In September 2012, a federal district court dismissed a class action lawsuit against 44 ProShares exchange traded funds (“ETFs”) and their investment adviser, officers and trustees. The ProShares ETFs at issue were inverse ETFs, ultra long ETFs and ultra short ETFs that were designed to track the underlying indices for periods of one day or less. According to the registration statements, the ETFs’ value could “diverge significantly” from the underlying index if held for longer than this short period of time.8 Investors filed suit under Sections 11 and 15 of the Securities Act of 1933, claiming that the prospectuses failed to adequately disclose the risks relating to the funds’ potential to lose value.
Referencing the registration statements’ “plain English,” the court determined that “the disclosures…accurately conveyed the specific risks that the plaintiffs assert materialized.”9 The court then granted ProShares’ motion to dismiss in its entirety.
To read more about the ProShares class action and how well-crafted risk factors can reduce the potential for liability, please see our related client alert.