Citigroup, Morgan Stanley, UBS Fined Over Leveraged ETF Sales

Citigroup, Morgan Stanley, UBS Fined Over Leveraged ETF Sales

Citigroup Inc. (NYSE:C), Morgan Stanley (NYSE:MS), UBS AG (NYSE:UBS) and Wells Fargo & Company (NYSE:WFC) all agreed to pay a $9.1 million fine to settle regulation claims that they did not properly warn investors about leveraged ETFs and their potential risk.  According to reports, these firms did not have a solid basis for recommending these risky securities to clients.   The Financial Industry Regulatory Authority sent these firms a combined fine of $7.3 million and instructed to reimburse clients $1.8 million.

Finra says that firms must train their sales force about the product and its potential risk before they are able to sell it to clients.  In this case, leveraged ETFs and inverse ETFs are not for everyone and certainly could be risky.  These types of ETFs are essentially portfolios of leverage for or against something.  For instance there is a leveraged ETF that follows the Dow if it rises or if it falls, there is an inverse ETF.

The fact of the matter is that this was an irresponsible act done by these banks.  You can not pitch a product to a client if the salesman doesn’t know about the product and whether or not it works well with that client’s investment objectives.

This foul comes as the Occupy Wall Street movement prepares for resurgence except this time they plan to do their protests around the world rather than just the US.

The group calls for its supporters to go on a “general strike” in which they will not go to work, school, no using of banking services and no shopping.  This message has shown up on the Toronto, Barcelona, London, Kuala Lumpur, Sydney, as well as various other spots throughout the world.  The main New York chapter of the organization plans on protesting from Union Square to Lower Manhattan.  Along the way, they will conduct a “pop-up occupation” of Bryant Park which is across the street from Bank of America’s headquarters.

Recent missteps in the financial industry have given the Occupy Wall Street protestors more fuel to fight with, which should cause some headache for the banks.  Banks are already facing huge fines and lawsuits from investors over mortgages sold back before the financial crisis, which is having a huge strain, but now they have to deal with the protestors also.

The bottom line is if you do not like dealing with OWS, then I would suggest being more careful what you do and how you conduct yourself.  Otherwise, these protests are just going to continue.


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