Leveraged Exchange-Traded Notes (ETNs) are complex financial products that do not own the assets they track. Banks purchase derivatives – often in the form of options – using borrowed money to increase returns by as much as two or three times. If an asset increases in value, the investor will receive two or three times the gains. Unfortunately, the reverse is also true: if an asset decreases in value, the investor will see two or three times the losses.
In the March 2020 stock market crash, leveraged ETN’s tumbled, propelled downward at two and three times the market’s already steep drop. Many were pulled off the market, and investors were left with millions of dollars in losses – some losing their entire initial investment. The impact was devastating:
- Zhu, a retired engineering college professor, and his wife lost $700,000 in an ETN product offered by UBS and sold through TD Ameritrade Inc. “We’re too old to play those games,” Mr. Zhu said.
- William Mark lost $800,000 in the March crash after buying a leveraged ETN also offered by UBS that invested in mortgage Real Estate Investment Trusts (REITs). “I’m 67 years old and I’m basically bankrupt in just two weeks.” 1
The small glimmer of good news is that there may be some hope for retail investors who have suffered. Because of their complexity and risk of multiplied losses, it falls on your broker or brokerage firm to ensure that you are fully informed and understand the risks. If they fail in their duty to advise you of these risks, or advise you towards investments that are not appropriate for your portfolio, then they are liable and you may be able to recover some of your losses from them.
If you have lost money in a leveraged ETN, ETF, REIT or any other high-risk product and were not made completely aware of those risks, contact Rose Law today to learn if you may have a case against your broker or brokerage firm.