Seriously. I know it’s a pain in the ass. Many pages of legal crap. But it is NOT due diligence to say, Hey, this is the biggest ETF in this category, so it MUST be OK!!!
Here is an example. I won’t identify this ETF by symbol, but it is a precious metals ETF, in the top 10 in the category, which means it has >$150MM in assets. I recently read this particular prospectus based on a question from a person considering buying it, which is why I picked it for this post. I’m not a lawyer, but I will do my best to read this document and make my assessments of what it means to an investor.
If I misread this or make a wrong statement in here, please comment and correct me. I would be THRILLED to know that my judgments here are not correct.
Let’s start on page 1:
Neither the Securities and Exchange Commission (SEC) nor any state securities commission hasapproved or disapproved of the securities offered in this prospectus, or determined if this prospectusis truthful or complete. Any representation to the contrary is a criminal offense.
This prospectus, including the materials incorporated by reference herein, contains informationyou should consider when making an investment decision about the Shares. You may rely on theinformation contained in this prospectus. The Trust and the Sponsor have not authorized any personto provide you with different information and, if anyone provides you with different or inconsistent
information, you should not rely on it.
Shareholders will not have the protections associated with ownership of shares in an investmentcompany registered under the Investment Company Act of 1940 or the protections afforded by theCommodity Exchange Act.
The Trust’s lack of insurance protection and the Shareholders’ limited rights of legal recourseagainst the Trust, the Trustee, the Sponsor, the Custodian, the Zurich Sub-Custodians and any othersubcustodian exposes the Trust and its Shareholders to the risk of loss of the Trust’s Bullion for
which no person is liable.
The Custodian’s limited liability under the Custody Agreements and English law may impair theability of the Trust to recover losses concerning its Bullion and any recovery may be limited, even in
the event of fraud, to the market value of the Bullion at the time the fraud is discovered.
The obligations of the Custodian, any Zurich Sub-Custodian and any other subcustodians aregoverned by English law, which may frustrate the Trust in attempting to seek legal redress against
the Custodian, a Zurich Sub-Custodian or any other subcustodian concerning its Bullion.
Although the relationships between the Custodian and the Zurich Sub-Custodians concerning theTrust’s allocated Bullion are expressly governed by English law, a court hearing any legal disputeconcerning their arrangements may disregard that choice of law and apply Swiss law, in which casethe ability of the Trust to seek legal redress against any Zurich Sub-Custodian may be frustrated.
The Trust may not have adequate sources of recovery if its Bullion is lost, damaged, stolen ordestroyed.
Because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodianswho may hold the Trust’s Bullion, failure by the subcustodians to exercise due care in the
safekeeping of the Trust’s Bullion could result in a loss to the Trust.
Physical Bullion allocated to the Trust in connection with the creation of a Basket may not meetthe Good Delivery Standards and, if a Basket is issued against such Bullion, the Trust may suffer a