New Federal Class Action Lawsuit Involves Cushing and Failed WTI Investment Strategy



Cushing, Oklahoma may be the self-proclaimed Pipeline Crossroads of the World but it’s now the epicenter of a contentious federal securities class action complex litigation matter.

A federal lawsuit was filed last week in the United States District Court for the Southern District of New York on behalf of investors of the United States Oil Fund, LP. The case, Lucas v. United States Oil Fund, LP et al., No. 1:20-cv-04740 was filed on June 19, 2020 and was assigned to Judge Paul G. Gardephe. Multiple press releases issued by plaintiffs’ attorneys reveal the class action was filed on behalf of shareholders who purchased USO securities between March 19, 2020 and April 28, 2020.

USO is an exchange-traded fund designed to track the daily changes in percentage terms of the spot price of West Texas Intermediate light, sweet crude oil delivered to the storage hub at Cushing.

The lawsuit alleges that certain USO officers and directors engaged in securities fraud or other unlawful business practices by stating that USO would achieve its investment objective by investing nearly all of its portfolio assets in the near month West Texas Intermediate futures contract. Due to extraordinary market conditions in early 2020, including the economic impact of the COVID-19 pandemic and a price war between Saudi Arabia and Russia, USO’s purported investment objective and strategy became unfeasible. Due to the nature of the fund’s investment strategy, these and other converging factors caused exceptional losses and undermined USO’s ability to meet its investment objective. Rather than disclose the known impacts and risks to the fund as a result of these exceptional threats, USO instead conducted a massive offering of shares, ultimately selling billions of dollars’ worth of USO shares to the market.  According to the complaint, USO held an offering of billions of dollars of USO shares in March 2020 rather than disclose the known impacts and risks to the fund.

The lawsuit also alleges that while the offering increased the fees payable to USO, 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.

Lawyers representing the class allege the fund suffered billions of dollars in losses which forced the fund to abandon its investment strategy. Through a series of rapid-fire investment overhauls, USO allegedly was forced to transform from the passive ETF designed to track spot oil prices that its principals had pitched to investors to an almost unrecognizable actively managed fund struggling to avoid a total implosion. In April and May 2020, USO’s principals 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.

The deadline for opting into the proposed class is August 18, 2020.