On August 21, 2009, Wolf Haldenstein Adler Freeman & Herz LLP filed a class action lawsuit in the United States District Court, Southern District of New York, on behalf of all persons who purchased or otherwise acquired the shares of UltraShort Real Estate ProShares fund (“the SRS Fund”) [NYSE:SRS] an exchange-traded fund (“ETF”) offered by ProShares Trust (“ProShares” or the “Trust”), since August 2006, pursuant or traceable to ProShares' false and misleading Registration Statement, Prospectuses, and Statements of Additional Information (collectively, the “Registration Statement”) issued in connection with the SRS Fund's shares against ProShares, trustees and the Treasurer of ProShares, the SRS Fund’s investment advisor, and its president, and the SRS Fund’s principal underwriter, alleging fraud pursuant to Sections 11 and 15 of the Securities Act [15 U.S.C. §§77k and 77o] (the “Class”).
The case name is styled McBride v. ProShares Trust, et al. A copy of the complaint filed in this action is available from the Court, or can be viewed by clicking on the link to the right.
ProShares consists of a series of ETFs, including the SRS Fund. ETFs, regulated by the SEC under the Investment Company Act of 1940, are low-cost funds that track a particular stock index and trade like stock. Non-traditional, or so-called “leveraged” and/or “inverse” ETFs, such as the SRS Fund, have exploded in popularity over the last few years, offering investors alternate vehicles to take bullish, bearish, and leveraged positions on popular stock indices. Available in a number of different forms, non-traditional ETFs have attracted increasingly significant investor assets.
ProShares is the fifth largest provider of ETFs in the United States, and manages approximately 99 percent of the country's short and leveraged ETFs. ProShares designs each of its ETFs to correspond to the performance of a daily benchmark-such as the price performance, the inverse of the price performance, or a multiple of the inverse of the price performance-of an index or security. The SRS Fund, in particular, seeks investment results that correspond to twice the inverse (-200%) daily performance of the Dow Jones U.S. Real Estate Index (“DJREI”), which measures the performance of the real estate sector of the U.S. equity market. The SRS Fund is mandated to take positions in securities and/or financial instruments that, in combination, should have similar daily return characteristics as -200% of the daily return of the DJREI.
The Complaint alleges that ProShares states that the SRS Fund seeks to replicate double the inverse return of the daily returns of the DJREI, noting that it “does not seek to achieve its stated investment objective over a period of time greater than one day.” Of course, this statement does not warn investors that holding the SRS Fund for more than a day will most certainly lead to enormous losses. In fact, ProShares could not make that statement and remain in business with respect to the SRS Fund. As ProShares knows, investors do not view ETFs as day trading investment vehicles and did not day-trade the SRS Fund. Moreover, it is virtually economically impossible for all SRS Fund purchasers to sell out of their positions at the end of one day.
The Complaint also alleges that the SRS Fund is not a simple investment vehicle, did not go up when its benchmark index went down, and investors in the SRS Fund have been shocked to learn that their supposedly safe hedge has caused them substantial losses. This action further alleges that Defendants failed to disclose, among other things, the following risks in the Registration Statement: (a) the inverse correlation between the SRS Fund and the DJREI over time would only happen in the rarest of circumstances, and inadvertently if at all; (b) the extent to which performance of the SRS Fund would inevitably diverge from the performance of the DJREI – i.e. the probability, if not certainty, of spectacular tracking error; (c) the severe consequences of high market volatility on the SRS Fund's investment objective and performance; (d) the severe consequences of inherent path dependency in periods of high market volatility on the SRS Fund's performance; (e) the role the SRS Fund plays in increasing market volatility, particularly in the last hour of trading; (f) the consequences of the SRS Fund's daily hedge adjustment always going in the same direction as the movement of the underlying index, notwithstanding that it is an inverse leveraged ETF; (g) that the SRS Fund causes dislocations in the stock market; and (h) that the SRS Fund offers a seemingly straightforward way to obtain desired exposure, but such exposure is not attainable through the SRS Fund.
In ignorance of the false and misleading nature of the statements described in the complaint, and the deceptive and manipulative devices and contrivances employed by said defendants, plaintiff and the other members of the Class relied, to their detriment, on the integrity of the market price of the SRS Trust shares. Had plaintiff and the other members of the Class known the truth, they would not have purchased said shares, or would not have purchased them at the inflated prices that were paid.
Additional cases were filed on behalf of shareholders. On October 5, 2009, motions were filed to consolidate various cases and appoint lead plaintiff and counsel. The Court has not yet ruled on the motions yet.
Wolf Haldenstein has extensive experience in the prosecution of securities class actions and derivative litigation in state and federal trial and appellate courts across the country. The firm has approximately 70 attorneys in various practice areas; and offices in Chicago, New York City, San Diego, and West Palm Beach. The reputation and expertise of this firm in shareholder and other class litigation has been repeatedly recognized by the courts, which have appointed it to major positions in complex securities multi-district and consolidated litigation.
If you wish to discuss this action or have any questions, please contact Wolf Haldenstein Adler Freeman & Herz LLP at 270 Madison Avenue, New York, New York 10016, by telephone at (800) 575-0735 (Mark C. Rifkin, Russell S. Miness, or Derek Behnke), or via e-mail at firstname.lastname@example.org.