Brokerage Firm LPL Financial Agrees to $1.8 Million Penalty Over Sales of Leveraged ETF Investments

Boston-based brokerage firm LPL Financial has agreed to pay $1.8 million to settle charges that it improperly sold risky exchange-traded funds (ETFs) to 200 Massachusetts investors. Massachusetts regulators had accused LPL of violating securities laws related to the sales, marketing, training and oversight of leveraged ETFs, which use complex strategies such as derivatives that can dramatically increase profits and losses.

Many brokerage firms deem leveraged ETFs to be unsuitable investments for retail investors and do not allow brokers to sell them to retail investors. But Massachusetts securities regulators found that LPL had been marketing and selling the unsuitable Pro Shares Ultra S&P 500 ETF and the Pro Shares Ultra Silver ETFs to retail investors, some of whom had conservative investment goals.

Sophisticated investors generally understand that leveraged ETFs are to be held only for brief periods, but Massachusetts regulators found that LPL allowed some clients to hold leveraged ETFs for a year or more, which exposed those investors to significant risk of loss. We have found that many brokers do not understand how leveraged ETFs work. As a result, they cannot even properly explain these risky products to investors.

The settlement, which was reached jointly with the Delaware Department of Justice, requires LPL to pay $1.6 million in restitution for investors who lost money, and $200,000 to the attorney general’s office. LPL also agreed to pay an additional $200,000 in its agreement with Delaware.

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We have found that regulatory settlements such as this one often only concern a very small segment of investors who were the subject of the brokerage firm’s misconduct. If you lost money in a leveraged ETF that you bought through an LPL Financial broker, you may have a valid claim to recover your investment losses. Contact a DKR investment fraud lawyer for a free case evaluation.

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