United States Oil Fund, LP

Period: 03/19/2020 to 04/28/2020
Lead Plaintiff Deadline: 08/18/2020

SUMMARY OF CASE:

A securities class action has been filed against United States Oil Fund, LP (USO) on behalf of all purchasers of securities of United States Oil  during the period between March 19, 2020 through April 28, 2020 .  This case has been filed in the USDC – S.D.N.Y.

The USO class action lawsuit charges USO and certain of its officers and directors with violations of the Securities Exchange Act of 1934. USO is an exchange traded fund (“ETF”) purportedly designed to track the daily changes in percentage terms of the spot price of West Texas Intermediate (“WTI”) light, sweet crude oil delivered to Cushing, Oklahoma. Because retail investors are generally not equipped to buy and sell barrels of oil or authorized to trade oil futures, ETFs such as USO provide one of the primary means by which such investors can gain exposure to fluctuations in oil prices.

The complaint alleges that during the Class Period, defendants stated that USO would achieve its investment objective by investing substantially all of its portfolio assets in the near month WTI futures contract. However, unbeknownst to investors, extraordinary market conditions in early 2020 made USO’s purported investment objective and strategy unfeasible. Oil demand fell precipitously as governments imposed lockdowns and businesses halted operations in response to the coronavirus pandemic. In addition, in early March 2020, Saudi Arabia and Russia launched an oil price war, increasing production and slashing export prices in a bid to increase the global market share of their domestic petrochemical enterprises. As excess oil supply increased and oil prices waned, the facilities available for storage in Cushing, Oklahoma approached capacity, ultimately causing a rare market dynamic known as “super contango” in which the futures prices for oil substantially exceeded the spot price. At the same time, retail investors began pouring hundreds of millions of dollars into USO in an attempt to “buy the dip,” believing (correctly) that the price of oil would rebound as economies exited lockdown periods and the Russia/Saudi oil price war ended. Because of the nature of USO’s investment strategy, these converging factors caused the Fund to suffer exceptional losses and undermined the Fund’s ability to meet its ostensible investment objective.

According to the complaint, defendants, as the creators, issuers and operators of the largest oil-related ETF in existence and active market-making players in the complex commodities and futures markets that determined the Fund’s performance, possessed inside knowledge about the negative consequences to the Fund as a result of these converging adverse events. However, rather than disclose the known impacts and risks to the Fund as a result of these exceptional threats, defendants instead commenced an offering of USO shares in March 2020, ultimately selling billions of dollars’ worth of USO shares to the market. Although the offering increased the fees payable to defendants, it also exacerbated the undisclosed risks to the Fund by magnifying trading inefficiencies and causing USO to approach position and accountability limits as a result of the Fund’s massive positions in the WTI futures market.

Ultimately, the Fund suffered billions of dollars in losses and was forced to abandon its investment strategy. Through a series of rapid-fire investment overhauls, USO was forced to transform from the passive ETF designed to track spot oil prices that defendants had pitched to investors to an almost unrecognizable actively managed fund struggling to avoid a total implosion. In April and May 2020, defendants belatedly acknowledged the extreme threats and adverse impacts that the Fund had been experiencing at the time of the March offering, but which they had failed to disclose to investors.