Massachusetts Files Suit Against RBC Capital Markets
Massachusetts’ securities cops have filed suit against RBC Capital Markets LLC alleging one of its registered representatives was peddling leveraged exchange traded funds (ETFs) to investors that had no idea what they were or how they worked, according to Bloomberg. To make matters worse, the representative selling the ETFs didn’t understand how the funds worked either, according to the Secretary of the Commonwealth William Galvin. Massachusetts is seeking restitution to investors, a cease and desist order and monetary fines.
The broker involved, Michael Zukowski, is said to have employed “dishonest practices” in marketing and selling non-traditional leveraged and inverse ETFs out of RBC’s Osterville, Massachusetts office. The leveraged ETFs use swaps or derivatives to enhance the daily index returns, while the inverse funds are designed to move in the opposite direction of their benchmark.
The Financial Industry Regulatory Authority (FINRA) issued an investor alert in June 2009 that these ETF investment products might not be suitable for long term investors. Shortly thereafter, Massachusetts began its statewide investigation.