NUGT ETF Broker Recommendations Suitability Investigation

This investigation concerns the Direxion Daily Gold Miners Bull 3x Shares, a three-time leveraged exchange-traded fund (ETF), otherwise known as “NUGT.”  NUGT trades on NYSE under ticker symbol “NUGT.”  NUGT has declined approximately 95% in the last year.  Leveraged ETF’s such as NUGT should not be held for longer than one trading day.  Direxion’s website warns that NUGT should be used for short-term trades only and the funds should not be expected to provide three times the return for periods greater than one day.  These investments are complex and often not completely understood by the average investor.  They are largely designed as a product for day-traders and are not typically supposed to be recommended as “buy and hold” investments.

Because of the high risk that investing in leveraged ETFs brings, the Financial Industry Regulatory Authority (FINRA) has been investigating leveraged ETFs, like NUGT.  In the past few years, FINRA has fined and/or sued multiple brokerage firms whose brokers were selling ETFs to investing customers without fully understanding the essence of the product they were selling or the risk associated with it.

Under FINRA Rule 2111 on Suitability, when a broker recommends to the investing customers that they buy or sell a particular security, the broker must have a reasonable basis for believing that the recommendation is suitable for the customers.  In making this assessment, the broker must consider the income and net worth, investment objectives, risk tolerance, and other security holdings.

Brokerage firms can be fined and/or sued when they allow their brokers to sell unsuitable, or inappropriate, investments to customers, especially when the brokers have not been properly trained.

Claims have been brought on behalf of investors who have suffered losses due to their brokers making unsuitable recommendations, like concentrations in NUGT or holding NUGT shares for more than a single day, or having engaged in another sales practice abuse.

Article Type: Lawsuit
Topic: Investments
No case events.
Tags: Stock Losses, Stockbroker Misconduct, Suitability Violations, Your Money