The Securities and Exchange Commission (SEC) sent a Wells notice to the U.S. Oil Fund ETF (NYSEMKT:USO), which is a letter it sends to people or companies when it plans to bring an enforcement action against them. In this case, the SEC staff has made a preliminary determination that the regulator should file an enforcement action against the oil ETF and its CEO, John Love. 

The issue driving the possible enforcement action is the fund's disclosures in late April and early May on the constraints it faced with investing in oil futures contracts during the oil price collapse earlier this year. At the time, the ETF said that it might not meet its investment objective of matching the price movements of WTI (the primary U.S. oil price benchmark) because it traded in negative territory. That collapse caused the fund to issue all its registered shares, impacting its ability to create new ones. Because of that, there was a substantial difference between the fund's trading price and WTI futures contracts.

Oil pumps with a downward sloping chart in the background.

Image source: Getty Images.

While the SEC plans to take enforcement action against the fund and its CEO, the notice itself isn't a formal charge, nor does it mean they broke any laws. Quite the contrary, as Love and the fund both believe they took the appropriate action during that turbulent time. Because of that, they plan to dispute the allegations made in the Wells notice and work with the SEC staff toward a resolution.

But the turbulence in the oil market did have an enormous impact on U.S. Oil's performance as it has lost more than 70% of its value this year. For comparison's sake, WTI, which USO intends to track, has only declined by about 30% this year.