Ropes & Gray Secures Dismissal of Securities Class Action Targeting Leveraged and Inverse ETFs

A Ropes & Gray litigation team secured a victory on behalf of Direxion Shares ETF Trust—a major sponsor of leveraged and inverse exchange traded funds (ETFs)—and its adviser, directors, and officers in a years-long dispute with a plaintiff who had brought a securities class action seeking millions in damages arising from alleged losses in several Direxion ETFs at the outset of the Covid pandemic.

The ETFs are sophisticated investment products that seek to track a multiple, or the inverse of a multiple, of the performance of an underlying benchmark or index—here, indices that were exposed to gold and silver mining industries. The plaintiff brought claims under Sections 11 and 15 of the Securities Act and Sections 9(a)(2), 9(f), 10(b), 18(a) and 20A and Rule 10b-5 of the Exchange Act, alleging not only that the ETFs’ disclosures were misleading, but also that the defendants engaged in market manipulation and insider trading.

On August 25, 2023, Judge Valerie E. Caproni of the United States District Court for the Southern District of New York dismissed the suit with prejudice. Judge Caproni’s opinion adopted Ropes & Gray’s arguments that Direxion’s robust disclosures – including about the risks of investing for periods of longer or shorter than a single trading day – barred the plaintiffs’ claims that the defendants had committed actionable misrepresentations, and that there were no facts alleged to support plaintiffs’ market manipulation and insider trading theories.

The Ropes & Gray team consisted of litigation & enforcement partners Amy Roy and Rob Skinner and associates Will Piereson and Ethan Fitzgerald.