Court Rejects Suit Over ProShares Leveraged ETFs: Report

ETF Trends

A U.S. appeals court has rejected a lawsuit alleging leveraged ETF provider ProShares failed to adequately disclose the funds’ risks, according to a report.

“The 2nd U.S. Circuit Court of Appeals said ProShares Advisors LLC was not liable to investors who claimed they were misled about the risks of holding on to 44 of its leveraged ETFs for more than one day,” Reuters reports.

The decision announced Monday upheld an earlier ruling, according to the article.

The suit alleged ProShares didn’t disclose the risks the ETF might see losses even if investors correctly anticipated the market’s overall direction. [Direxion Reaches Settlement Over Inverse ETFs]

Leveraged ETFs are designed as short-term trading vehicles rather than buy-and-hold investments.

Circuit Judge Richard Wesley wrote that ProShares had disclosed the “speculative” nature of the ETFs in prospectuses, and that the ETFs might move “quite different from and even contrary to” what investors expect, Reuters reported.

“No reasonable investor could read these prospectuses without realizing that volatility, combined with leveraging, subjected that investment to a great risk of long-term loss as market volatility increased,” Wesley wrote.

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