* Suit pertained to 44 ProShares ETFs
* Judge finds plaintiff's assertions "implausible"
By Jessica Toonkel
NEW YORK, Sept 10 A New York judge has dismissed
a class-action lawsuit by exchange traded fund investors who
claimed that the funds' advisor and distributor did not fully
disclose risks associated with investing in the ETFs.
The lawsuit, originally filed in August 2009, pertains to 44
leveraged and inverse ETFs managed by ProShares Advisors LLC. In
the suit, the plaintiffs alleged that ProShares Advisors LLC and
SEI Investments Distribution Co did not disclose the risks of
holding on to the ETFs for longer than a day.
Furthermore, the suit alleged that ProShares knew in
advance, through a mathematical formula, that investors could
suffer large losses.
Leveraged ETFs are designed to amplify short-term returns by
using debt and derivatives, and are designed for short-term
professional traders, rather than long-term investors.
The U.S. Securities and Exchange Commission has been looking
into whether leveraged ETFs have caused some of the market
volatility over the past several months.
But in its Sept. 10 dismissal of the class action suit,
Judge John G. Koeltl in the U.S. District Court in the Southern
District of New York, wrote that ProShares was explicit in
disclosing the risks involved with investing in its products.
Furthermore, in his dismissal Judge Koeltl wrote that the
idea that ProShares knew in advance that investors could suffer
large losses through a mathematical formula was "implausible."
"That the plaintiffs held the ETF shares over long periods
of time, despite the language in the registration statement, is
not enough to support a cause of action," the judge wrote in his
ProShares and SEI did not immediately return calls seeking
As of Aug. 31, ProShares had $10.9 billion in leveraged and
inverse ETF assets, making it the biggest provider of these
funds in the United States, according to Lipper. The firm had
$22.5 billion in fund assets overall.