Johnson & Weaver, LLP Files Class Action Suit against Catalyst Hedged Futures Strategy Fund
SAN DIEGO—(PRNewswire)—June 13, 2017
Shareholder rights law firm Johnson & Weaver, LLP announced that a class action has been filed in the United States District Court for the Eastern District of New York on behalf of all purchasers of Catalyst Hedged Futures Strategy Fund. Class A: (NASDAQ: HFXAX), Class C: (NASDAQ: HFXCX), Class I: (NASDAQ: HFXIX) (“Catalyst Futures Fund” or the “Fund”) common stock during the period between November 1, 2014 and April 28, 2017, inclusive (the “Class Period”). Defendants are Mutual Fund Series Trust, Catalyst Capital Advisors LLC, Northern Lights Distributors LLC, Jerry Szilagyi, Tobias Caldwell, Tiberiu Weiz, Bert Pariser, Erik Naviloff and Edward Walczak.
If you wish to serve as a lead plaintiff, you must move the Court no later than June 27, 2017. If you wish to discuss this action, have any questions concerning this notice, or your rights or interests, please contact lead analyst Jim Baker (jimb@johnsonfistel.com) at 619-814-4471. If you email, please include your phone number.
If you are a member of this class, you can view a copy of the complaint as filed or join this class action online at http://www.johnsonfistel.com. Any member of the putative class may move the Court to serve as lead plaintiff through counsel of their choice or may choose to do nothing and remain an absent class member.
The complaint charges the registrant for the Fund, certain of the Fund’s executive officers and/or trustees, the investment advisor to the Fund, Catalyst Capital Advisors, LLC (“Catalyst Advisors”), and the underwriter for the ongoing offering of Fund shares with violations of the Securities Act of 1933. The Fund is a mutual fund that invests primarily in long and short call and put options on Standard & Poor’s 500 Index (the “S&P 500”) futures contracts and in cash and cash equivalents. It is part of the Mutual Fund Series Trust, an open-end investment management company.
In August 2013, the Fund was converted from a hedge fund to a mutual fund, which allowed Catalyst Advisors to raise capital for the Fund from ordinary retail investors and the general public. While hedge funds are generally limited to high net-worth individuals and institutional investors who are presumed to be more sophisticated in analyzing investment strategies and risks, mutual funds are much more extensively regulated to limit the amount of risk mutual funds can take on and provide enhanced registration and disclosure obligations.
The complaint alleges that after the Catalyst Futures Fund was reorganized as a mutual fund, defendants marketed and sold shares of the Fund as a low-risk, low-volatility investment with minimal correlation to the U.S. equity market. The Prospectuses for the Fund stated that the Fund “places a strong focus on risk management that is intended to provide consistency of returns and to mitigate the extent of losses. . . . [T]he Fund employs strict risk management procedures to adjust portfolio exposure as necessitated by changing market conditions.” The complaint alleges that these statements and others like them in the Fund’s Prospectuses and Registration Statements issued in connection with the offerings of Fund shares were inaccurate statements of material fact because they did not disclose that the Catalyst Futures Fund continued to invest as if it were a hedge fund, taking massive directional bets against U.S. stock market indices through complex derivative instruments, thereby exposing investors to the heightened risk of loss of capital.
Then, in February 2017, the Catalyst Futures Fund experienced a sudden drop in the net asset value (“NAV”) of Fund shares, with the Fund losing $600 million in value in a matter of days. Between February 2 and February 15, 2017, the NAV for the Fund’s Class A shares fell from $10.59 per share to $8.98 per share, a decline of more than 15%. Around this same time, several media organizations began reporting on the erosion in Fund value, characterizing the loss as a “‘melt-down’” and stating that the Fund was “‘blowing up.’” According to the complaint, it was eventually revealed that the Catalyst Futures Fund had taken out massive option contracts that effectively “shorted” the S&P 500, meaning that the Fund had made a directional bet that the general equity market would not rise significantly in value. As the market rallied around the time these options were set to expire in mid-February 2017, the Fund experienced rapidly accelerating losses, as it had little time for the market to reverse itself and for the bet to return to profitability. As these undisclosed risks materialized, the Fund’s investors suffered hundreds of millions of dollars in losses, with the value of Fund assets plummeting over $1 billion since the beginning of 2017. Between February 2, 2017 and March 15, 2017, the NAV of the Fund’s Class A shares, Class C shares and Class I shares has declined approximately 21%, or $2.22 per share, $2.16 per share and $2.23 per share, respectively.
Plaintiff seeks to recover damages on behalf of all purchasers of Catalyst Futures Fund during the Class Period.
About Johnson & Weaver, LLP:
Johnson & Weaver, LLP is a nationally recognized shareholder rights law firm with offices in California, New York, and Georgia. The firm represents individual and institutional investors in shareholder derivative and securities class action lawsuits. For more information about the firm and its attorneys, please visit http://www.johnsonfistel.com. Attorney advertising. Past results do not guarantee future outcomes.
Contact:
Johnson & Weaver, LLP
Jim Baker, 619-814-4471
jimb@johnsonfistel.com