Leveraged ETF Holdings Left Retirees Facing Losses of Up to 70%

The central issue in the case against South Carolina adviser Cary Edward Urich is the gap between how leveraged and inverse exchange-traded funds are designed to work and how long they remained in clients’ accounts. The funds targeted daily returns, yet Urich held them for an average of 798 days. Clients lost approximately 70% of the money invested in them, according to the Securities and Exchange Commission (SEC).

From April 2020 to November 2023, Urich used discretionary authority over 54 client accounts to invest heavily in five such funds, the SEC alleged. The clients were 71 years old on average in 2020, and none had selected “speculation” as an investment objective. All but one described their risk tolerance as moderate or moderately aggressive.

That mismatch matters because a daily target doesn’t describe a fund’s expected result over several years. Leveraged and inverse funds use derivatives to seek a multiple of an index’s daily return, or its inverse. Their performance over longer periods can diverge sharply from the simple multiple of an index’s cumulative return. The longer holding period changes the risk clients are taking, especially when the funds account for a large share of their savings.

Concentrated exposure and individual losses

Four of the funds—SDS, DXD, TWM and QID—sought twice the inverse daily return of the S&P 500, Dow Jones Industrial Average, Russell 2000 and Nasdaq-100, respectively. The fifth, UVXY, targeted 1.5 times the daily move of a short-term VIX futures index. Together, the five funds represented 72% of the value of Urich’s managed accounts at the end of 2020, according to the complaint.

The complaint describes losses for clients at different ages and account sizes. A 93-year-old retiree identified as E.P. had approximately $1.25 million invested in the funds and later lost an estimated $746,000. An 81-year-old client, identified as C.E., held all five funds. By the end of 2022, they represented 107% of the total market value of C.E.’s accounts, a figure the SEC attributed to a negative cash balance.

Urich’s accounts invested approximately $462,000 in the funds for C.E.; those investments later recorded losses of approximately $310,000, or 67%, during the period at issue, according to the complaint. The account’s exposure above its market value underscores how borrowing or a negative cash balance can amplify an already concentrated position.

Clients had initialed a firm document acknowledging that leveraged ETFs might be used. But the SEC said they weren’t told the funds would be held well beyond their intended daily horizon. A general acknowledgment of product use doesn’t, by itself, show that a client understood the scale of the exposure or the consequences of maintaining it over an extended period.

Warnings, review and limits on new purchases

The SEC’s related order against United Planners’ Financial Services of America describes concerns inside the firm that surfaced in March 2020. Supervisors and compliance staff discussed clients’ concentrations in the funds and considered allocation limits, but the firm ultimately took no action. Urich’s first-line supervisor reportedly lacked a system for monitoring either concentration levels or holding periods.

A client filed an arbitration claim against United Planners and Urich in June 2022, alleging the investments were unsuitable. The firm formed an investigative committee, which concluded by November 2022 that the funds didn’t suit the affected clients’ advanced ages, risk tolerances, concentrations and holding periods. United Planners then restricted Urich from making new purchases of leveraged and inverse ETFs for clients.

That restriction didn’t require him to sell existing positions. Some clients continued holding the funds until at least November 2023. The timeline leaves a practical distinction between stopping additional exposure and addressing investments already in place: the committee identified concerns, but existing positions remained in accounts afterward.

Settlement terms and what the case highlights

United Planners agreed to pay $600,000 to settle the related charges. The Scottsdale, Arizona-based firm also accepted a censure and an order to cease and desist from violating provisions of the Advisers Act and a related rule. Urich agreed, without admitting the allegations, to a final judgment pending court approval. It includes a two-year bar from associating with an investment adviser firm and a $100,000 civil penalty.

The case shows why product eligibility forms and written risk acknowledgments have limited value if they aren’t matched by account-level supervision. For daily reset funds, a review that tracks only whether a client was permitted to hold a product can miss how much of the account is exposed and how long the position stays open. The key facts here are the scale of the allocations, the clients’ stated objectives and risk tolerances, and the gap between the funds’ daily targets and multi-year holding periods.

For firms overseeing similar products, concentration and duration are distinct warning signs: each can change the risk profile even after a client has accepted the product category. The case’s record also shows that identifying a problem and restricting new purchases may leave earlier positions—and their associated risks—in place for months.

Read the complaint against Cary Edward Urich.

Read the order against United Planners.

Related reading: Complex products advisers need to recognize · How inverse and leveraged ETFs are used · Risks in leveraged and inverse funds · Lessons from leveraged single-stock ETF losses · A prior case involving complex products