Authorities are finally cracking down on exchange-traded funds. Massachusetts securities regulators announced today that there will be an inquiry into the sales practices of popular leveraged ETFs.Secretary of State William F. Galvin's office has sent letters to Rydex Investments, Direxion Funds, and ProShares in order to learn more about the issuers' marketing methods. As I have noted extensively on both TheStreet.com and RealMoney.com, leveraged ETF funds are intended only for professional investors and can erode an average investor's position over time. ProShares is perhaps most famous for introducing single sector leveraged bets, but Direxion and Rydex have also built substantial lines over time. Most recently, Direxion performed a reverse split in both Direxion Shares Daily Financial Bull ( FAS) ETF and Direxion Shares Daily Financial Bear ( FAZ). FAZ and FAS had plummeted 86% and 67% year to date as the volatility of the market has combined with the funds' methodology to erode the share price. The Financial Industry Regulatory Authority (FINRA) posted a notice about leveraged funds on its site in early June. The notice was intended to remind brokers and registered investment advisers about their fiduciary duties when selling ETFs that offer leverage. The site urged that "these instruments are complex and typically unsuitable for retail investors who plan to hold them longer than one trading session." High trading volume undoubtedly draws attention, and Direxion's reverse split might help to calm some watchdogs. The popularity of leveraged funds continues to grow, however, and the biggest concern is that the wrong kind of investors will get swept up with the crowd. ETF issuers are pumping out leveraged products to meet investor demand. Regulators must examine the methodology and advertising of exchange traded funds before another wave of leveraged funds hit the market.