Skip to main content

Steve Hawkins, CEO of Horizons ETFs Management (Canada) Inc.Fred Lum/The Globe and Mail

An Ontario court has approved a controversial class-action lawsuit that was originally dismissed against Horizons ETFs Management (Canada) Inc., claiming retail investors lost 90 per cent of the value of their investment in one day when a complex inverse exchange-traded fund collapsed.

On Monday, Crawley MacKewn Brush LLP publicly announced that Ontario Superior Court Justice Paul Perell last year certified its class-action lawsuit against Toronto-based Horizons. The class action relates to the design and management of the company’s BetaPro S&P 500 VIX Short-Term Futures Daily Inverse ETF, also known by its ticker HVI.

A certification in court means a judge has determined that the best option to manage the multiple claims would be through a class action, and not have individual investors file their own individual lawsuits.

CMB, a Toronto-based law firm, first filed the class action in May, 2018, and conservatively estimates that investors lost more than $40-million. The class-action plaintiff, Graham Wright, bought units of HVI as a retail investor and claims he lost about $210,000 when the Dow Jones Industrial Average fell 1,175 points, or 4.6 per cent, on Feb. 5 that year.

“We cannot calculate the full amount of the losses incurred by investors until we receive more detailed information to establish how many units of HVI were issued and outstanding on February 5, 2018,” Alistair Crawley, a partner with CMB, said in an e-mail.

The VIX Index is known in the investment industry as the “fear gauge” of the U.S. equities market, as it measures how volatile investors expect the market to be in the short term. Several ETFs in the United States and Canada that are tied to the CBOE Volatility Index saw most of their assets wiped out in a day in 2018.

HVI, which Horizons shut down in June, 2018, lost 90 per cent of its value in a single trading day after a spike in volatility occurred in February, 2018.

The proposed class action alleges that Horizons acted “negligently” by packaging an extremely complex institutional- trading strategy into product for sale to retail investors as an ETF. The strategy, according to the statement of claim, was “a bet against stock market volatility through complex futures instruments.”

Mr. Crawley is now asking any investors who wish to opt out of the class action to do so by July 4. Investors who wish to participate in the lawsuit do not have to do anything.

The class-action certification was originally dismissed by a lower court judge in June, 2019. The ruling was later overturned by Justice Perell and the class action was certified in May, 2021.

“We are going to continue to defend this action vigorously,” Horizons chief executive officer Steve Hawkins said in an interview. “This is a frivolous lawsuit without merit. We issued a prospectus that fully described all the risks of investing in HVI including the potential for substantial loss when volatility spiked.”

The case is still in the discovery process and therefore no court date has been set.

Editor’s note: And earlier version of this story said HVI was shut down in March, 2018. It was, in fact, shut down in June, 2018

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.