Credit Suisse Group AG

Company Name

Credit Suisse Group AG

Stock Symbol

ZIV

Class Period

June 30, 2017 to February 5, 2018

Motion Deadline

April 5, 2019

Court

Southern District of New York

The complaint charges Credit Suisse Group AG and Credit Suisse AG (“Credit Suisse”), certain of their officers and affiliates, and Janus Henderson Group plc and its affiliates with violations of the Securities Exchange Act of 1934 and the Securities Act of 1933 in connection with their roles in the sale of VelocityShares Daily Inverse VIX Medium-Term (“ZIV”) Exchange Traded Notes (“ETNs”). 

The CBOE Volatility Index, or “VIX,” seeks to measure the expected volatility of the S&P 500.  The CBOE calculates the VIX based on the real-time pricing of put and call options on the Standard & Poor’s 500 Index (“SPX options”).  Futures contracts on the VIX were created and made available to investors to enable them to invest in forward volatility based on their assessment of the future movements of the VIX.  ETNs are unsecured debt obligations of financial institutions with returns based on the performance of an underlying index.  Inverse ETNs are similar, but their value is calculated using the inverse of the performance of the underlying index.  Credit Suisse was one of the largest issuers of inverse volatility linked ETNs during the Class Period.  In addition to the ZIV, Credit Suisse issued the VelocityShares Daily Inverse VIX Short Term (“XIV”) ETN (together with ZIV, the “Inverse ETNs”).  ZIV ETNs provide holders inverse exposure linked to the S&P 500 VIX mid-term futures and are structured to increase in value when the S&P VIX mid-term futures decline in value. 

The complaint alleges that, during the Class Period, defendants made materially false or misleading statements relating to the risks of investing in ZIV ETNs.  Specifically, the complaint alleges that defendants failed to disclose that: (i) Inverse ETNs were not appropriate for managing daily trading risks; (ii) Credit Suisse had designed the ZIV to fail under certain market conditions; (iii) Credit Suisse had offered and sold more Inverse ETNs than the market could bear, which would enable Credit Suisse to cause the collapse of the Inverse ETNs when the opportunity presented itself; and (iv) Credit Suisse could actively manipulate Inverse ETNs by precipitating an acute liquidity event in volatility, including markets for VIX futures.

On Monday, February 5, 2018, the stock market declined, with the S&P 500 Index dropping 4% amid concerns about rising bond yields and higher inflation.  Knowing of the previous liquidity issues and that other participants in VIX-related products would be seeking to hedge their positions by buying VIX futures, Credit Suisse bought thousands of February and March VIX futures contracts, drastically reducing their supply and driving up the price of the contracts.  This in turn caused a sharp decline in the price of XIV ETNs and triggered an acceleration event allowing Credit Suisse to force redemption of the XIV ETNs for pennies on the dollar.  Investors in ZIV ETNs suffered millions of dollars in collateral damage from the run on XIV futures and the forced redemption of XIV ETNs, with the price of ZIV ETNs dropping from $85.41 to $68.50 per ETN between February 2, 2018 and February 6, 2018.