On April 27, 2021, the United States Court of Appeals for the Second Circuit issued a pathbreaking order that reopened Chahal v. Credit Suisse Grp. AG, et al., a high-profile putative class action lawsuit alleging that Credit Suisse knowingly defrauded investors and caused hundreds of millions in losses. As a result, the United States District Court for Southern District of New York must vacate its September 2019 dismissal and allow the lawsuit to proceed.
The Second Circuit found that “If proven at trial, this alleged conduct was manipulative under our precedents.” The lawsuit alleges, among other things, that after observing prior episodes of market volatility, Credit Suisse discerned an ability to depress prices for XIV Notes by purchasing VIX futures contracts on days when volatility spiked. Credit Suisse used this knowledge as part of a scheme to sell millions of XIV Notes before engineering a near-total collapse in their price through just 15 minutes of its own trading.
Notably, the Second Circuit also credited the arguments presented by Plaintiffs surrounding the knowledge and motive of former Credit Suisse CEO Tidjane Thiam as part of its reasoning to send this lawsuit back to the Southern District of New York. Citing the plaintiffs’ complaint, the order reads:
“…the complaint plausibly alleges that Thiam was under significant pressure to shift Credit Suisse’s investment arm away from volatile assets like XIV Notes. Accepting these allegations as true, Credit Suisse’s scheme to expand and then destroy the value of XIV Notes would have allowed the bank to profit substantially while realizing Thiam’s strategic goal of “right-sizing” Credit Suisse’s investment division.”
Previously, on June 21, 2018, U.S. Magistrate Judge Sarah Netburn of the Southern District of New York appointed Set Capital LLC, ACM Ltd., Stefan Jager, Nikolay Drozhzhinov, and Aleksandr Gamburg as Lead Plaintiffs in the lawsuit, and approved their selection of Cohen Milstein Sellers & Toll PLLC and Levi & Korsinsky, LLP as Co-Lead Counsel for the putative class. In doing so, Judge Netburn noted the financial experience and sophistication of the Lead Plaintiffs and the extensive experience representing classes in securities actions possessed by Co-Lead Counsel.
On March 14, 2018, a putative securities and investor class lawsuit was filed on behalf of Rajan Chahal and other investors against Credit Suisse Group AG and certain of its senior executives in the United States District Court for the Southern District of New York.
The Complaint alleges that Credit Suisse, a multinational investment bank based in Switzerland, as well as certain of its officers made materially false and misleading statements about the company’s VelocityShares Inverse VIX Short Term Exchange Traded Notes, commonly known as and trading under the name XIV.
Specifically, the Complaint alleges that on January 29, 2018, Credit Suisse issued a registration statement that misrepresented the updating and accuracy of an important valuation metric of XIV known as the “Intraday Indicative Value” by failing to disclose that: (i) contrary to Credit Suisse’s representations, the Intraday Indicative Value was not updated every 15 seconds based on real-time calculation of the relevant index applying the real-time prices of the relevant VIX futures contracts upon which the index was based; and (ii) the Intraday Indicative Value was not an accurate gauge of the economic value of XIV notes.
The Complaint further alleges that, on February 5, 2018, between 4:10 p.m. and 5:09 p.m., Credit Suisse incorrectly represented XIV’s Intraday Indicative Value to be between $24.70 to $28.60 per note, while the true value, had it been calculated as Credit Suisse represented in the registration statement, was actually between $4.22 and $4.40 per note. Beginning at 5:10 p.m., the Intraday Indicative Value began to update, revealing a value of $4.22 per note. On February 6, 2018, Credit Suisse issued a press release announcing that an Acceleration Event took place on February 5, 2018, and, as a result of the acceleration, on or about February 15, 2018, Credit Suisse repurchased the XIV notes at a price below $6.00 per note. The Complaint alleges that, during the class period, investors purchased XIV notes at artificially inflated values due to Credit Suisse’s misrepresentations, and were harmed thereby.
The case name is: Chahal v. Credit Suisse Grp. AG, et al., Case No. 1:18-cv-00268 (AT)(SN), U.S. District Court, Southern District of New York.