What Did Your Brokerage Firm or Investment Adviser Do Wrong With GWG
Published On: June 23, 2020

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with unscrupulous investment brokers selling exchange-traded products. Many of these high-risk products are unsuitable for retail investors.

With the COVID-19 crisis roiling financial markets, many investors have been sold products that rise when market indexes or individual securities fall. Many “exchange-linked products” (ETPs) often use borrowed money, or leverage, to magnify gains when the market drops, but they can also increase losses. They are generally only suitable for sophisticated investors and are linked to complex underlying futures contracts.

When the coronavirus crisis first made major headlines in the U.S. in early March, the stock, bond and commodities markets crashed. Since markets over-react to widespread greed and fear, traders went into mass selling mode over (later justified) expectations that demand for nearly everything from luxury goods to commodities would drop dramatically.

The global price of oil, for example, plummeted 22% on March 9. That was the biggest decline in petroleum prices since 1991, when the first Gulf War began in Kuwait and Iraq. While investors betting on the price of oil rising would have lost money, those who wagered that oil prices would fall could’ve made money by investing in commodities futures or “inverse” ETPs, which move in the opposite direction of securities and specific indexes.

The recent decline in oil prices – exacerbated by a massive oversupply of global crude – was so pronounced that petroleum commodities future prices dipped to zero last month. The drop was further amplified by drastically reduced global demand for petroleum products, which was triggered by the COVID-19 pandemic. Although oil prices have recovered somewhat, it will be some time before demand increases to previous levels.

Despite the promise of making money in a bear market, untold investors got burned when brokers recommended inverse ETPs. The abuses became so prevalent that the securities regulator FINRA issued a warning to financial advisors in late May regarding overselling these risky products.  “Oil-linked ETPs are complex products that may not be suitable for some investors, such as retail investors with conservative investment objectives and long-time horizons,” the FINRA warning stated.

Although these products are not new, brokers have been pushing them to unwary investors, promising them that they will easily make money in volatile markets. Regulators have long been aware of the marketing abuses: The US Securities and Exchange Commission issued a joint warning with FINRA about these products in 2009. Nevertheless, brokers continue to sell these products to unwary investors.

In late February, the SEC fined Wells Fargo Clearing Service and Financial Advisors Network $35 million in connection with its sales of inverse ETFs to retail clients. In the agency’s cease and desist order, it alleged that Wells Fargo “made unsuitable recommendations to certain clients, who sustained “millions of dollars in losses” by holding the Wells-recommended ETFs. The firm accepted the fine without admitting or denying the charges.

According to ThinkAdvisor.com, the SEC concluded that “some Wells Fargo brokers didn’t `fully understand the risk of losses these complex products posed when held long term,’ which led to some clients to buy and hold single-inverse ETFs for months or years. Several clients were senior citizens and retirees with limited incomes and modest net worth who had conservative or moderate risk tolerances.”

To avoid losing money in volatile oil-linked ETPs, it would be wise to heed FINRA’s advice: “An oil-linked ETP might be suitable for an experienced customer with a speculative investment objective, but it likely would not be suitable for a less-experienced customer or a customer with a more conservative or a buy-and-hold investment objective.”

Have you lost money in broker-sold ETPs? Stoltmann Law Offices have represented investors in multiple arbitration claims against securities brokers involving oil/gas related exchange traded products. If you invested with a broker and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!


The posting on this site are mere OPINIONS and NOT statements of fact in any way whatsoever. The information should not be relied upon and there have been no findings made against the firms or individuals referenced on this site. In addition, this Blog is made available for educational purposes only and incorporates information from the web as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and Stoltmann Law Offices (161 N Clark Street 16th Floor Chicago, IL 60601). The Blog opinions should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.


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