Risks of Commodity ETFs Highlighted in U.S. Oil Fund’s Travails


Securities regulators have warned the largest U.S. crude-oil exchange-traded fund that it could face enforcement action related to its overhaul after oil crashed earlier this year, the latest development illustrating the dangers of trading complex commodity products.

The U.S. Oil Fund disclosed Wednesday that it received a Wells notice from the Securities and Exchange Commission two days earlier. The notice is tied to the fund’s disclosures and actions related to its position in oil futures that went haywire in April and May, resulting in sizable losses for investors.

A Wells notice is a letter saying the SEC plans to bring an enforcement action against a company or individual and gives the recipients a chance to argue why that action shouldn’t be taken. The notice was sent to the U.S. Oil Fund, the company that operates it—United States Commodity Fund LLC—and that company’s chief executive.

The parties have also been named in multiple class-action lawsuits brought by investors who suffered losses when the fund’s price dropped toward zero. Those lawsuits allege that the fund didn’t properly disclose the risks of investing as the coronavirus sapped oil demand and a market-share battle between Saudi Arabia and Russia increased global supplies. U.S. crude-oil prices briefly turned negative for the first time ever in late April as a result of the glut.

The U.S. Oil Fund and its operators have said in regulatory filings that their disclosures and actions were appropriate and that they intend to fight the allegations by the SEC and lawsuit plaintiffs. The U.S. Oil Fund didn’t respond to a request for comment Wednesday. The SEC declined to comment.



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