Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—S.D.N.Y.: Oil fund did not mislead about effects of COVID, oil price war, (Sep 30, 2025)

By Rodney F. Tonkovic, J.D.

The fund adequately disclosed the risks that it faced in an unprecedented environment and explained that its strategies could also change.

A complaint alleging securities fraud by United States Oil Fund regarding its disclosures about Covid-19 and an oil price war was dismissed. The fund was an ETF tracking the price of crude oil. In early 2020 COVID-19 and an oil price war roiled the market, and the fund had to confront rapidly-changing circumstances. The plaintiff alleged that the fund's registration statements during this period failed to disclose the risks associated with these factors. The district court sitting in Manhattan concluded that the defendants adequately disclosed what information they had in an unsettled and unprecedented environment. The court accordingly dismissed the complaint, but with leave file a detailed motion to amend (In re United States Oil Fund, LP Securities Litigation, No. 1:20-cv-04740 (S.D. N.Y. Sept. 29, 2025)).

A volatile market. United States Oil Fund is one of the largest exchange traded funds (ETFs) of its kind and invests in futures contracts referencing barrels of oil. Specifically, USO tracked daily changes in the spot price of West Texas Intermediate (WTI) crude oil.

The class period began in February 2020, when USO filed a prospectus to sell over 400 million shares. WTI trading volume increased after the offering, but at the same time, the price of WTI futures contracts fell in correspondence with a steep drop in crude oil prices.

At the same time, the COVID-19 pandemic had started to affect commodity markets. Responding to falling oil prices, the OPEC countries proposed to cut oil output. Saudi Arabia and Russia then engaged in a price war, and the global markets were full of cheap oil. WTI contracts became extremely volatile, and USO suffered substantial investment losses. By late April 2020, WTI front month futures contracts fell to a negative price for the first time.

In April 2020, USO filed a registration statement that, for the first time, explicitly mentioned the market disruptions associated with the pandemic. Soon after, USO announced changes to its investment strategy due to extraordinary market conditions as well as "regulatory and marketplace limits placed on the Fund." In August 2020, both the CFTC and SEC issued Wells Notices to USO based on its disclosures to investors and changes made to its investment strategies.

Fraud claims. The complaint alleged that USO made false statements about new risks of known adverse trends and uncertainties that would impact the fund. The plaintiffs brought claims for fraud under the Exchange Act and under Section 11 of the Securities Act. For its part, USO argued that the fund's features and risks that allegedly caused its value to decline were not required to be updated to disclose market developments in real time.

The complaint challenged statements made in registration statements issued in February and March 2020 about the risk factors involved with investing in USO. These statements were allegedly false because they did not adequately disclose risks associated with COVID and the oil price war.

The court found no actionable false statements or omissions in the registration statements. For example, the ongoing effects and duration of both the pandemic and oil price war were not clear even as of March 2020, and there was no showing that USO had special knowledge about these matters at the time. Other statements concerning the fund's liquidity and performance were not misleading because, among other reasons, they were statements of opinion or historical data. The registration statements also adequately warned that USO could be subject to marketplace and regulatory position limits and that its investment strategy could change.

Other elements. The court went on to find that even if there were a false statement, the complaint failed to show scienter. The motives alleged by the plaintiffs were those common to all corporate officers. As to recklessness or conscious misbehavior, the complaint's "meager" allegations failed to explain how information available to the defendants contradicted their public statements. The inference that USO erred on the side of marking broad statements instead of trying to describe a rapidly shifting environment in detail was more compelling to the court.

The court went on to dismiss claims brought under Section 11 of the Securities Act. In particular, the court examined an assertion that the registration statement failed to disclose known trends under Item 303 of Regulation S-K. Since all of the cited events occurred in less then two months, there was not time for there to be a "trend" under Item 303, the court said.

The case is No. 1:20-cv-04740.

Judge: Gardephe, P.

Attorneys: David Avi Rosenfeld (Robbins Geller Rudman & Dowd LLP) for Nutit, A.S. Curtis Victor Trinko (Law Offices of Curtis V. Trinko, LLP) for Robert Lucas. Amy D. Roy (Ropes & Gray LLP) for United States Oil Fund, LP, U.S. Commodity Funds LLC and John P. Love.

Companies: Nutit, A.S.; United States Oil Fund, LP; U.S. Commodity Funds LLC

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