Class action over Horizons leveraged ETF abandoned

A proposed shareholder class action over a fund manager’s decision to reduce the leverage in a leveraged ETF is being abandoned by the plaintiffs, after failing to secure litigation funding.

The Ontario Superior Court of Justice granted leave to discontinue a proposed class action against Horizons ETFs Management (Canada) Inc., and several executives and directors at the firm.

The suit was launched in response to an April 2020 decision by the firm to reduce the leverage used by the BetaPro Crude Oil Leveraged Daily Bull ETF from “two times” to “one times” the movement in oil futures.

The proposed class action (which initially started as two separate actions that were later combined) initially alleged that the move hurt investors’ returns, and was “oppressive, negligent, and in breach of a fiduciary duty owed to shareholders,” the court noted.

After the firm provided its defence, revealing new facts, the claim was amended to allege negligent misrepresentation, prospectus misrepresentation, and secondary market misrepresentation.

The court noted that the plaintiffs and their counsel then sought outside funding for the litigation, but ultimately failed to find that financing — so they decided to drop the case.

“Plaintiffs’ counsel submit that under the circumstances, the risks of continuing to prosecute the action are high, and the potential for adverse costs against the plaintiffs is significant,” the court noted in its decision.

The plaintiffs, their counsel, and the defendants in the case entered into a discontinuance agreement that includes various provisions, such as the plaintiffs agreeing not to pursue individual actions against the defendants; the defendants agreeing not seek costs in connection with the discontinuance; and the defendants paying $225,000 to help cover plaintiffs’ counsel’s expenses, with no other costs or legal fees paid to plaintiffs’ counsel.

In approving the discontinuance, the court said the lawsuits “were brought in good faith and leave to discontinue is likewise being sought in good faith. There is no suggestion that this action was brought as a meritless ‘strike suit’ designed simply to extract a payment as the price of discontinuance.”

It also said that the discontinuance was justified, and that the terms of the proposed discontinuance, including the payment to plaintiffs’ counsel, was “fair and reasonable”.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.