Direxion Reaches Settlement in Inverse ETF Suit: Report

ETF Trends

Direxion has agreed to an $8 million settlement in a suit alleging the ETF manager didn’t adequately disclose the risks of some of its inverse ETFs that move in the opposite direction of the market, according to a report Thursday.

“While several providers and distributors of ETFs have reached settlements of similar suits, courts have also dismissed such claims in other cases,” Ignites reports.

Apparently, some sophisticated investors have attempted to blame leveraged and inverse ETF providers when they lost money in the products. These claims appear dubious considering the disclosure provided by leveraged and inverse ETF managers, and widespread media coverage from ETFtrends.com and others on the risks of holding these products for more than one day.

A spokesman for Direxion declined to comment in the Ignites story, citing the preliminary nature of the settlement.

“In addition to regulatory disclosures, firms offering such products have also made warnings and educational materials more prominent on their websites,” it reported. “Direxion president Daniel O’Neill even went so far as to tell Ignites in a 2011 interview that 80% to 90% of investors should not use its inverse and leveraged products.”

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