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SKF in Class Action Case

The following is an excerpt form an article carried by regarding a Class Action involving SKF. It would appear that some of these newer investment vehicles cannot deliver everything that they purport to be able to do. The outcome of this court case should help to clarify matters for us.

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 SKF Fund is one of ProShares' UltraShort ETFs. The SKF Fund seeks investment results that correspond to twice the inverse (-200%) daily performance of the Dow Jones U.S Financials Index ("DJFIX"), which measures the performance of the real estate sector of the U.S. equity market. Accordingly, the SKF Fund is supposed to deliver double the inverse return of the DJFIX, which fell approximately 52.2 percent from January 2, 2008 through December 17, 2008, ostensibly creating a profit for investors who anticipated a decline in the U.S. financials market. In other words, the SKF Fund should have appreciated by over 104 percent during this period. However, the SKF Fund only appreciated approximately 2.2 percent during this period.

The complaint alleges the Defendants violated the Securities Act by failing to disclose the following risks, inter alia, in the Registration Statement: (1) if SKF Fund shares were held for a time period longer than one day, the likelihood of catastrophic losses was huge; and (2) the extent to which performance of the SKF Fund would inevitably diverge from the performance of the DJFIX -- i.e., the overwhelming probability, if not certainty, of spectacular divergence.
Plaintiff in the SKF Action seeks to recover damages on behalf of all Class members who purchased or otherwise acquired shares of ProShares SKF. If you purchased or otherwise acquired ProShares SKF shares, and either lost money on the transaction or still hold the shares, you may wish to join in the action to serve as lead plaintiff. In order to do so, you must meet certain requirements set forth in the applicable law and file appropriate papers no later than October 20, 2009.

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Reader Comments (4)

I've been watching SKF Ultra short options as of late. In your professional opinion, how would this class action case affect a small trade position in the above at this time? Is there a better and similar trade vehicle? Oh by the way, my timing was off on GOLD puts last month. Took a small hit due to bad timing, stopped out at -70%. But jumped back in with a larger position for October puts. Record highs usually never hold. Presntly up about 200% for the week. Sell order has been placed. Isn't volitility great? Hahaha. Thanx for a most excellent site. Cheers!

October 3, 2009 | Unregistered CommenterRick Nielsen

Dear Editors,

I hold shares of SKF and was anticipating that they would appreciate in value by a large margin during further troubles for the financials markets.

I don't have enough shares to be a major plaintiff in a class action. Would I still be reimbursed for losses or the like from a successful class action lawsuit in this matter?

I also hold shares of FAZ, which I believe is run by the same group as who runs SKF. Could this ETF also be in for a class action suit?

October 3, 2009 | Unregistered CommenterS

Do you have a link to sign up as a class member?

October 5, 2009 | Unregistered Commenterjcs

This is ridiculous. SKF and all the double-short ETFs are designed for day (or perhaps the occasional multi-day) trades. They are only responsible for AIMING at DAILY returns.

If someone is too stooooopid to understand volatility-based decay of long-term holdings during periods of high volatility, well then... boo hoo to them.

Ouch Mommy, I burned my finger playing with matches. Let's sue the company that makes matches.


October 5, 2009 | Unregistered CommenterDaniel

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