Yesterday the Commission announced a settled action in the matter of Classic Asset Management, LLC, et al.[1] This investment adviser and its representative violated their fiduciary duties of care to hundreds of clients with respect to investments made in complex products known as leveraged exchange-traded funds. Investors experienced substantial losses.
This misconduct serves as an important reminder that complex exchange-traded products pose complex risks. When investment professionals do not understand those risks or do not heed warnings in disclosure documents accompanying these products, investors lose. Previous Commissions have been highlighting these investor protection issues for some time now.[2] Investment advisers and broker-dealers that recommend these products must ensure that they are in the client’s or customer’s best interest. Complex products, such as leveraged or inverse products that are designed primarily as short-term trading tools for sophisticated investors are unlikely to be in the best interest of a retail investor absent an identified, short-term, investor-specific trading objective.[3]
[1] Matter of Classic Asset Management, LLC, Sec. Exch. Act Rel. No. 97427 (May 4, 2023).
