Class Action Filed on Behalf of Inverse VIX Short-Term ETNs
Kehoe Law Firm, P.C. continues its investigation of Credit Suisse’s XIV security and reports that a federal securities class action was filed against Credit Suisse Group AG and certain company officers on behalf of investors who purchased, or otherwise acquired, Credit Suisse VelocityShares Daily Inverse VIX Short-Term Exchange Traded Notes between January 29, 2018 and February 5, 2018 (the “Class Period”). The lawsuit, filed in United States District Court, Southern District of New York, seeks remedies under the Securities Exchange Act of 1934.
Investors who bought XIV during the class period and suffered damages have until May 14, 2018 to file a motion with the Court to seek appointment as lead plaintiff.
The lawsuit contends that the Credit Suisse defendants engaged in a deceptive course of conduct during the Class Period, which caused Plaintiff and other proposed Class members to purchase Credit Suisse’s Inverse VIX Short-Term ETNs, which were traded on the NASDAQ under ticker symbol “XIV”) at artificially inflated prices.
The defendants, allegedly, issued “materially false and/or misleading because they misrepresented and failed to disclose that (i) Credit Suisse was actively manipulating the [Inverse VIX Short-Term Exchange Traded Notes] by liquidating its holdings in various financial products to avoid a loss; (ii) Credit Suisse was manipulating the [Inverse VIX Short-Term Exchange Traded Notes] to the detriment of investors; and (iii) as a result of the foregoing, Defendants’ statements about Credit Suisse’s [Inverse VIX Short-Term Exchange Traded Notes] were false and misleading and/or lacked a reasonable basis.”
February 5, 2018 – Inverse VIX Short-Term ETN’s 89.74% Drop From Closing Value
According to the class action complaint:
On February 5, 2018, at 4:00 pm EST, the regular-hours market for the trading of the [Inverse VIX Short-Term Exchange Traded Notes] closed. The [Inverse VIX Short-Term Exchange Traded Notes’] last trading price was $99. Less than 30 minutes later, during the after-hours market, the price per [Inverse VIX Short-Term Exchange Traded Note] had dropped to $70.01. By 4:45 pm, the price had dropped to $42.81 . . . and then by 6:28 pm the price . . . had declined to a low of $10.16 per [Inverse VIX Short-Term Exchange Traded Note], a drop of approximately 89.74% from its closing value.
Credit Suisse’s Press Releases Regarding The XIV Acceleration Event
Credit Suisse, according to the complaint, issued a press release on February 6, 2018 (“Credit Suisse AG Announces Event Acceleration of its XIV ETNs”) which stated:
Credit Suisse AG (“Credit Suisse”) today announced the event acceleration of its VelocityShares™ Daily Inverse VIX Short Term ETNs (“XIV”) due to an acceleration event. The acceleration date is expected to be February 21, 2018.
Since the intraday indicative value of XIV on February 5, 2018 was equal to or less than 20% of the prior day’s closing indicative value, an acceleration event has occurred. Credit Suisse expects to deliver an irrevocable call notice with respect to the event acceleration of XIV to The Depository Trust Company by no later than February 15, 2018. The date of the delivery of the irrevocable call notice, which is expected to be February 15, 2018, will constitute the accelerated valuation date, subject to postponement due to certain events. The acceleration date for XIV is expected to be February 21, 2018, which is three business days after the accelerated valuation date. On the acceleration date, investors will receive a cash payment per ETN in an amount equal to the closing indicative value of XIV on the accelerated valuation date. The last day of trading for XIV is expected to be February 20, 2018. As of the date hereof, Credit Suisse will no longer issue new units of XIV ETNs.
Another press release issued by Credit Suisse on February 6, 2018 (“Media Response to Credit Suisse AG’s VelocityShares ™ Daily Inverse VIX Short Term ETNs due December 4, 2030”) stated that “[i]n response to certain media inquires, Credit Suisse confirms that it has experienced no trading losses from VelocityShares™ Daily Inverse VIX Short Term ETNs (“XIV”) due December 4, 2030.”
Alleged Material Misrepresentation in XIV’s Prospectus Lead to $700 Million in Losses
The class action complaint cites to a report issued by the Securities Litigation and Consulting Group, Inc., “Material Misrepresentations in XIV Prospectus Led to $700 Million in Losses,” as additional evidence of Credit Suisse’s material misrepresentations.
According to the Executive Summary of the Securities Litigation and Consulting Group’s report:
Credit Suisse’s XIV Exchange Traded Note (ETN) linked to the inverse of short term VIX futures prices lost 97% of its value or ap-proximately [sic] $2 billion in a single day on February 5, 2018. Credit Suisse announced the following morning that it would redeem all outstanding XIV shares at the Closing Indicative Value on February 15, 2018.
. . .
Credit Suisse’s latest Pricing Supplement for the XIV . . . represented . . . that [Credit Suisse] would pub-lish [sic] an estimate of the current economic value of XIV shares every 15 seconds based on real time VIX futures prices but, in fact, did not. On February 5, 2018 the difference between what Credit Suisse said it would do and what is actually did was enormous because Credit Suisse effectively stopped updating its estimate of the current economic value of XIV shares at 4:10 pm when VIX futures prices were changing significantly.
From 4:10 pm to 5:09 pm on February 5, 2018 Credit Suisse was materially misrepresent-ing [sic] the true economic value of XIV. Investors were buying XIV between 4:15 pm and 5:08 pm at prices as high as in the $80s when Credit Suisse was representing to the public that the economic value of the notes was $24.6961 but had to know that the true economic value was aready [sic] between $4.22 and $4.40.
By 4:13 pm or shortly thereafter sophisticated market partici-pants [sic] would know that Credit Suisse was certain to redeem XIV for $4.22 or a little more per share. Investors paid $823.6 million to purchase 28.8 million shares after 4:15 pm at an aver-age [sic] price of $28.60. Those [aftermarket] purchases at inflated prices transferred $700 million from unsophisticated, poorly-in – formed [sic] buyers to sophisticated, well-informed sellers.
In addition to the problem with Credit Suisse’s Pricing Supple-ment [sic] prospectus we identify, we find that extraordinary trading in two critical futures contracts in the last minutes of trading before 4:15 pm on February 5, 2018 pushed up the futures’ prices and triggered the XIV liquidation. The primary ben-eficiaries [sic] of this manufactured liquidation of XIV are Credit Suisse and the traders who had previously sold XIV short.
The problems we identify herein are not unique to XIV but are found in other ETNs tied to the S&P VIX futures indices.
VelocityShares™ Daily Inverse VIX Short-Term ETNs (“XIV”) Investors
If you purchased, or otherwise acquired VelocityShares™ Daily Inverse VIX Short-Term ETNs (“XIV”) and have questions or concerns about the securities investigation or your potential legal rights, please contact John A. Kehoe, Esq., (215) 792-6676, Ext. 801, [email protected], complete the form above on the right or e-mail [email protected].
Investors who bought XIV during the class period and suffered damages have until May 14, 2018 to file a motion with the Court to seek appointment as lead plaintiff. Please note that no class has been certified in the above action. Until a class is certified, you are not represented by counsel unless you retain an attorney of your choice. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the Court must determine that the class member’s claim is typical of the claims of other class members, and that the class member will adequately represent the class. Under certain circumstances, one or more class members may serve together as “lead plaintiff.” Your ability to share in any recovery is not, however, affected by the decision whether or not to serve as a lead plaintiff.