Erez Law is currently investigating financial advisors across the country who recommended investments in Credit Suisse Securities USA X-Links and Velocity Shares Exchanged Traded Notes (ETNs).
In December 2016, the VelocityShares 3x Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return (UWTI) – providing triple leveraged bullish exposure to oil futures – and the VelocityShares 3x Inverse Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return (DWTI) – offering triple leveraged bearish (inverse) exposure – were delisted on the New York Stock Exchange.
As of November 2016, UWTI and DWTI have more than $1 billion and $350 million in assets and 18 million and 3 million shares changing hands each day, respectively, according to ETF Daily News. The performance of these ETNs are linked to oil prices and the energy sector, including master limited partnerships and commodities. Many oil and gas companies have experienced price fluctuations over the past few years, which has put financial stress on the oil and gas industry. A supply glut in 2014 and 2015 led to some of the lowest prices the market has seen in recent years. In turn, securities values also dropped. While financial advisers can effectively coax clients into lucrative high risk, high yield investments in the oil and gas industry, some fail to fully inform their clients of the inherent risks.
Each product will continue to trade, but their exchange-traded notes will no longer be issued by fund managers. “Anyone who owns these two products should liquidate their positions immediately, before a large number of potential problems begin to arise. A lack of liquidity and a heavy discount or premium to underlying net asset value (NAV) are just a couple of the issues that will manifest themselves after delisting,” according to this NASDAQ article. “Officials are understandably worried that the products don’t operate as advertised, and while that may be true, all investing involves risk and thus the caveat emptor (“buyer beware”) disclaimer applies – whether we’re talking about leveraged funds, options, stocks, bonds, or any other form of investment.”
According to the Credit Suisse release, “As disclosed in the Risk Factors section of the Pricing Supplement, the market value of the ETNs may be influenced by, among other things, the levels of actual and expected supply and demand for the ETNs in the secondary market. It is possible that this announcement and the delisting and suspension of further issuances of the ETNs, as described above, may influence the market value of the ETNs.” The release went on to describe that once delisted, the ETNs’ primary source of liquidity is removed and investors may not be able to sell their ETNs in the secondary market. “Investors are cautioned that paying a premium purchase price over the indicative value of the ETNs could lead to significant losses.”
Investors can also suffer substantial losses because of the illiquidity associated in the secondary market, according to a statement from Credit Suisse. Additionally, Credit Suisse AG has the right to accelerate the ETNs in the future, which will cause investors to receive the applicable accelerated redemption amount. If the investor paid more for their ETNs, they will suffer a loss on their investment.
These ETNs were designed for knowledgeable, risk-tolerant investors who seek a more complex security tied to the volatile energy sector. This fund is intended for short-term use and specifically for investors who actively manager and monitor their investment portfolios. However, these highly risky ETFs were sold to unsuspecting conservative investors.
A broker must have reasonable grounds for each recommendation made to investors considering such factors as the customer’s other securities holdings, financial situation, and risk tolerance. In addition, before a firm offers a security to its customers, the firm must conduct due diligence, investigating the facts surrounding the security, to confirm that it is suitable for any customer of the firm. The suitability of an investment for a particular individual is at the center of the investment process and one of the key duties owed by a firm and its broker to the customer. A firm may be held liable for its failure to recommend suitable investments to its customers.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, brokerage firms across the country may be liable for investment or other losses suffered by its brokers’ customers.
Erez Law represents investors in the United States for claims against brokerage firms across the country who recommended investments in Credit Suisse Securities USA X-Links and Velocity Shares Exchanged Traded Notes. If you have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.
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