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Gold ETF Prompts Lawsuit

Simon Constable

The staggering success of streetTRACKS Gold Shares(GLD Quote), the gold bullion exchange-traded fund with more than $9 billion in assets, has at least one man crying foul.

But this week Dan Ascani will get his day in court.

Ascani accuses the World Gold Council, the company that launched the ETF two years ago, of betrayal and stealing his idea. His lawsuit, which dates back to November 2003, alleges that WGC took his idea for an ETF and then developed a "suspiciously similar product."

The civil complaint alleges that Ascani had WGC sign a confidentiality agreement in April 2000 before disclosing details of his plan for a new gold-based investment product. But WGC allegedly violated that agreement when the defendants revealed the confidential information in a May 2003 Securities and Exchange Commission filing.

The disclosure "has made all of the investments relating to the ... project worthless," the complaint reads.

The case is set to kick off Wednesday before New York Supreme Court Justice Herman Cahn in a Manhattan courtroom.

Ascani boasts a history of developing innovative financial products. Among other things, he claims to have developed "unique strategies utilized by major mutual funds such as the Rydex Funds," according to a recent press release.

Ascani, who seeks damages in excess of $450,000, refused to comment. He referred questions to his attorney Charles Hecht of Hecht & Associates.

"He gave them the concept and some of the underlying principals of how to pull it off," says Hecht. "Then all of a sudden they decided to forget to be a trade organization and go into business for themselves and utilize Dan's ideas as the centerpiece of their business."

The defendants, meanwhile, were relatively tight-lipped ahead of the trial.

"The World Gold Council does not think the case has any merit and we will respond in court," says George Milling-Stanley, manager of investment and market intelligence at WGC in New York.

The WGC was formed in 1987 to promote gold use. Its members include many of the major miners such as Barrick Gold(ABX Quote), Newmont Mining(NEM Quote) and Goldcorp(GG Quote).