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Class action filed against ProShares UltraShort Basic Materials fund

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Bernstein Liebhard has filed a class action lawsuit on behalf of all persons who purchased shares in the UltraShort Basic Materials fund, an exchange-traded fund offered by ProShares Trust, pursuant or traceable to ProShares’ false and misleading registration statement.

The class is seeking to pursue remedies under Sections 11 and 15 of the Securities Act of 1933.

The complaint, filed in the US District Court for the Southern District of New York, names ProShares, ProShare Advisors, SEI Investments Distribution, Michael L. Sapir, Louis M. Mayberg, Russell S. Reynolds III, Michael Wachs, and Simon D. Collier, as 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 UltraShort Basic Materials fund seeks investment results that correspond to twice the inverse (-200 per cent) of the daily performance of the Dow Jones US Basic Materials Index. Accordingly, the fund is supposed to deliver double the inverse return of the index, which fell in approximately 52 per cent in 2008. Rather than increase approximately 104 per cent (double the inverse), the fund has fallen approximately 3.5 per cent in 2008.

The complaint alleges the defendants violated the Securities Act by failing to disclose the following risks in the registration statement: if shares were held for a time period longer than one day the likelihood of catastrophic losses was huge; and the extent to which performance of the fund would inevitably diverge from the performance of the index.

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