ProShares Trust II, an investment management company, disclosed today that it will be amending its financial statements for the years ended December 31, 2021, 2022, and 2023, as well as for the interim periods ended March 31 and June 30, 2024. The company identified errors in the classification of futures contracts balances in its previously issued financial documents, which include the annual report on Form 10-K for the year ended December 31, 2023, and quarterly reports on Form 10-Q for the periods ended September 30, 2023, March 31, 2024, and June 30, 2024.
The errors were related to the misinterpretation of statements from a Futures Commission Merchant (FCM) by the fund administrator, leading to an understatement of "Segregated cash balances with brokers for futures contracts" and an overstatement or understatement of "Receivable (Payable) on open futures contracts" on the Statements of Financial Condition.
Additionally, incorrect balances were reported within the "Decrease (Increase) in receivable/payable on open futures contracts", "Net cash provided by (used in) operating activities", "Cash, beginning of period" and "Cash, end of period" line items on the Statement of Cash Flows.
The misclassifications did not impact the affected funds' performance, investment results, net asset values, income, or distributions. However, ProShares Trust II has acknowledged that these inaccuracies have led to a material weakness in internal controls related to the classification of the FCM accounts.
As a result, the company's management, along with its independent registered public accounting firm, PricewaterhouseCoopers LLP (PwC), concluded that the financial statements for the affected periods should no longer be relied upon. This also includes management’s report on internal control over financial reporting and PwC’s opinions on the effectiveness of the company's internal control over financial reporting as of December 31, 2023.
ProShares Trust II is working on a remediation plan to address the material weakness and intends to file amendments to the affected financial statements as soon as practicable. The company will also correct the affected line items in its upcoming Form 10-Q for the quarterly period ended September 30, 2024. These corrections will be filed with the Securities and Exchange Commission.
InvestingPro Insights
To provide additional context to ProShares Trust II's financial reporting issues, let's look at some real-time data for the ProShares Ultra Silver (AGQ), one of the company's funds. According to InvestingPro, AGQ has a market capitalization of $619.71 million USD. The fund's performance has been mixed, with a strong year-to-date price total return of 37.43% as of the latest data. However, it has experienced a significant 20.03% decline in the past month.
InvestingPro Tips highlight that AGQ suffers from weak gross profit margins and that its valuation implies a poor free cash flow yield. These factors may be of interest to investors considering the fund's performance in light of the company's financial reporting errors.
For those seeking a more comprehensive analysis, InvestingPro offers 4 additional tips for AGQ, providing deeper insights into the fund's financial health and market position.
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