SEC Settles Charges Against Classic Asset Management LLC and Doug Schmitz for Breach of Fiduciary Duty in Leveraged ETF Use

The SEC has charged Classic Asset Management LLC (CAM) and its indirect part-owner and investment adviser representative Douglas G. Schmitz with breach of fiduciary duty for investing in leveraged exchange traded funds (ETFs) for extended periods of time, despite warnings in the funds’ prospectuses that the products carried unique risks and required frequent monitoring. The SEC’s order found that CAM and Schmitz had misunderstood the fundamental characteristics of these funds and that CAM had failed to adequately monitor their usage. As a result, CAM and Schmitz are both required to pay disgorgement, prejudgment interest, and civil penalties, as well as being censured upon agreeing to the cease-and-desist order without admitting or denying the SEC’s findings. CAM is also required to conduct a respondent-administered distribution.