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The SRS Class Action Lawsuits Start
FOR IMMEDIATE RELEASE: Thursday, August 6, 2009
Labaton Sucharow LLP Files Class Action Lawsuit Against Proshares’ Ultrashort Real Estate Proshares Fund
Labaton
Sucharow LLP filed a class action lawsuit on August 5, 2009 in the
United States District Court for the Southern District of New York, on
behalf of all persons who purchased or otherwise acquired shares in the
UltraShort Real Estate ProShares fund (the “SRS Fund”), an
exchange-traded fund (“ETF”) offered by ProShares Trust (“ProShares”),
pursuant or traceable to ProShares’ false and misleading Registration
Statement, Prospectuses, and Statements of Additional Information
(collectively, the “Registration Statement”) issued in connection with
the SRS Fund’s shares (the “Class”). The Class is seeking to pursue
remedies under Sections 11 and 15 of the Securities Act of 1933 (the
“Securities Act”).
If you bought shares in the SRS Fund pursuant
to the Registration Statement and would like to consider serving as
lead plaintiff or have any questions about the lawsuit, please contact
Stefanie J. Sundel, Esq. of Labaton Sucharow, at 800-321-0476 or (212)
907-0700, or via email at ssundel@labaton.com.
Lead Plaintiff motion papers must be filed with the United States
District Court for the Southern District of New York no later than
October 5, 2009. A Lead Plaintiff is a court-appointed representative
for absent class members. You do not need to seek appointment as Lead
Plaintiff to share in any class recovery in this action. If you are a
class member and there is a recovery for the class, you can share in
that recovery as an absent class member. You may retain counsel of your
choice to represent you in this action.
If you are a member of
this class you can view a copy of the complaint and join this class
action online at http://www.labaton.com/en/cases/Newly-Filed-Cases.cfm
The
complaint names ProShares; ProShare Advisors LLC, SEI Investments
Distribution Co., Michael L. Sapir, Louis M. Mayberg, Russell S.
Reynolds, III, Michael Wachs, and Simon D. Collier, as defendants
(collectively, “Defendants”). ProShares sells its Ultra and UltraShort
ETFs as “simple” directional plays. As marketed by ProShares, Ultra
ETFs are designed to go up when markets go up; UltraShort ETFs are
designed to go up when markets go down. The SRS Fund is one of
ProShares’ UltraShort ETFs. The SRS Fund seeks investment results that
correspond to twice the inverse (–200%) daily performance of the Dow
Jones U.S. Real Estate Index (“DJREI”), which measures the performance
of the real estate sector of the U.S. equity market. Accordingly, the
SRS Fund is supposed to deliver double the inverse return of the DJREI,
which fell approximately 39.2 percent from January 2, 2008 through
December 17, 2008, ostensibly creating a profit for investors who
anticipated a decline in the U.S. real estate market. In other words,
the SRS Fund should have appreciated by 78.4 percent during this
period. However, the SRS Fund actually fell approximately 48.2 percent
during this period—the antithesis of a directional play.
The
complaint alleges the Defendants violated the Securities Act by failing
to disclose that the SRS Fund is altogether defective as a directional
investment play. Defendants failed to disclose the following risks in
the Registration Statement: (1) inverse correlation between the SRS
Fund and the DJREI over time would only happen in the rarest of
circumstances, and inadvertently if at all; (2) the extent to which
performance of the SRS Fund would inevitably diverge from the
performance of the DJREI—i.e., the probability, if not certainty, of
spectacular tracking error; (3) the severe consequences of high market
volatility on the SRS Fund’s investment objective and performance; (4)
the severe consequences of inherent path dependency in periods of high
market volatility on the SRS Fund’s performance; (5) the role the SRS
Fund plays in increasing market volatility, particularly in the last
hour of trading; (6) the consequences of the SRS Fund’s daily hedge
adjustment always going in the same direction as the movement of the
underlying index, notwithstanding that it is an inverse leveraged ETF;
(7) the SRS Fund causes dislocations in the stock market; (8) the SRS
Fund offers a seemingly straightforward way to obtain desired exposure,
but such exposure is not attainable through the SRS Fund.
Plaintiff
is represented by the law firm Labaton Sucharow LLP. Labaton Sucharow
is one of the country’s premier national law firms that represent
institutional and individual investors in class action, complex
securities and corporate governance litigation. The firm has been a
champion of investor rights for over 40 years and has been recognized
for its reputation for excellence by the courts. More information
about Labaton Sucharow is available at www.labaton.com.
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Roll them and smoke them
as i always do to my fatties.
So many people good at math. So few familiar with our legal system...
Am I right in assuming that class-action methods are the only way the system can be restored to balance? Or has Loyd bought the judiciary too?
Repost:
I don't like the smell of this
http://fundrace.huffingtonpost.com/neighbors.php?type=name&lname=Sucharow
http://www.communityrights.org/Newsroom/crcInTheNews/WE_2_13_08.pdf
Didn't they read the fine print?
"The complaint alleges the Defendants violated the Securities Act by failing to disclose that the SRS Fund is altogether defective as a directional investment play"
No, not really accurate....but when do lawyers care about the merits of a case when there is money to be made.
I made money with SRS. I ALSO READ THE PROSPECTUS it has about 6 pages of disclaimers essentially stating "you rolls the dice & ya takes yer chances".
If you bought that stock without reading the prospectus, then you are a poor investor. If you lost money after reading the prospectus, well, then you took your chances.
I just sold two large blocks of Proshares SSO I bought back in March & made a bundle.
THAT SAID, I think ALL OF the ultra shares are a VERY poor way to trade long.
You didn't even need to read the prospectus to know this thing was rife with risk. The short description tells the story. However, I agree with your thought that people are stupid, mostly because they are and probably chased returns, when there was no return to chase.
Complaints merely state allegations... facts are to be decided by the trier of fact.
[I just sold two large blocks of Proshares SSO I bought back in March & made a bundle.]
Yeah, sure you did buddy.
Yes. and I also traded in & out of oil three times since December and made a mint on that too. Go boo-hoo someplace else
Ok, this is great. Before the longs felt entitled and now it is the shorts. Looks like a bear market for it seems to have ruined both the longs and the dumb variety of shorts. SRS, FAZ etc are day trading vehicle folks. Speaking of FAZ and SRS I bought each pre-market today. Lets see if we get a correction today.
Do they really not know what happens when you start with a share worth 100, lose 10% on day 1 and then gain 10% on day 2?
Funds that inherently go to zero should have zero value though, correct? All of these have gone to zero, the shorts and the longs. Once they get close to zero they reverse split them and they keep going down. Anyone with enough capital can short these funds every day and make millions. Of course you had to sweat it with margin calls when SRS went to 300, in the long run it has to go to zero, by pure mathematics.
What if I started a fund that said in the prospectus "this fund will randomly gyrate every day but trend toward zero in the long term". I bet I would get a bunch of degenerate gamblers who want to day trade it. Is that legal? Maybe it is...
Were you once a MS/Dean Witter broker too? That was every fund they ever launched.
Let me see if I have this right...
Your fund didn't do what it said it was trying to do and now I am going to sue you. Can't this logic be applied to every mutual fund that has ever underperformed it's benchmark index?
Except in this case, it did exactly what they said it would do.
Very weak lawsuit. The funds are well-protected by blanket prospectuses. The biggest scam in the world is to start a fund that says "we are not responsible for this fund going up or down with any correlation to real assets" and just collect the management fee. That practice should be illegal, but this lawsuit is approaching the problem wrong.
Complaints can be amended... statute of limitations aside.
Except that with these funds there is NO claim of correlation with anything - just that is some index goes up it, goes up and if some index goes down, it goes down. That's not the same as correlation.
And the ETF's will now "all fall down" one by one through class action litigation... I switched to a leveraged mutual fund for just that reason... and have seen little tracking error... however it might have been better not to pick an inverse one in April... but I'm sticking with it for now... Stephen Roach still is bearish... when he rolls over to a bull I know we are going back down :-)
What part of "twice the DAILY performance" don't these lawyers and investors understand? From looking at the chart, this ETF has done EXACTLY WHAT IT SAYS IT DOES. This lawsuit has absolutely no basis whatsoever, and it is essentially a straw man fallacy.
The idiots who use leveraged ETFs as a long term play only have themselves to blame. It's prominently stated on every summary everywhere that it seeks to track DAILY performance. And the math of leveraged ETFs guarantees it will lose value over time, regardless of which direction the underlying index goes.
Well.. to be fair... it's not as simple as the prospectus. The ProShares site explains the products in plain-english for the purposes of attracting customers. This "plain english" is *entirely* misleading as to the performance of 2x ETF's.
I personally know dozens of casual investors who read the sales material and took it for face value without delving into the prospectus.
The reality (as we all know) is that these vehicles *trend to zero* under normal market conditions. That's no small omission from the basic literature. Yes, anyone with an understanding of compound interest can deduce that these ETF's are defective-by-design. But don't be naive and think that "investors" as a class are mathematically adept.
We live in a world where J6P workers invest their own 401k's in the open market. Those "investors" read the sales material as a simple explanation of more complex behaviors.
And those investors got creamed.
The question here isn't whether or not the fine print said it correctly. It's whether or not the large print did.
If I label food: "This is safe to eat" in the large print, and "unless you're human" in the fine print... I've tricked a tremendous number of people. You can make the argument all day long that the fine print protects you. But that's a case you're going to lose.
There are far too many smart people on this board pretending that the rest of the world is just like them. Do you all have *any* idea of what the investing public looks like???
first - the ultra's are intended not to be held for longer than a day.
second and more importantly Senator Debbie Stabenow (D- Mich)
"later this afternoon we vote on the confirmation of Judge Sotomayor and then we vote on an extension of the Cash for Clunkers program, so everybody needs to go out an buy a car this weekend, hopefully an American one."
third - with the pending revitalization of Fannie and Freddie - how long before these learned folks turn the heat up on mortgage lenders to get the housing market revved up?
"first - the ultra's are intended not to be held for longer than a day."
Show me that in the prospectus.
One of the lawfirm's partners heads a so-called non-profit that hosts annual meetings at places like the Ritz Carlton in Naples, FL
http://www.ilep.info/pdf/Conference_200804_Invite.pdf
These products are garbage and should be illegal. This is simply another method of wealth destruction masquerading as innovation.They should include a free carton of cigarettes with each share that you buy so you can watch your health deteriorate along with your portfolio.
"These products are garbage and should be illegal."
Sounds like you're one of those who don't read the prospectus. You know what also should be illegal? Jumping into a vat of molten metal.
You are correct. I don't read the prospectus because I don't trade them. The simple truth is not everyone is bad ass whiz kid like yourself . Levered ETF's are a waste of time.
I get it. Anything you don't like should be banned. Sounds great.
For the record, it took me all of five minutes to figure out what these are, and I'm not an experienced professional investor. It's called "due diligence," and people just don't do it anymore because they expect someone to bail them out when they get screwed.
You really are a magician and humble too ! So I'm basically disagreeing with an inexperienced unprofessional ? Time for me to defer to your expertise. For the record, keep trading your levered ETF's and don't quit your day job.
This is not a question for an experience professional. One does not have to be an experience professional to understand the situation. It's obvious what these investments are, if you do your due diligence.
The only question left, then, is whether these investments SHOULD exist. And that is a purely philosophical question that the experienced professional has no more authority on than the "inexperienced nonprofessional." The question of whether people should be able to invest in these devices comes down to whether you more dearly value personal responsibility and freedom, or protection from your own decisions. This is the EXACT same question as, "Should people be allowed to jump into a vat of molten metal," or, even more analogous, "Should vats of molten metal be allowed to exist."
These are not investments. These are structures that are designed to do something which for most people serve no purpose. Professionals use them for gamma scalping. Philosophers, like yourself , will just lose money and make analogies regarding vats of metal all the while basking in delusional notions of "due diligence" . I'm very disappointed grasshopper.
Vats of molten metal serve no direct purpose for most people, either. Nor does Swedish Viking-themed death metal, steering wheel nobs, jewelled codpieces, or pineapple chutney.
What these are is completely irrelevant. Once again, the issue at stake is whether people should be barred from making easy to avoid, irresponsible choices that affect only themselves.
What these are is enormously relevant. How they are structured is enormously relevant. The fact that they can be purchased in a run of the mill account is enormously relevant.
These are insidious because they have preyed upon and distorted the average person's concept of a holding period. The inherent danger is much more subtle than that posed by your vat of metal. This doesn't even rise to the level of gambling. Can you seriously argue that if you incinerate your trading account that only you are affected ? If you blow up trading this stuff it won't matter to anyone else ? Wife ? Children ?
I have spent my entire career on Wall Street. Sometimes you have to save people from themselves.
The best way to save people from themselves is to stop bailing them out when they screw up. Maybe if they actually have to face the consequences of their actions, they'll actually think before trying to make a quick buck. How is this any different than a state-sponsored lottery, where you might get lucky a few times in the short run, but will always leave you with nothing if you play long enough?
No. There is a concept of fiduciary duty that should be applied. This is , of course, an idea which requires human interaction; something that most up to the minute quant types don't get. Suitability is a big issue and I think there is major trouble on the horizon for the firms that created and sold these.
It is time for the people who came up with this to take responsiblity. Enjoy your chutney.
Don't knock vats of molten metal. They're used to build things primarily. As noted ETFs destroy. If we could thorw ETFs in vats of molten metal like terminators then everything would make sense.
The issue is not whether a snake oil salesman accurately advertises is wares, but more importantly whether we need it and whether we're alright with accepting some simpletons will buy the snake oil and be harmed... all in the name of the salesmen having the ability to sell snake oil. Simple balancing test... (we've already answered this question)
It's kind of like shitting in a bag and selling it as potting soil with a 10 page disclaimer that explains its just your shit... Arguably, you could use it as potting soil... but it probably won't accomplish what the buyer was desiring (and most importantly, what you knew the buyer was desiring).
The legal system has made incredible strides in consumer protection and we're not going back to hardness of an exclusive theory of caveat emptor. Whether or not this case warrants protection is a question for the judge/jury. As investments get more and more complex, I suspect you'll find more and more measures of consumer protection implemented.
Are you kidding me ? This is the investment equivalent of nuclear waste.
Exactly. No one with a clue would touch this garbage for anything other than a day trade.
Unfortunately, that isn't exactly the way the sales literature reads...
"Hedge against downturns, or seek profit when markets decline, with the first ETFs designed to go up when indexes go down."
It took me weeks to explain that to my Mom...
Come on! You can't claim simple literacy as genius. They sure are a waste of time when you can make 6-10% trading the intraday trend.... DAILY performance. Good grief. These are derivatives for dummies and they do exactly what they say they do. How 'bout options? Can I sue for time decay?
Really? Not for me. I made over one million USD shorting the market in 2008/9, and I did it all with SDS. I bought a boatload of UYM in Feb and made $0.5 million with that.
So, these leveraged ETFs can work if you get the directional trend largely correct.
I invest in a few funds that require "Accredited Investor" status. Those funds require this status because they're fundamentally complex instruments that don't exhibit normal market behavior.
We're talking here about a complex and extraordinarily dangerous product that was pitched at mom and pop investors.
You can talk about the effects of compound daily movements all day long, but you're missing the point. Yeah sure, the fine print explains it all... but these aren't accredited investors we're talking about. These are Mom and Pops who thought (and they really did) they were shorting the DJ real estate index over the long term.
IMHO this isn't nearly as cut and dry as people are making it seem here...
If they would quit manipulating the markets, maybe, just maybe the fund would work as it was intended to.
I thought SRS was directly correlated to the number of new FOR LEASE signs I've seen.
Dear Labaton Sucharow, i have a suggestion: READ THE PROSPECTUS! This and every other leveraged ETF in the universe seeks to return twice (or 3x) the daily (or inverse) performance of a given index. It clearly states "DAILY". That means over time it doesn't work in terms of tracking anything, except you being an idiot and grabbing your ankles because you didn't read the prospectus.
Because the compound effect of 2x daily inverses is something that the average American could describe in his/her sleep.
In case you're wondering why the math dictates they will lose value, take a theoretical 2x leveraged ETF.
If it's inverse:
Original index starts at 100, ETF starts at 100.
Index goes up 25% to 125. Then, ETF goes down 50% to 50. Next day, the index goes down 20% to the original 100. ETF then goes up 40% to 70. The index is at its starting point, but the ETF has lost 30%. It works the same if the index goes down and then up--say, 100->80->100, which results in ETF prices of 100->140->70. -30% again.
If it's not inverse, it does the same thing.
100->125->100 results in ETF prices of 100->150->90. 100->80->100 results in ETF prices of 100->60->90.
This isn't rocket science, and it's not buried deep in the prospectus. These ETFs are meant for a very, very short term play, and can be a useful tool if used correctly.
Duh, since when did it stop being buyer beware? I get class action with company equities because of corrupt CEO's and Accountants... but the damn fund does what it says it does.. hell I lost money on SRS, but I'll be buying the sucker again eventually. Idiots paying idiots with law degrees. At least the Lawyers will survive the crash.
Bigger question, as many have noted:
Isn't a fund that trends lower by definition a worthless fund?
Madoff took people's money for many years, some made money (if they withdrew early), some lost money, and in the end the value of the fund went to zero. How is that different from what ProShares is doing?
No. It's only worthless if you intend to hold it longer for the period of time it's intended to be held for. It's not worthless, because it gives you a way to play a DAILY change in the underlying index. If you think real estate will tank IN THE SHORT TERM, this gives you a great way to take advantage of that.
Traders like you keep these funds in business.
The fund collects a management fee based on market cap of the fund each day. This total ends up being around $1 million per fund per year (some funds are up to $5 million, some are less).
The funds trend toward zero, so wealth is destroyed as they go down.
It doesn't matter if YOU, as a day trader, make money in the fund. Someone loses money on the other side of your trade, and in the end, the net effect is a loss of wealth.
So the funds collect a management fee and destroy investor wealth, and people like the funds because it gives them a way to "play".
That's fine, I like "playing" too, and I trade these funds. But I would much rather take the zero-risk management fee that these ponzi schemes are collecting.
Not really. I don't buy these funds. I simply don't buy the argument that they should be banned simply because I have no use for them.
I tend to concern myself with medium to long term trends, and as such, don't buy leveraged ETFs (I do, on the other hand, buy puts on leveraged ETFs). At the beginning of the year, for example, I looked at TBT as a potential way to bet against the treasury bond, but came to the conclusion (after my five minutes of due diligence, of course) that it would be too risky if the price didn't go my way in the short term. If I were more interested in short term speculation, it might come in handy.
Correct. These ETFs will work very well in the somewhat rare situation when there are serial positive returns stack up day after day. But they are trading vehicles that require great timing.
Of all the bad things said about these ETF's, there are many investors that underestimate the compounding effect of these things when the daily returns train positive.
As for SRS, you better be confident a downtrend is in place--and will stay in place-- before you place your bets. Otherwise, you're asking for major pain.
I keep hearing people say "These instruments are intended as short term vehicles".
Is that actually something the prospectus says?
I've heard it all now. Dumb as shit 'investors' park money in a ultra short ETF they don't understand. Employing the well worn buy and hold strategy they wait for the imploding economy to make them rich through the magic power of leverage compounding over time.
Unfortunately nobody mentioned that the law of exponents works in both directions and not just when you turn a profit. Argh! The bastards! Where's by fricken lawyer?
It's clearly not the investors who brought this lawsuit. The lawyers will be the only guys profiting from any judgement.
SRS is a zero hedge. Hmmmm.....
facts, ha! clearly none of you are experienced with our legal system. It's all about who is the better snakeoil salesman. whether the prospectus says "twice daily returns", or "there is risk in this investment", or "we just fucked your mother now we're coming to get you, too" is irrelevant. Goalposts are moved all the time, and some idiot sympathetic judge will let this get to court where a jury that doesn't understand the math or the "problem" will side with the plaintiffs because, well, they know what it's like to lose money on an investment.
And then they will ask why their index ETF at Schwab just raised it's management fee.
--chunkylover42 (still waiting for confirmation of account. hellooooo??)
oh my god.
high school math standards should be so much higher.
this is a ridiculous lawsuit that is only plausible because so many people have no idea what numbers are.
So are you, and others, sitting on a boat in the Caribbean having bout the REIT stocks and selling SRS?
I mean, if you KNEW that they were going to zero, then who is the greaater fool? Is it the person who bought them, or the person who knew "simple math" and didn't put that trade on?
Hmm...crickets from all the trading geniuses on that one, eh?...LOL
Stop making fun of all the geniuses here.
So you shorted at the top?
It looks like someone believes the glass slipper story on CRE and REITS.
However, people fail to see that this can be a very lucrative investment as long as you buy after a reverse split and as close to zero as possible......because in the event of a sector/index collapse there are less of these shares available and buyers will flock to them bidding the price way up in a panic.
Notice this headline by Reuters...
Simon Property Group to issue $500 billion more in notes
http://www.reuters.com/article/marketsNews/idINN0633478620090806?rpc=44
Of course, 500 billion is incorrect...(should 500 mm) ... but i think 500 billion would be more appropriate
These are defective products in that the math leads to price decay over time. Most are so mathematically ignorant they fail to detect this.
As someone who arbitraged the London mkts against the NY and Chicago markets for a few years in the early 1980s, along with having to calculate the Sterling price and trade that too with concern for holidays on a TI-59 calculator, we would have to calculate risk exposure as we could get longer or shorter depending upon movement. The managers of these funds have been grossly deficient in managing their funds as the underlying moved.
Thank goodness the SEC protected Mom and Pop investors from these dangerous products by requiring accredited investor status... oh ...wait...
There are a lot of posters here who miss the point. A firm is NOT supposed to be allowed to market a trading vehicle that is guaranteed to go to zero just because you can trade it short-term. This rivals Robert Brennan of First Jersey Securities.
There was a major flaw in the system that approved this vehicle (and they get to run healtcare next). And despite the small print, there is not a disclosure stating, for example,"if held for a period of 2 years or more the past performance indicates that the fund will be worthless and be delisted."
I have some experience with Franchise Law when I was given phony documents that even a good lawyer, although not a Franchise Lawyer, was fooled by. It was shiny and glossy and they had made up numbers from a non-existent franchise that were profitable as well as projections to qwhen one would break even and begin making money. They also had a phone number to call to speak to that location about how well they were doing in another state. This was in 1990, so the Internet was not around to check things as easily. I managed to get back 2/3rd of my money with a Franchise lawyer. When I saw what a Franchise Prospectus was supposed to look like there were disclosures all over it in large print. That is NOT what is in the SRS prospectus. And that is what, I believe, will be the basis of the suit. The disclosure did nit represent what was expected of the vehicle.
I have held a position in SRS. Even CNBC had a floor trader say it was a good way to hedge real estate as well as Karen Finnerman touting it on "Fast Money" and not understanding how it was going down in the fashion that it was.
I remember both cases of that. Peter Costa (spelling?) made a call for it in Febuary when it was around 77. It went to over 100 in the next week or so. Good call. Finerman also called it but I'm not sure when, but if you listened to her, you lost your ass. She admitted about a week later she sold and lost money on it.
It's a good trading vehicle, but not long term, and definatly not for the faint of heart.
I purchased some based on the recommendation in "the strategic short report" newsletter:
"Just like today, the REIT sector faced a solvency crisis in the 1970s, not a liquidity crisis. Insolvency refers to a situation where liabilities, or debts, exceed asset values. For many of today’s REITs, debt balances exceed the mark-to-market value of their properties, and rental cash flow is shrinking. They can refinance once or twice, but this only delays the day of reckoning.
I’m convinced that the bulk of REIT refinancing and secondary equity raises occurred in last spring. Now we’re set for the second round of crisis in REIT equities over the next six to twelve months. New creditors and equity providers will demand much lower prices and better terms than currently exist -- if they provide any capital at all. This is enough to push the REIT index much lower, and SRS much higher, so hold or add to your SRS position.
We received an e-mail from a reader whose broker advised him to sell SRS, and announced that it is suspending clients’ option to buy more SRS shares. I interpret this, and all the other warnings from Wall Street brokers about the dangers of levered ETFs, as another sign of a top in REIT prices. Certainly you don’t want to be holding inverse ETFs when panic is in the air. That’s why I waited until SRS fell from north of $100 to the low $20s to recommend it. The risk/reward seemed good at the time, and it seems better now."
Dan Amoss, CFA
Many clients trusted this individual with a CFA, and not everyone has time to read 6 pages of legalese with a large portfolio.
If you don't have time to read the prospectus, don't buy the investment. It's that simple. Advisors make bad calls all the time. Is that the advisor's fault, or the fault of the underlying fund managers who did exactly as they said they would? Why should the fund manager be sued because of the advisor's incompetance?
Are you a chartered financial analyst, have you ever managed a $250 million dollar portfolio?
Have you looked at the tracking error on today's performance as the index was down and it substantially failed to move 2X to the upside?
Exactly.
In all my years of trading, I can't think of another vehicle that was guaranteed to be worthless over normal market volatility.
That's not exactly a minor detail...
Anyone find it in the fine print?
"Labaton Sucharow is one of the country’s premier national law firms that represent institutional and individual investors in class action, complex securities and corporate governance litigation. The firm has been a champion of investor rights for over 40 years"
In other words, like most every other law firm, it sucks away money others have produced, and has been a social parasite for over 40 years.
No, that's General Motors.
Hey Mister Class-less Action Lawyer. The fund re-sets every day. Either they disclosed that or they didn't. It's sort of like when you start each day with a brand new 24 hour billing cycle.
I don't think the buyers of FAS before it went up 6 fold or URE(SRS inverse) before it went up 3x feel these leveraged ETFs are evil.
URE used to be $41. It's now $5.
FAS used to be $50. It's now $14 (adjusted for 1:5 reverse split).
They are both on their way to zero.
No, investors should not be compensated for losing money in these funds, but you have to do the math and realize that these funds are destroying wealth. No matter how many investors make money by playing these funds daily (and wisely), the net result is a loss of wealth.
If you really want to get technical about it, the wealth is transferred to the fund managers and the counterparties to the derivative trades used by these funds (and we're back to primary dealers).
the fact is these instruments track their intended benchmarks with over a 99.9% correlation. There is inherent time decay that anybody who has traded them a while or would spend 1 hour researching them would find out.
TBT used to be $36. Now it's $53 (after nearly hitting $60).
UYG used to be $1.50. Now it's $5.30.
But it doesn't help your argument much, does it?
FAS was down to 8 prior to the reverse split
idiots
what are the risks if you join the lawsuit? (any downside in joining?)
other than being mocked mercilessly and labeled a douche, nothing.
Still more people who don't know how to use inverse ETFs properly. They are short-term trading tools only. Do NOT hold them for the long term.
Exactly.
...but it's funny, I can't seem to find those words in the accompanying prospectus.
The fund did what it's supposed to do. It tracks DAILY performance only, not cumulative daily performance. These morons are trying to protect the dumb and stupid from themselves.
ETFs are the next big bust. Another phony construct as if Sector Mutual Funds 2.0
If you can't see it work, the great reach-around is taking place starting with your wallet.
The most absurd was the copper ETF when front month touched 4.25 in Mar 08. The ETF is out there buying metal for investment for no other purpose than backing the paper.
WTF!!!
ETFs are the next big bust. Another phony construct as if Sector Mutual Funds 2.0
If you can't see it work, the great reach-around is taking place starting with your wallet.
The most absurd was the copper ETF when front month touched 4.25 in Mar 08. The ETF is out there buying metal for investment for no other purpose than backing the paper.
WTF!!!
Loud and clear on that. The whole idea of commodities as an asset class for the average portfolio is absurd. Once again the financial economy is at odds with the real economy.
So what would stop the average investor from shorting both sides of the same sector? e.g. Short 1000 shares of FAZ and FAS.
Can someone back test this please?
It's a simple math exercise, but the short version: you still lose money over time, just not as quickly as a single position.
Thank you.
If you shorted $10k worth of FAS/FAZ on 11/21 you sold 7 shares FAZ at 1430 (70 shares at 143 presplit) and $10k worth of FAS you sold 110 shares at 88 (550 shares at ~17.50) Now 27 and 75
You made $9k on the FAZ and $1500 on the FAS as of the close on 8/6, even though financials are up from those levels (still made money shorting a triple short financial product, FAS)
This works for any of the pairs of ultrashorts, with better returns in periods of high volatility, and better returns the longer you hold the short position
You'll get similarly funky price action if you short both FXI/FXP. This is a good strategy with high risk capital.
Why bother getting involved with these ? Despite those who claim to "understand" the math involved , these are relatively new vehicles that exhibit price action that is difficult to explain. They are truly not worth your time. Trade what you understand. Ignore these structured disappointment machines.
I like how Direxion funds specifies only a few pages down in their prospectus that both leveraged funds will lose money
http://www.direxionshares.com/pdfs/DRX_prospectus.pdf
Any idea if ProShares states the same clear examples in their ETF 2x-3x prospectus?
Thanks
No.
And that's actually the basis for this suit.
I promise you most Americans don't understand that compound daily performance will trend to zero.
IMHO these things should never have been sold to J6P.
And the prospectus says nothing about the long term trend being assuredly down, or that these vehicles are unsuitable for long term holdings.
who cares about merits of lawsuit....what's done is done and unless your the attorney who is sending the invoice for billable hours..you just lost/made more on the last tick of your current open positions.
the real question is whether this is dry powder for an SPX correction....
Talk to Steve Schwartzman. He's long tons of "dry powder" .
What is likely going to be a crcial part of the suit is that there is no example seen in the prospectus to illustrate the math. They will argue that the fund marketed itself as being an inverse of another vehicle and a presumption would be that the fund manager accounted for what evreryone is saying was simple to know. Those are the guys posting from the Caribbean since they ALL saw this.
If they had something like the following in the prospectus it would be a different matter:
Please be advised that if the fund or stock or index that the vehicle represents is trading at a price of $100 and SRS (a 2x inverse) is trading at 50, a rise of 10% to $110 will show a loss of 10%, and a $5 decline in SRS to $45. If the underlying then drops 10% to $99 SRS will theoretically rise 10%, or $4.50 to $49.50. NOTE: Although the underlying is under the original $100 value SRS is NOT expected to go back to the $50 level, etc., etc., etc.
They could argue that as these are designed to be worthless. And THAT is the basis, I believe, for the lawsuit.
Looking at the Direxion fund, it might have stated exactly what I posted. Glad my SRS position was small!
But the goverment can be sued for approving these, right?
by the same token one could make the argument that options are designed to be worthless, since most options expire worthless. but of course it doesn't begin to tell the story.
the difference is that most people have some idea of what they are doing when buying options. but so many fools who first lost in the market, then decided to go short exactly at the wrong time ... well, just lost again. why should their stupidity be rewarded.
I would most like to get to the bottom of the swap holders on the other side, and any actions they took on the index to influence their swap payout (UBS).
This chart shows that they can work very well for more than one day - http://finance.yahoo.com/q/ta?t=5d&s=^GSPC&l=off&z=l&q=b&c=sh+sds
I agree.
A good part of the problem with SRS is not just the "long term mathematical decay" as explained by other posters. This fund just doesn't track well the underlying index ON A DAILY BASIS. Today the Dow Jones U.S. Real Estate Index went down by 0.85% while SRS only went up by 1.08%. Not exactly twice (200%) the inverse (opposite) of the daily performance as explained in the prospectus is it?
Wrong. The funds track the actual index accurately. You can't look at what IYR went up today versus SRS; you need to find the closing value of the index the previous day and then the closing value of the index for today (which will be figured out by tomorrow morning).
Usually only good for a couple of days. If you start at 100 and increase 10% each day for 5 days and then lose 10% each day for 5 days you'll end up at 95.10. It's simply that x% from a larger number is always greater than x% from a smaller number. You'd think they would know that before filing the suit.
I'm finding ambiguity in the Prospectus right now. It definitely gives you hope that it can perform equally in the long run from the wording. I don't have time to read it all now, but nothing jumped out in the first few pages like the Direxion one
Coming Soon ...You Too Can Be a High Frequency Trader... the index strives to replicate 100X the performance of the benchmark HFT index for a period no longer than 1/1000 of a second...No animals were harmed during this process
Yet another lawsuit launched by morons who have no idea that they are morons. Read this: http://www.apa.org/journals/features/psp7761121.pdf
At the risk of sounding like a broken record: DAILY PERFORMANCE, DAILY PERFORMANCE, DAILY PERFORMANCE.
If you suffer a loss of 50% one day, then you need a 100% gain to get back where you were the next day. Duh. Let's speed things up by assuming 50% motion per day, up and down consecutively.
100.00
50.00
75.00
37.50
56.25
28.13
42.19
21.09
31.64
15.82
23.73
11.87
17.80
8.90
13.35
6.67
10.01
5.01
7.51
3.75
5.63
2.82
4.22
2.11
3.17
1.58
2.38
1.19
1.78
0.89
1.34
0.67
1.00
99% loss and the ETF did *exactly* what it was supposed to do. Only an idiot buys and holds these things, it's not what they're designed for. Frivolous law suit.
What is missing from the terminally dense here is that the ETF should have been reviewed and rejected by the SEC. I don't hear any of the sef-righteous here stating that they saw the flaw and are now retired. They call those who traded them idiots. But they are, in fact, the bigger fool if they saw how to exploit a flaw and did nothing.
Dems the facts, Jack!
What flaw? There is no flaw. I made the mistake of holding DIG as my first leveraged ETF trade, was surprised by subsequent motion and exited with a small loss. I then BOTHERED to RTFM on these things, which is freely available and very easy to understand.
Since then I have been regularly trading FAS/FAZ, SRS and ERX/ERY with no problems, never holding for more than a couple of days, typically just day-trading.
These things are awesome when used correctly, a killer when bought and held by people who were too lazy to read the manual. No sympathy is owed to people who don't do due diligence and I'm not holding my hand out for compensation for the loss I incurred at first. I deserved it because I was an idiot.
The only form of protection that the SEC should consider is auto-close. The things are designed for intraday trading only, so mandate that all positions be closed at the end of the day. Don't LET idiots burn themselves.
Personally, I don't like that because I often deliberately gamble on the daily gap on these things.
You understand the math well.
You understand the law poorly.
A totally ridiculous and frivolous lawsuit.
But, I'm very sure that the lawyers understand what the phrase "daily compounding" means, even if most so called "fund managers" don't.
Yes, frivolous lawsuit. But should funds like this be legal in the first place?
The 'disappearing capital' does go somewhere. It goes to fund managers and to whoever takes the other side of the swaps used by the funds.
Maybe not illegal now, but should be. Not good for the market.
The Tracking Risk and Correlation Risk for holding these funds for longer than a day are specifically disclosed in the prospectus, the prospectus supplement, and the statement of additional information. What more can you ask for?
Someone's going to burn a lot of associate time and expenses only to find themselves on wrong side of a ruling dismissing the case.
If people want to speculate, let them. It's immaterial that wealth is "destroyed" whenever the croupiers take their cut.
The one fact, this lawsuit omitted, is that Ultra ETF's allow people to circumvent the Federal Reserve's REG T requirement of Margin. http://en.wikipedia.org/wiki/Regulation_T
I lost close to 1700 dollars between SRS and FAZ before I realized they were just plain bad investments- too volatile. Meredith Whitney's call on GS caught me with my pants down and both were down 10% before I even knew what hit me.
Nevertheless, if they end up recovering money from this and awarding it to me....I won't turn it down. I'll write a check to Peter Schiff's senatorial campaign.
http://www.scribd.com/doc/14485183/BGI-Leveraged-Etf
These fund systematically funnel market capital away from investors BY DEFINITION. The cost of the leverage they employ eventually leads them all to zero.
This is the same phenomenon as HFT. If you want to argue for your freedom to be systematically fleeced, that's fine. The fund managers are laughing all the way to the bank.
1x short/long fund, ok
2x and 3x and 4x, not ok
Get leverage the old-fashioned way, borrow and take a bigger position. That way you'll actually understand your risk.
You know what, a craps table also systematically funnels capital to zero, and those are allowed.
It's not the place of the plaintiffs' securities bar to determine what market products are allowed or not allowed. The only question is whether the character of the product is disclosed, and here, it is.
For some of us, these funds have legitimate uses regardless of the fact that they lead to zero over the long term because the holding period for these funds is supposed to be for a 1 day period, not for all time (I'm tempted to remind you of Zerohedge's motto -- or Keynes' -- over the long term, we're all dead.)
The expected decay extracted out of the fund due to the operation of leverage is a known factor, and is part of the price you pay to participate in this trade. The ETF is recapitalized over time through reverse splits to accomodate this feature.
These products are perfectly fair - swim at your own risk.
a reverse split doesn't recapitalize anything
just sayin'
A craps table is allowed, but not under the Securities and Exchange Acts of '33 and '34.
Those were created to maintain market integrity.
If you are big enough to have legitimate uses for these funds, you are big enough to do the swap transactions yourself, and play with the big boys.
"You know what, a craps table also systematically funnels capital to zero, and those are allowed."
If that's the argument, then this suit is probably going to win...
"Defendants failed to disclose the following risks in the Registration Statement: (1) inverse correlation between the SRS Fund and the DJREI over time would only happen in the rarest of circumstances, and inadvertently if at all; (2) the extent to which performance of the SRS Fund would inevitably diverge from the performance of the DJREI—i.e., the probability, if not certainty, of spectacular tracking error;"
This is actually true, people...
There is no "decay." These products are path-dependent and thus have a completely different risk-characteristic from options. If the underlying index takes a month to double but the path to get there was highly volatile (up one day then down the next) vs. smooth and trendy (think small incremental increases day after day) the ending price of the leveraged indexes will be much different. In effect, these products are long "trend" risk and short "chop" risk, to coin a couple of terms.