Brokerage LPL agrees to pay $1.8 million over sales of ETF investments
Boston brokerage company LPL Financial has agreed to pay $1.8 million to settle charges that it sold risky exchange-traded funds to 200 Massachusetts investors, attorney general Maura Healey said.
Healey’s office had alleged that LPL violated securities laws related to the sales, marketing, training and oversight of leveraged ETFs, which use complex strategies such as derivatives that can amplify not only profits, but losses.
Because of their risk level, these are typically used by sophisticated institutional investors who trade frequently. Healey said it was inappropriate that LPL marketed them to ordinary investors, including some customers who had conservative investment goals.
“Massachusetts families shouldn’t have their hard-earned savings put at risk by unsuitable investments,’’ Healey said in a statement. “Consumers must be able to place their trust in their financial advisors and feel confident that their money will be invested appropriately.’’
LPL spokesman Peter Gilchrist said in a statement that the settlement “represents resolution of the last of the most significant historical regulatory matters that we have been working through.’’ He said the company cooperated with regulators.
ETFs have quickly grown in recent years from simple investments tracking broad stock indexes to a $2 trillion sector of the market with increasingly exotic offerings.
In her complaint, filed in Suffolk Superior Court, Healy said LPL advisors sold the Pro Shares Ultra S&P 500 ETF and the Pro Shares Ultra Silver ETF. Both are designed to return 200 percent of the daily performance of an index or the price of silver. But according to the complaint, their returns — or losses — can be even greater.
For instance, if the silver benchmark fell 3.3 percent over a seven-day period, owners of the Pro Shares Ultra Silver ETF would lose 7 percent, according to the complaint, citing the ETF’s prospectus.
While sophisticated investors typically hold leveraged ETFs for only very brief periods, Healey said LPL allowed some clients to hold them for a year or more. Indeed, LPL’s research department in some cases recommended buying and holding the leveraged silver ETF without reminding advisers of their risks, according to Healey’s complaint.
Under the terms of the settlement, reached jointly with the Delaware Department of Justice, the company agreed 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 additionally $200,000 in its agreement with Delaware.
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