for evaluating facts in regard to a particular security or service, and the slides contained unwarranted and/or misleading information. FINRA also found that charts in some slides failed to include the total annual fund operating expense ratio, a prospectus offer and standardized average annual total returns for one, five and ten years; rather, they included the annualized rates of return, which is considered non-standardized performance and must be accompanied by the standardized performance listed. In addition, FINRA determined that the charts in some slides failed to include the performance disclosures required by SEC Rule 482(b)(3); these disclosures generally require that the sales material disclose that the performance data quoted represents past performance, that past performance does not guarantee future results and that performance may be lower or higher.

The suspension is in effect from February 7, 2011, through March 21, 2011. 

(FINRA Case #2009016654401)

If you feel you have been a victim of these alleged fraudulent schemes of  Eric Damien Kallies, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

 

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Feb/11

16

Additional ETFs Close as Funds Flood the Market

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Another great article on ETFs by Jessica Toonkel, appeared in Investmentnews on February 13, 2011.  She states that with fund firms launching a seemingly endless parade of exchange-traded funds, a dark side to this glut of offerings is emerging: Portfolio liquidations, once rare, are becoming more common.

This trend is frightening some financial advisers. Indeed, some said that they are more than a little worried about getting stuck in an ETF that ends up being shut down.

“With the proliferation of ETFs, this is becoming a greater concern,” Sailesh S. Radha, a vice president at CCM Investment Advisers LLC, a registered investment advisory firm that manages $2.5 billion in assets, said last week at IndexUniverse.com’s Inside ETFs conference.

Toonkel goes on to say that for advisory firms such as CCM, which has a $20 million country rotation portfolio, choosing the right fund is vital to keeping clients’ trust.

“Telling an investor that an ETF is shutting down is not news you want to give them,” Mr. Radha said.

Although as more advisers rush into sector-based ETFs, the chance of being in a fund that closes is on the rise. In 2006, just one ETF closed, according to Morningstar Inc. In 2007, none did. But in the past three years, there have been 160 ETF liquidations.

For example, last year, Grail Advisors LLC, which is up for sale, and Claymore Securities Inc. closed a number of funds. Grail closed two of its seven ETFs in August and Claymore closed four ETFs in October because they failed to attract assets.

CAN YOU SPOT TROUBLE?

The advisers may be able to spot trouble before it strikes, said Ron Rowland, president of Capital Cities Asset Management Inc., who runs a monthly column about ETFs in danger of closing in his Invest with an Edge newsletter. “There is no specific sector that is usually represented in the list, but it’s a lot of smaller ETFs,” he said. Mr. Rowland said that ETFs headed for trouble tend to have a similar profile. An ETF that has been around for at least 28 months and has less than $10 million in assets should raise a red flag for advisers, he said.

Also, Mr. Rowland gives new ETFs a six-month grace period to gain assets before they become eligible for his ETF deathwatch.

It is important to pay attention to how long an ETF has been around.

“No one launches ETFs then closes them a couple months later, except for Northern Trust,” said Matt Hougan, president of ETF analytics at IndexUniverse.com. Northern Trust Corp. closed 17 ETFs last February, just 11 months after launching them.

Toonkel goes on to say that advisers also should pay attention to how an ETF trades and whether the fund is best-in-class, said Matt Hougan, president of ETF analytics at IndexUniverse.com. An ETF may have very little in assets, but if it is one of the few funds in an asset class that is poised to take off, the fund may succeed, he said.

These advisers also should take note of the investment adviser for the funds.

“As long as you have a few ETFs that are the moneymakers, you can afford to have a few that take longer to gain assets,” an executive said.

When ETF providers terminate funds, they often put out a press release and let investors know that the liquidation will take place in three to four weeks, conference participants said. Often the providers will encourage investors to stay in the funds until they are liquidated, at which time the providers will pay the investors back. Mr. Rowland warns investors against being swayed by this pitch.

THE ‘SALES HOOK’

“The sales hook is that if you go with them through the liquidation, you save yourself the commission,” he said. “But the risks far outweigh the savings.” For one thing, many ETFs hit investors with a termination fee. Also, fund operators often start liquidating ETFs slowly, which can lead to tracking errors during the wind-down period, Mr. Rowland said.

Sticking with a fund through liquidation could cause advisers to lose an opportunity to put their money somewhere else. “You usually get your money back within six to 10 days of liquidation,” Mr. Rowland said. “However, you have to wait those six to 10 days, and you may have lost an opportunity to employ that cash elsewhere.”

If you have invested in ETFs and lost money, you may have valuable legal rights to be compensated for your losses. Call a Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Feb/11

11

Are Complex ETFs Suitable Investments?

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The executives at BlackRock Inc. and Invesco PowerShares Capital Management LLC are calling on regulators to address suitability requirements for the sale of sophisticated ETFs, such as commodities-based and leveraged funds.
Although BlackRock would like to see increased suitability requirements for the sale of these kinds of exchange-traded funds, Invesco PowerShares hopes that regulators create a separate class of investors who could invest in more-sophisticated products, executives at the firms said.
ETFs have been growing rapidly, surpassing $1 trillion in assets at the end of last year. And a portion of that growth is from retail investors.
At The Charles Schwab Corp., retail investor ownership of ETFs jumped and incredible 61% last year. This could spoil things for other providers, turning ETFs into “the new CDO,” said Christian Magoon, an ETF consultant and chief executive of Magoon Capital LLC, referring to collateralized-debt obligations, the instruments that fueled the mortgage crisis. “And with products that are traded on the exchange, you can’t control how people are using them.”
This lack of control has caused problems and given ETFs something of a black eye.
Commodity ETFs — dubbed the “Worst Investment in America” in a recent Bloomberg BusinessWeek article — were linked to the May 6 flash crash during which smaller investors were hit hard. 
In a report in the Financial Times on Feb. 10, 2011,it was noted that the Securities and Exchange Commission is investigating whether ETFs are being used to hide large bets based on inside information. This may have nothing to do with ETFs but it doesn’t help to have more negative press.
Additional problems are most likely to arise from complicated ETFs, particularly leveraged and inverse funds, observers said. Leveraged ETFs use derivatives and debt instruments to outperform their market indexes, while inverse ETFs use derivatives to achieve high returns when their benchmark indexes decline.
The regulators have already expressed concerns about these products.
It was noted that in 2009, the SEC and Financial Industry Regulatory Authority Inc. published notices warning investors about leveraged and inverse ETFs.
In March, the SEC stopped approving new ETFs that use derivatives. At the time, the SEC indicated that it wanted to see if additional investor protections were warranted, particularly for leveraged and inverse ETFs.
In October, Finra came out with another notice specifically about disclosures for commodity futures-linked securities. Finra said that the returns on these products, which include ETFs, can deviate substantially from the performance of their referenced commodities, particularly over longer periods of time.
BlackRock, however, is worried that just asking firms to disclose the risks associated with these kinds of funds isn’t enough, said Noel Archard, head of U.S. product at the firm’s iShares unit.
“I am not sure a pop-up disclosure is enough,” he said during a panel discussion at a conference last week. “Leveraged and inverse ETFs are very hard to explain.”
Mr. Archard has talked to the SEC about creating some type of suitability requirement that would address these issues, he said. Although some broker-dealers do have approved lists for ETFs, not all do, he said.
“This is something that everyone — the sponsors and the distributors — need to get involved in,” Mr. Archard said in comments following the panel discussion. 
Nancy Condon, a Finra spokeswoman, said that the regulator already has suitability requirements in place that apply to both simple and sophisticated ETF products.
If BlackRock ever launches leveraged or inverse ETFs, it probably would only make them available to institutional investors, given their complexity.
“These products are difficult to explain. So for now we make them available only through institutions,” Mr. Archard said.
For its part, Invesco PowerShares would like regulators to allow firms to offer complicated ETFs such as leveraged or inverse funds. But Benjamin Fulton, head of the firm’s global ETF business, suggested that regulators allow the sale of these kinds of ETFs to sophisticated investors, such as high-net-worth investors.
“You could qualify investors by assets under management or by whether they are an institutional investor or not,” said Mr. Fulton, who said that he has discussed this idea with the Investment Company Institute, the mutual fund trade association.
In turn, the ICI has asked the SEC “not to hold up consideration of new and pending ETF applications during its review” of the use of derivatives by mutual funds and ETFs, said Ianthe Zabel, a spokeswoman at the ICI. 
Not everyone thinks that there should be formal rules about who should be allowed to buy complex ETFs or how advisers should sell them.
“I am not sure you need to put a structure around it,” said Andrew O’Rourke, chief marketing officer at Direxionfunds, which offers leveraged ETFs. “There is a responsibility of the adviser and the investor to know what they are buying.”
Direxion offers online modules explaining its ETFs, but the firm thinks that broker-dealers could do more in terms of education.
“I would like to see more guidance for broker-dealers on how to explain and sell these products, rather than have regulators create guidelines about who should invest in them,” Mr. O’Rourke said.
The broker-dealer industry will have to weigh the costs and benefits of increasing suitability requirements for complex-ETF buyers, said Jim Ross, senior managing director at State Street Global Advisors Inc.
“I see both sides of the argument,” he said. “The challenge is that the broker-dealers would need to build the infrastructure to support this.

If you had invested in complex, high-risk ETFs and lost money, you may have valuable legal rights to be compensated for your losses. Call a Securities arbitration lawyer for a free consultation on how to ecover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Feb/11

9

Can You Spot a Doomed ETF?

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In an article from InvestmentNews, Jessica Toonkel writes, that with fund firms launching a seemingly endless parade of exchange-traded funds, a dark side to this glut of offerings is emerging. Portfolio liquidations, once rare, are becoming increasingly commonplace.

Some are saying they are more than a little worried about getting stuck in an ETF that ends up being shut down.

“With the proliferation of ETFs, this is becoming a greater concern,” said Sailesh S. Radha, a vice president at CCM Investment Advisers LLC, a registered investment advisory firm that manages $2.5 billion in assets, speaking to InvestmentNews at IndexUniverse’s conference Monday. For advisory firms such as CCM, which has a $20 million country rotation portfolio, choosing the right fund is vital to keeping clients’ trust. “Telling an investor than an ETF is shutting down is not news you want to give them,” Mr. Radha said.

 As more advisers rush into sector-based ETFs, the chance of being in a fund that closes is on the rise. In 2007, a mere 10 ETFs closed. Over the past three years, 150 have been shut down, according to Ron Rowland, president of Capital Cities Asset Management Inc. That works out to about one ETF vaporizing each week.

Investors want to know how an adviser can spot trouble before it strikes? Mr. Rowland, who puts out a monthly column about ETFs that might close in his Invest with an Edge newsletter, said: “There is no specific sector that is usually represented in the list. But it’s a lot of smaller ETFs.”

This asset manager also noted that funds headed for trouble tend to have a similar profile. An ETF that has been around for about 28 months and has less than $10 million in assets should raise a red flag for advisers, Mr. Rowland said. He gives new ETFs a six-month grace period to gain assets before they become eligible for his ETF deathwatch.

The advisers also should pay attention to how an ETF is trading and if the fund is best-in-class, said Matt Hougan, president of ETF analytics at IndexUniverse. An ETF’s assets may be puny, but if it’s one of the few funds in an asset class that is poised to take off, it may stick around longer, he explained.

Paying attention to how long an ETF has been on the store shelf is also important. “No one launches ETFs, then closes them a couple months later, except for Northern Trust [Corp.],” Mr. Hougan said, taking a jab at the Chicago-based firm, which closed 17 ETFs last February only 11 months after launching them.

Your advisers also should take note of the investment adviser for the funds. If the firm manages a large number of profitable funds, it could buy additional time for laggards, said one executive at an ETF company, who asked not to be identified. “As long as you have a few ETFs that are the money makers, you can afford to have a few that take longer to gain assets,” the exec said.

When the ETF providers terminate funds, they often put out a press release and let investors know that the liquidation will take place in three to four weeks, experts at the conference said. Often the providers will encourage investors to stay in the funds until they are liquidated, at which time the providers will pay the investors back. Mr. Rowland warned investors against being swayed by this pitch.

“The sales hook is that if you go with them through the liquidation, you save yourself the commission,” he said. “But the risks far outweigh the savings.”

Many ETFs hit investors with a termination fee. Also, fund operators often start liquidating ETFs slowly, which can lead to tracking errors during the wind-down period, Mr. Rowland said.

Sticking with a fund through liquidation could cause advisers to lose an opportunity to put their money somewhere else. “You usually get your money back within six to 10 days of liquidation,” Mr. Rowland said. “However, you have to wait those six to 10 days, and you may have lost an opportunity to employ that cash elsewhere.”

If you had invested in Leveraged and Inverse ETFs and lost money, you may have valuable legal rights to be compensated for your losses. Call a Securities arbitration lawyer for a free consultation on how to ecover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Sep/10

19

Soreide Law Group, PLLC, Representing Investors in ProShares and other Exchange Traded Funds (ETFs)

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Soreide Law Group, PLLC, is currently representing investors who were sold ProShares Funds and other ETFs by their brokers. These funds have subjected investors to more risk than was disclosed and resulted in huge losses by investors. The leveraged ETFs include but are not limited to the following ProShares Funds in which investors have suffered sizable losses:

o ProShares UltraShort Russell MValue ETF (SJL)
o ProShares UltraShort Russell 2000 (SKK)
o ProShares UltraShort Real Estate ETF (SRS)
o ProShares Ultra Financials ETF (UYG)
o ProShares UltraShort Dow 30 ETF (DXD)
o ProShares UltraShort Financials ETF (SKF)
o ProShares UltraShort FTSE/Xinhua 25 ETF (FXP)
o ProShares UltraShort Gold ETF (GLL)
o ProShares UltraShort DJ-AIG Crude Oil ETF (SCO)
o ProShares UltraShort Oil & Gas ETF (DUG)
o ProShares UltraShort MSCI Emerging Markets
The Financial Industry Regulatory Authority (“FINRA”), has warned about the risks of leveraged ETF’s stating that they are “unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.”  Many large broker-dealers have banned these highly complex and risky products.  Many brokers purchase these complex investments for their clients and have difficulty understanding the products and do not trade them in the correct manner in which they were intended to be traded. Leveraged ETFs seek investment results for a single day only and are intended to be monitored extremely actively.
Soreide Law Group  is currently representing investors and claims in many of the Ultra ProShares Funds and UltraShort ProShares Funds, which have subjected investors to substantially more risk than was disclosed and resulted in  losses by investors.

If you have suffered losses from your broker recommending the highly risky ProShare Funds and ETFs, call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses.  Call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.

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Aug/10

9

Florida’s Office of Financial Regulation releases 2010 Top 10 Investor Traps

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Florida –On August 4, 2010 the Florida Office of Financial Regulation (OFR)released the 2010 list of most commonly used cons or traps investors should avoid.  Regulators found as the impact of the financial crisis continues along Main Street, investors seeking to jump-start their investment portfolios are most vulnerable and need to be wary of these popular scams.

“Investors should remember the speculative investments promising high returns are most often the ones that turn their hard-earned money into thin air,” said OFR Commissioner J. Thomas Cardwell.  “We need to warn consumers not to be lured into get-rich-quick schemes.  If it sounds too good to be true, or promises large returns in a short period of time, thoroughly investigate the investment and the person and firm selling them before investing.”
The article went on to say that Commissioner Cardwell strongly encourages investors to familiarize themselves with the warning signs of investment fraud and independently verify any investment opportunity, as well as the background of the person and company offering the investment.  OFR’s Division of Securities can provide detailed information about a firm’s, broker’s or investment adviser’s employment and disciplinary history.  Investors should call OFR at 1-800-848-3792 for additional information.  In addition, investors should learn as much as possible about the firm, individuals and investment so that they can be comfortable with and fully understand the deal and its risks. 
“Knowledge, attention to detail and a healthy sense of skepticism are a triple threat to fight investment fraud,” said Franklin L. Widmann, OFR’s Director of the Division of Securities.   “The Division and other state securities regulators can provide the public with detailed background information about those who sell securities or give investment advice, as well as about the products being offered.  The more you are prepared, the better your chance of sidestepping a trap that can leave you in a financial hole for many years.”
 
Top 10 Investor Traps from Florida’s OFR
The following products and practices deserve special scrutiny:
   
Products
• Exchange-Traded Funds (ETFs). While ETFs resemble mutual funds in many respects, some, such as leveraged and inverse ETFs, may contain hidden traps and complexities, and may consist of highly leveraged bundles of exotic financial instruments, including options and other derivatives. Given their potential for volatility, leveraged ETFs may not be suitable for most retail investors. These types of ETFs are primarily designed for short-term trading (such as day-trading), and not for buy-and-hold strategies. Also be aware that some ETFs are thinly traded and may not always be liquid.
• Foreign Exchange Trading Schemes. Currency trading and foreign exchange (forex) trading schemes can be particularly harmful to unsuspecting investors. Trading in foreign currencies requires resources far beyond the capacity of most individual investors. Promoters profit by charging high commissions or selling investment strategies assuming that trades are actually made.  In some instances, salesmen and promoters who claim to have complex algorithms or propriety software programs which allow them to beat the market are actually just running Ponzi schemes. Too often, state regulators have encountered situations where there are no trades; the money is simply stolen.
• Gold and Precious Metals. High gold prices have trapped some investors in gold bullion scams in which a seller offers to retain “purchased” gold in a “secure vault” and promises to sell the gold for the investor when it gains in value. In many instances the gold does not exist. Investors have also been harmed by promoters pitching investment pools in precious metal commodities and gold mines.
• Green Schemes. Investment opportunities tied to the development of new energy-efficient “green” technologies are increasingly popular with investors and scammers alike. Scammers also exploit headlines to cash in on unsuspecting investors, whether from investments related to the clean-up of the Gulf of Mexico oil spill or the rising national interest in environmental innovations tied to “clean” energy, such as wind energy, wave energy, carbon credits and other alternative energy financing.
• Oil & Gas Schemes. Regardless of the price at the pump, fraudulent energy promoters continue to capitalize both on interest in the commodity and on oil and gas as investment alternatives to the stock market. Oil and gas investments tend to be highly risky and unsuitable for traditional, smaller investors who cannot afford the risk. Securities investments offering profit participation in oil and gas ventures can be legitimate, but even when the underlying project is genuine, any revenues realized can be absorbed by high sales commissions paid to the promoter and dubious “expenses” skimmed off by the managing partner. Some promoters, many of whom have had past run-ins with regulators, have attempted to structure their “joint ventures” or “general partnerships” to avoid securities regulation and deprive investors of important protections.
 
Practices

• Affinity Fraud. Scam artists have found it lucrative to abuse membership or association with an identifiable group to convince a potential investor to trust the legitimacy of the investment. Typical affinity groups include religious, ethnic, professional, educational, language, age and any other group with shared characteristics that allow investors to trust members of the group. Rather than trusting a person or company due to a common affiliation, investors should seek further information about the investment from an unbiased, independent source and review both the promises and risks.
• Undisclosed Conflicts of Interest. When obtaining investment advice about securities, investors need to know that not all advice is given with their best interest at heart. Some salespeople can receive lucrative commissions when they sell a product that is risky or inappropriate for an investor, but don’t have to disclose that financial incentive. Investors should demand that anyone giving advice or recommendations disclose how they are compensated.
• Private or Special Deals. Some investors encounter investment opportunities or deals couched as “private” or only for “special” clients. While securities laws do offer businesses the opportunity to raise capital by selling securities to a relatively small number of investors in a non-public offering, these securities are not subject to the same review as others. Many state securities regulators have seen continued or increased abuse of fraudulent private offerings made under federal exemptions or not regulated at all. Although properly used by many legitimate issuers, private offerings have become an attractive option for con artists looking to steal money from investors by promoting the special or private nature of these schemes and by making false and misleading representations.
• “Off the Books” Deals. “Off the books” sales are an increasingly common threat to investors. Be cautious if your broker offers an investment on the side instead of one sold through his or her employer. These “off books” investments may not only be illegal, but they can also be especially risky without the oversight and supervision of the broker’s employer.
• Unsolicited Online Pitches. Promoters of fraudulent investment schemes are moving beyond e-mail and turning to social media and online communities, such as Facebook, Twitter, Craigslist and YouTube to solicit unsuspecting investors. Some may use these sites to spread misinformation to artificially inflate the value of stock before selling in a “pump and dump” scheme. Others may promise high-yield, tax-free returns from investments in offshore markets. Once the money is sent to another country and is in someone else’s control, investors may not be able to get it back. In many cases, these offers turn out to be Ponzi schemes. Investors should approach any unsolicited investment opportunity with suspicion.
“Investors should do business with licensed brokers and advisers and should report any suspicion of investment fraud to OFR’s Division of Securities,” Cardwell said. “One call can protect your financial security and might prevent others from becoming victims.”
This very valuable information was obtained from the Florida OFR’s website.
Call a FINRA Securities arbitration lawyer for a free consultation on how to recover stock losses and securities losses.  Call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.

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