SAN FRANCISCO – Hagens Berman Sobol Shapiro LLP is investigating shareholder losses related to the price discrepancies that arose between Exchange-Traded Funds (“ETFs”) and their underlying assets on August 24, 2015. If you suspect you have losses in your investments in an ETF as result of such price discrepancies or have knowledge relevant to the investigation, contact Hagens Berman Partner Reed Kathrein, who is leading the firm’s investigation, by calling (510) 725-3000, or emailing [email protected].

When U.S. financial markets plunged on August 24, 2015 – on that day, the S&P 500 index fell as much as 5.3% in the opening minutes of trading, eventually finishing the day down 3.9%. Numerous ETFs traded at steep discounts relative to the sum of their holdings. This delta confirmed many analysts’ and scholars’ fears that, in times of volatility, ETFs are not as liquid as advertised.

As an example, at 9:42 a.m. on August 24, Black Rock’s iShares Select Dividend ETF (NYSEArca: DVY) tumbled 35% to $48, which was its lowest price of the day. At that time, the combined weighted values of the stocks held by the ETF was $72.42 – down only 2.7%.  Similarly, the Guggenheim S&P Equal Weight ETF (NYSEArca: RSP) dropped 43% before gradually recovering throughout the day. Other ETFs with similar swings that day were the PowerShares S&P 500 Low Volatility ETF (NYSEArca: SPLV) down as much as 46% and the PureFund ISE Cyber Security ETF (NYSEArca: HACK) which fell as much as 33%. Other ETFs suspected as having price dislocations on August 24, 2015 include: iShares Core S&P Small Cap ETF (NYSEArca: IJR) which tumbled 34% in early trading;  the $66 billion iShares Core S&P 500 ETF (IVV) was down a whopping 26% before bouncing back to close within fractions of a percentage point away from the benchmark; and the Schwab U.S. Small-Cap ETF (NYSEArca: SCHA).

Additionally, the Vanguard Small Cap  (NYSEArca: VB) dropped while the $2.5 billion Vanguard Consumer Staples Index ETF (NYSEArca: VDC) and the $5.8 billion Vanguard Health Care Index ETF (NYSEArca: VHT) plunged 32% within the opening minutes of trading on that day. Trading records show that VDC was halted six times over the course of 37 minutes early in the day while VHT halted eight times.

The disconnected price declines occurred in some of the industry’s largest funds: The $19 billion Vanguard Dividend Appreciation ETF (NYSEArca: VIG), which is focused on blue-chip stocks, traded down by as much as 37% while the net asset value of the stocks in its index only fell about 7%. Finally, the $13 billion SDPR S&P Dividend ETF’s (NYSEArca: SDY) price dropped by as much as 38%, although the value of its stock index declined by only 6.2%. 

Although the prices eventually corrected, retail investors lost an undetermined amount. Volatility in ETF markets could have an enormous impact on investors as ETFs in the U.S. comprise roughly $2.4 trillion in assets under management and make up over 27% of stock trading volume on U.S. Exchanges.

Among the issues we are looking at in our investigation include representations made by ETF sponsors about pricing, the role of participating dealers and market makers such as Goldman Sachs and KCG Holdings Inc., who are supposed to ensure that there is always a bid and offer quote at which to trade, and the role of high speed trading and arbitrage by the market makers and others. We are also interested in talking with investment advisors, investors who used trailing orders in ETFs, and persons with non-public knowledge about those who profited from the price dislocations.

Whistleblowers: Persons with non-public information regarding any ETF should consider their options to help in the investigation or take advantage of the SEC Whistleblower program. Under the SEC whistleblower program, whistleblowers who provide original information may receive rewards up to 30 percent of any successful recovery made by the SEC. For more information concerning your whistleblower options, call Reed Kathrein at (510) 725-3000 or email [email protected].

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Contact:
Reed Kathrein, (510) 725-3000