The controversy over hugely-popular leveraged exchange-traded funds is heating up amid a growing number of questions from Massachusetts' Secretary of State and the industry's own regulatory watchdog regarding sales practices and the suitability of these complicated investments for individual investors.

The latest salvo came Wednesday when Massachusetts Secretary of State William Galvin launched an inquiry into how three leveraged ETF providers -- Rydex, ProShares and Direxion -- are selling their products to investors in his state. "Because these leveraged exchange-traded funds are reset every day, buy-and-hold investors often find that their returns vary greatly from those of the corresponding index," Galvin said in a statement. "So it is important that retail investors be provided with all the information necessary to make informed choices about these products."

Currently, the inquiry is just a review, not a formal investigation, says Galvin's spokesman Brian McNiff. "These vehicles have become very popular and at this point the secretary has simply launched an inquiry into sales practices and what information is being given to investors," McNiff says.

Indeed, three years ago there were no leveraged ETFs. Today there are more than 120 such funds, holding $30 billion in assets, according to Index Universe. In just one of many examples, Direxion Daily Financial Bull 3X Shares ETF (FAS) started the year with $175 million is assets. Now, assets are north of a billion.

The problem is that leveraged ETFs, which offer a cheap, liquid and transparent way to double- or even triple-down on the movements of their underlying indexes, are often unsuitable for individual investors who don't fully understand the product. These ETFs need to be minded on a daily or near-daily basis or they risk straying far from their underlying indexes.

Massachusetts's inquiry comes just a matter of weeks after the Financial Industry Regulatory Authority (FINRA) issued an advisory notice reminding brokerages of their sales-practice obligations when it comes to ETFs. (Both trade organization Investment Company Institute and individual ETF providers have requested that FINRA drop the advisory.)

Spokespeople from Direxion, ProShares and Rydex told SmartMoney their firms intend to comply with Secretary Galvin's request as quickly as possible and defended the clarity of their sales and marketing materials.

"In particular, we disclose that investors should monitor their leveraged and inverse ETFs' holdings consistent with their strategies, perhaps as frequently as daily," Rydex spokeswoman Lori Klash Winkler wrote in an email. "As with any investment, investors should have a clear understanding of how these products work and their potential benefits and risks prior to making an investment."

Leveraged ETF providers claim they make this clear in their advertising and prospectuses and spokespeople from leveraged ETF providers have told us that financial professionals, not retail investors, are their focus. But as long as retail investors keep pouring money into these funds, regulators like Galvin will continue to keep them under close scrutiny.