SEC Declines to Implement Vetting Requirements for Investors in Leveraged and Inverse Exchange-Traded Funds

generic graphThe Wall Street Journal reported that the SEC is not moving forward on a measure to require broker dealers and investment advisers to vet individual investors before permitting them to trade leveraged and inverse exchange-traded funds. These funds use debt to try to increase returns. But this leveraged approach to investing also increases the size of potential losses.

Many leveraged and inverse exchange-traded funds are complicated investments and difficult to understand. The Wall Street Journal reported that two companies that offer these investment products, Direxion Investments and ProShares considered the SEC’s proposed vetting requirement a threat to their business model. The Wall Street Journal also reported that between March and July, representatives and lobbyists for Direxion and ProShares met or had phone conferences with the SEC nine times.

SEC Commissioner Allison Herren Lee released a statement criticizing the SEC’s decision not to implement the protection for investors. The Commissioner wrote that she was “deeply disappointed in the failure to advance the proposed sales practice rules, which were designed to address the very real investor harms arising from unsuitable purchases and sales of leveraged and inverse ETFs.” The Commissioner further commented that many enforcement cases at the SEC and FINRA “have shown that even investment professionals often lack a basic understanding of these complex products.”


This blog is intended to provide information to the general public and to practitioners about developments that may impact Oregon Investments.

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Cody Berne

Cody Berne is an attorney at Stoll Berne in Portland. Cody’s practice focuses on representing investors who lost money because of fraud and other misconduct, class actions, and business litigation. He is a member of the Public Investors Advocate Bar Association and the Oregon Trial Lawyers Association.

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The information contained in this blog does not constitute legal advice, and does not create an attorney-client relationship. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in or linked to this blog.