Catalyst Hedged Futures Strategy Fund

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Case Summary

Company Name
Catalyst Hedged Futures Strategy Fund
Stock Symbol
HFXAX; HFXCX; HFXIX
Class Period
November 1, 2014 to April 28, 2017
Motion Deadline
June 27, 2017
Court
Eastern District of New York

On April 28, 2017, Robbins Geller Rudman & Dowd LLP filed a complaint alleging violations of the federal securities laws by Catalyst Hedged Futures Strategy Fund and certain of its officers and/or directors. The class action was commenced in the United States District Court for the Eastern District of New York on behalf of purchasers of Catalyst Futures Fund Class A, Class C and Class I shares of the Catalyst Hedged Futures Strategy Fund between November 1, 2014 and April 28, 2017 (the “Class Period”).

ROBBINS GELLER RUDMAN & DOWD LLP FILES CLASS ACTION SUIT ON BEHALF OF PURCHASERS OF SHARES OF CATALYST HEDGED FUTURES STRATEGY FUND

San Diego – April 28, 2017 – Robbins Geller Rudman & Dowd LLP (“Robbins Geller”) (http://www.rgrdlaw.com/cases/catalyst/) today announced that a class action has been commenced on behalf of purchasers of Class A, Class C and Class I shares of the Catalyst Hedged Futures Strategy Fund (“Catalyst Futures Fund” or the “Fund”) (MUTF:HFXAX; MUTF:HFXCX; MUTF:HFXIX) during the period between November 1, 2014 and April 28, 2017 (the “Class Period”). This action was filed in the Eastern District of New York and is captioned Emerson, et al. v. Mutual Fund Series Trust, et al., No. 17-cv-02565.

If you wish to serve as lead plaintiff, you must move the Court no later than 60 days from today. If you wish to discuss this action or have any questions concerning this notice or your rights or interests, please contact plaintiffs’ counsel, Darren Robbins of Robbins Geller at 800/449-4900 or 619/231-1058, or via e-mail at djr@rgrdlaw.com.  If you are a member of this class, you can view a copy of the complaint as filed at http://www.rgrdlaw.com/cases/catalyst/.  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.

Plaintiffs seek to recover damages on behalf of all purchasers of Catalyst Futures Fund shares during the Class Period (the “Class”). The plaintiffs are represented by Robbins Geller, which has extensive experience in prosecuting investor class actions including actions involving financial fraud.

Robbins Geller is widely recognized as the leading law firm advising and representing U.S. and international investors in securities litigation and portfolio monitoring. With 200 lawyers in 10 offices, Robbins Geller has obtained many of the largest securities class action recoveries in history.  For the third consecutive year, the Firm ranked first in both the total amount recovered for investors and the number of securities class action recoveries in ISS's SCAS Top 50 Report.  Robbins Geller attorneys have shaped the law in the areas of securities litigation and shareholder rights and have recovered tens of billions of dollars on behalf of the Firm’s clients.  Robbins Geller not only secures recoveries for defrauded investors, it also implements significant corporate governance reforms, helping to improve the financial markets for investors worldwide.  Please visit rgrdlaw.com/cases/catalyst/ for more information.