Credit Suisse Must Face Suit Over Failed Play on Fear Index
Credit Suisse Group AG must face allegations that it
engineered a complex fraud to sink an investment vehicle and profit on
investors’ losses, after an appeals court revived the claims.
The lawsuit, filed in 2018, claimed investors lost $1.8
billion in the Feb. 5, 2018, collapse of the market for VelocityShares Daily
Inverse VIX Short Term Exchange Traded Notes, known as “XIV Notes,” a
derivative investment that increased in value when the stock market was calm
and decreased when it was volatile.
Holders of the XIV notes profited inversely from changes in
the Chicago Board Options Exchange’s VIX Index, a measure of expected stock
market volatility that’s often called Wall Street’s “fear index.”
A group of investors led by Set Capital LLC alleged that
they and others lost the money while Credit Suisse made $475 million. The suit
also names as defendants two top executives at the bank and Janus Henderson
Group PLC, which placed and marketed the XIV notes.
Credit Suisse declined to comment on the ruling. Janus
Henderson didn’t immediately respond to an email seeking comment.
A federal judge in New York dismissed the case in September
2019, ruling that Set Capital had failed to plausibly claim that the defendants
were intentionally trying to manipulate the market improperly. The federal
appeals court in New York on Tuesday revived the market manipulation claim and
allegations of misstatements in the offering documents.
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