Two Law Firms Consider Class-Action Lawsuit Against Leveraged ETFs

The law offices of Stanley, Mandel & Iola and Wolf, Haldenstein Adler Freeman & Herz are beating the bushes to see if they can wrangle enough retail investors who lose money in leveraged and inverse ETFs to file a class-action lawsuit.

They note that the majority of the funds are offered by ProShares, Rydex and Direxion and attest that because of their drift over time from the underlying index due to their leveraging, their volatility is even greater in volatile markets and they have the potential to sap investors’ money.

“As a result,” the firms say, “leveraged ETFs and leveraged inverse ETFs are suitable only for actively managed professional investors, large hedge funds and financial traders, and they should be held for no longer than one trading day. Nonetheless, they have been marketed and sold to retail customers as long-term investments since at least 2007.”

The two law firms note that one ETF seeking to deliver three times the daily return of the Russell 1000 Financial Services Index fell 53% even though the index itself gained 8%. Even worse, a three-times inverse ETF linked to the index lost 90% of assets.

They are asking investors who held such funds in a brokerage account for longer than one day to contact them at etfcomplaints.com.