Regulators have been complaining about leveraged and inverse leveraged exchange-traded funds for several years, and now one of those regulators is taking a broker-dealer and an advisor to court over the sale of such products. Two years ago Massachusetts Secretary of the Commonwealth William Galvin sent letters to three leveraged ETF providers and subpoenas to four B-Ds [see MFWire.com, 7/16/2009 and 8/3/2009], and yesterday Galvin filed an administrative complaint against Michael Zukowski and his B-D, RBC Capital Markets, over Zukowski's use of leveraged ETFs [see complaint]. B-Ds whose advisors can sell such ETFs may want to take heed.

Bloomberg, the Boston Herald, the Cape Cod Times and Dow Jones all reported on the news.

The case stems from $793,068.22 that 35 of Zukowski's clients lost in "non-traditional ETFs" (i.e. leveraged and inverse-leveraged ETFs). Galvin claims Zukowski encouraged clients to use these non-traditional ETFs as long-term investments (which is generally frowned upon, since their magnify or invert returns on a daily basis, and thus their returns look stranger over longer periods of time) and didn't understand the products fully. And Galvin is also attacking RBC, claiming the B-D failed to properly supervise Zukowski's activities and failed to train Zukowski in how to use such products. 

Edited by: Neil Anderson, Managing Editor


Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE