Do leveraged and inverse ETFs have adequate disclosures?
The answer is "yes" according to a September 10 ruling from the United States District Court for the Southern District of New York. The court rejected the plaintiffs' claim that certain risks associated with holding leveraged and inverse ETFs for periods longer than one day were omitted from the disclosures set forth in the registration statements.
"We have maintained since the beginning of this case that the allegations were wholly without merit, and we are pleased that the claims have been dismissed in their entirety," said Amy Doberman, ProShares' General Counsel. "ProShares has demonstrated a long-standing commitment to educating investors about our products and their risks and benefits, so it is gratifying that Judge Koeltl's ruling rests on the strength and quality of our disclosures."
The class action lawsuit was filed against ProShares in 2009.
In his order dismissing the case, Judge John G. Koeltl ruled that the registration statements accompanying ProShares leveraged and inverse ETFs stated "in plain English" their daily performance objectives and clearly disclosed the possibility that "the ETFs' value could diverge significantly from the underlying index when the ETFs were held for longer than one day."
Judge Koeltl's ruling concluded that ProShares disclosures "addressed the relevant risk directly" in a way that any
"reasonably prudent investor would have understood."
ProShares' lineup of 138 ETFs includes Global Fixed Income, Hedge Strategies, Geared (leveraged and inverse), and Inflation and Volatility ETFs. At the end of June 30, ProShares managed $23.8 billion in ETF assets.
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