Emerson v. Mutual Fund Series Trust

Updated: January 24, 2018
Status: Ongoing Case

On January 8, 2018, Labaton Sucharow was appointed co-lead counsel in a securities class action lawsuit on behalf of plaintiff Jeffrey Berkowitz against the defendants, Catalyst Hedged Futures Strategy Fund (Fund), its investment advisor Catalyst Capital LLC, its principal underwriter, and certain of the Fund’s executives and/or trustees. The action asserts claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, on behalf of all persons or entities that purchased or otherwise acquired shares of the Catalyst Futures Fund between November 1, 2014 and April 28, 2017 (the class period).

The Catalyst Hedged Futures Strategy Fund is a mutual fund within the Mutual Fund Series Trust, an investment management company with several investment funds that are marketed under the Catalyst brand. The Fund’s primary investment strategy is to invest in long and short call and put options. Prior to August 2013, the Fund operated as a hedge fund known as Harbor Assets, LLC. In order to raise additional capital from ordinary retail investors and the general public (as opposed to just high net worth individuals and institutional investors), the Fund converted from a hedge fund to a mutual fund. The Fund’s conversion required it to comply with the Investment Company Act of 1940 which limits the risk mutual funds can assume and increases the Fund’s registration and disclosure obligations to protect average investors.  

Throughout the class period, the Fund allegedly made false and misleading statements that the Fund would be a low-risk, low-volatility investment with minimal correlation to the U.S. equity market. Contrary to such statements, the Fund continued to invest as if it were a hedge fund, using complex derivative instruments to take massive positions betting against the rise of U.S. stock market indices, including the S&P 500.  

The Fund experienced rapidly accelerating losses in February 2017 as the U.S. stock market rallied and the Fund’s options were set to expire. As a result, the Fund experienced a sudden and dramatic drop in the net asset value of Fund shares, with $600 million of Fund value lost in a matter of days and the Fund’s “Class A” share price declining more than 15 percent. Since the beginning of 2017, the value of Fund assets have plummeted over $1 billion.

The case is Emerson v. Mutual Fund Series Trust, No. 17-cv-2565 (E.D.N.Y.). The lead plaintiffs are Jeffrey Berkowitz, Almendinger, Debra Folk, Earle Folk, Maryann Lovelidge, Tom Lovelidge, and William H. Tod. Labaton Sucharow represents lead plaintiff Jeffrey Berkowitz. The defendants include Catalyst Hedged Futures Strategy Fund (Fund), its investment advisor Catalyst Capital LLC, its principal underwriter, and certain of the Fund’s executives and/or trustees.