Corporate & Securities Law

SNSFE is investigating exchange-traded funds, known as ETFs.  Both the regulators and class action lawyers are paying close attention to that category of exchange-traded funds that are known as leveraged or inverse.  These funds made heavy bets either on the direction of an index or through the use of leverage and many have suffered dramatic losses.  To date, approximately nine class actions have been filed and SNSFE continues to investigate.  The defendants so far have included ProShares as well as Direxion.

On another front, exchange-traded funds that are so-called 2010 "glide-paths" also have experienced losses.  Indeed, in a recent Morningstar report, Morningstar pointed out that there is a great disparity in the glide-paths -- which is the ratio of stocks to bonds that is held by a target-date series as it changes over time -- between funds each labeled 2010.  The glide-paths for the 2010 funds have diverged sharply.  At the upper end, two fund families have more than 70% of their 2010 funds' assets placed in equities. Conversely, three families have fewer than 30% of their 2010 investments in stocks. This divergence in asset allocation resulted in a wide difference in performance during the dramatic 2008 market, when losses in the 2010 category ranged from a modest 9% to a breathtaking 41%.  Query whether investors in those funds, and unfortunately whether employees who held these funds in their 401(k) plans, adequately were disclosed the risk of holding such funds.

SNSFE continues to investigate this fund category and other later series.

Source:  Morningstar