We suspect we’re merely at the beginning of a big avalanche of lawsuits against leveraged and short ETFs, which aren’t designed to be bought and held.
The SEC may be slow on regulating these, but there’s no reason for money-hungry lawyers to wait.
The following was launched by Bernstein Libhard today against UYG. (via The Reformed Broker)
Bernstein Liebhard LLP filed a class action lawsuit on October 13, 2009 in the United States District Court for the Southern District of New York, on behalf of all persons who purchased or otherwise acquired shares in the Ultra Financials Fund (the “UYG Fund”) (NYSE:UYG – News), an exchange-traded fund (“ETF”) offered by ProShares Trust (“ProShares”), pursuant or traceable to ProShares’ false and misleading Registration Statement, Prospectuses, and Statements of Additional Information (collectively, the “Registration Statement”) issued in connection with shares of the UYG Fund (the “Class”). The Class is seeking to pursue remedies under Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”).
The complaint names ProShares, ProShare Advisors LLC, SEI Investments Distribution Co., Michael L. Sapir, Louis M. Mayberg, Russell S. Reynolds, III, Michael Wachs, and Simon D. Collier, as defendants (collectively, “Defendants”). ProShares sells its Ultra and UltraShort ETFs as “simple” directional plays. As marketed by ProShares, Ultra ETFs are designed to go up when markets go up; UltraShort ETFs are designed to go up when markets go down. The UYG Fund is one of ProShares’ Ultra ETFs. The UYG Fund seeks investment results that correspond to twice (+200%) the daily performance of the Dow Jones U.S. Financial Index (“DJUSFI”). Accordingly, the UYG Fund is supposed to deliver double the return of the DJUSFI, which, from January 1, 2009 through July 30, 2009, increased approximately 1.47 per cent. Rather than increase approximately 2.9 per cent (double), the UYG Fund has fallen approximately 25 per cent.
The complaint alleges the Defendants violated the Securities Act by failing to disclose the following risks, inter alia, in the Registration Statement: (1) if UYG Fund shares were held for a time period longer than one day, the likelihood of catastrophic losses was huge; and (2) the extent to which performance of the UYG Fund would inevitably diverge from the performance of the DJUSFI — i.e., the overwhelming probability, if not certainty, of spectacular divergence.
Plaintiff in the UYG Action seeks to recover damages on behalf of all Class members who purchased or otherwise acquired shares of ProShares UYG. If you purchased or otherwise acquired ProShares UYG shares, and either lost money on the transaction or still hold the shares, you may wish to join in the action to serve as lead plaintiff. In order to do so, you must meet certain requirements set forth in the applicable law and file appropriate papers no later than November 23, 2009.
A “lead plaintiff” is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the court must determine that the class member’s claim is typical of the claims of other class members, and that the class member will adequately represent the class. Under certain circumstances, one or more class members may together serve as lead plaintiff. Your ability to share in any recovery is not, however, affected by the decision whether or not to serve as a lead plaintiff. You may retain Bernstein Liebhard LLP, or other counsel of your choice, to serve as your counsel in this action.
If you purchased or otherwise acquired shares in the UYG Fund or any ProShares leveraged funds, and either lost money on the transaction or still hold the shares, please contact Christian Siebott or Joseph R. Seidman, Jr. at (877) 779-1414.
Bernstein Liebhard has pursued hundreds of securities and consumer cases and recovered approximately $2 billion for its clients. It has been named to The National Law Journal’s “Plaintiffs’ Hot List” in each of the last seven years.
Bernstein Liebhard has also filed cases concerning the SRS, SKF, DUG, and DXD funds. You can view a copy of these complaints, as well as the UYG complaint, online at http://www.bernlieb.com, or obtain them from the court.