A U.S. appeals court on Tuesday revived a lawsuit accusing Credit Suisse Group AG of causing huge losses by defrauding investors in a complex product for betting on stock market swings that lost 96% of its value in a single day.

The 2nd U.S. Circuit Court of Appeals in Manhattan said investors could try to prove Credit Suisse intended to collapse the market for its VelocityShares Daily Inverse VIX Short-Term Exchange-Traded Notes (“XIV Notes”) through just 15 minutes of its own trading of futures contracts.

Set Capital LLC and other investors in the proposed class action claimed they lost $1.8 billion, while the Swiss bank reaped at least $475 million in profit at their expense.

. . .

XIV notes imploded on Feb. 5, 2018, when the Standard & Poor’s 500 dropped 4.1% and unexpected market turbulence punished investors betting on low volatility.

Circuit Judge John Walker said investors could pursue claims that Credit Suisse manipulated the market for the notes while downplaying the risks in offering documents.

“The complaint plausibly alleges both motive and opportunity to commit a manipulative act, as well as strong circumstantial evidence of conscious misbehavior or recklessness,” he wrote.

Michael Eisenkraft, the investors’ lawyer, said: “We look forward to prosecuting these claims vigorously.”

The Second Circuit ruled Tuesday that Credit Suisse will have to face claims that it triggered a liquidity crunch to bottom out the price of notes inversely tied to stock market volatility and pick up nearly half a billion dollars of profits.

An appellate panel vacated a New York federal judge’s ruling from 2019 that dismissed manipulation claims against the bank over the price crash for Inverse VIX Short exchange-traded notes, or XIV notes, after the close of regular trading hours on Feb. 5, 2018.

Unlike the lower court, the Second Circuit was swayed Tuesday by the investors’ allegations that Credit Suisse knew hedging against the notes during volatility spikes would sink their prices and capitalized on that strategy in February 2018 to cause an “acceleration event” that allowed the bank to redeem those notes at a cratered price and pull $475 million in gains.

“If proven at trial, this alleged conduct was manipulative under our precedents,” the appellate panel said.

The first of the several since-consolidated suits over the crash was filed in March 2018, roughly a month after a 4.1% drop in the S&P 500 led to a sudden spike in volatility that drove up prices for VIX Futures Index contracts. The price of Credit Suisse’s Inverse VIX Short ETNs started plummeting in tandem and at 4 p.m. that day, the bank hedged its XIV position by buying more than 100,000 VIX futures contracts — representing roughly a quarter of the entire market for the contracts.

This led the VIX Futures Index to again skyrocket and the value of XIV notes to again plummet — but according to investors, the listed value of XIV notes mysteriously stopped updating between 4:09 p.m. and 5:09 p.m. that day, leading them to buy more than $700 million worth of XIV notes at a price they soon learned was far above their actual, updated value.

The following morning, Credit Suisse announced that the extreme drop in XIV value had caused an “acceleration event” whereby the notes were prematurely redeemed at the price of $5.99, well below the $108.37 value they’d started at the previous day.

The investors claim Credit Suisse lied to them in the notes’ offering documents about the reliability of its pricing updates and the effect the bank’s hedging could have on the value of the XIV notes, and further alleged that the bank intentionally manipulated the market for XIV notes by offering more than 16 million of them in January 2018, with the plan to later crash their price and profit from an acceleration event.

. . .

Tuesday’s ruling revives the suit’s manipulation claims as well as its allegations that the XIV notes’ offering documents misrepresented the bank’s “knowledge and its intent to engage in manipulative acts.”

“We believe that Credit Suisse and its former CEO intentionally misled and manipulated investors so that they could profit while investors suffered devastating losses, and we are pleased that this critical case is moving forward,” Michael B. Eisenkraft, an attorney for the investors, said in a statement. “We look forward to prosecuting these claims vigorously on behalf of our clients and the class.”

The investors are represented by Michael B. Eisenkraft, Laura H. Posner, Carol V. Gilden and Steven J. Toll of Cohen Milstein Sellers & Toll PLLC.

Facebook advertisers asked a California federal judge Friday to certify their proposed class claims that the company bolsters its advertising revenue by inflating the potential estimated reach of ads on the platform.

The case is ripe for class treatment because it alleges classwide fraud perpetrated by Facebook with its misleading data for how many people could see any given advertisement, according to the redacted motion filed by plaintiffs DZ Reserve and Cain Maxwell.

The suit focuses on Facebook’s so-called potential reach metric, which supposedly tells advertisers how many people are in an ad set’s target audience, according to the motion. This is shown to advertisers on Facebook’s Ads Manager, the motion states, but that data is inflated and misleading.

Advertisers wouldn’t have paid Facebook for ad space had they known the data was inflated, the plaintiffs said.

The advertisers want to represent a class of all U.S. residents who, from Aug. 15, 2014, to the present, paid for the placement of at least one advertisement on Facebook’s platforms, including Instagram, which was purchased through the company’s Ads Manager or Power Editor.

. . .

In their motion Friday, the advertisers said their allegations raise common questions about whether Facebook inflated the potential reach of ads, whether its use of the inflated data was deceptive or unfair under California law, and whether Facebook knew the data was inflated, among other questions.

The advertisers’ attorney, Geoffrey Graber of Cohen Milstein Sellers & Toll PLLC, was already appointed interim lead class counsel in December 2018 and the firm should be appointed class counsel now, the motion said.

“This is the kind of case for which the class action procedure was created,” the advertisers said. “Any class member’s individual recovery would be dwarfed by the cost of proving the predominating issues in this litigation.”

“Here, the median class member advertiser has incurred no more than $32 in damages. No rational person would challenge the most powerful social media company in the world to recover $32 in damages,” the advertisers added. “If class treatment is denied, the wrongdoing outlined above ‘will go unpunished,’ leaving Facebook free to continue to defraud its customers with impunity.”

The advertisers and proposed class are represented by Andrew N. Friedman, Geoffrey Graber, Julia Horwitz, Karina G. Puttieva and Eric Kafka of Cohen Milstein Sellers & Toll PLLC, and Charles Reichmann.

The complete article can be viewed here.

Legal experts shared tips for choosing an AI solution at a recent American Bar Association conference.

HR professionals hoping to integrate artificial intelligence tools into workplace processes “have their work cut out for them,” a U.S. Equal Employment Opportunity Commission official told attendees at an April 8 American Bar Association conference.

The technology was gaining traction before the coronavirus pandemic, and it now promises to aid in the country’s recovery, according to Commissioner Keith Sonderling. AI can manage elevators and other shared spaces to ensure social distancing, for example; or it can develop hybrid schedules, he said, predicting that “we will be seeing more, rather than less, AI as we begin to return to our workplaces, schools and our pre-COVID routines.”

But such solutions come with risks and the one on EEOC’s radar is discrimination.

Choosing a solution

Employers considering or using AI should evaluate algorithms “early and often for biased outcomes and reengineer as appropriate,” Sonderling suggested.

An algorithm that makes predictions about job applicants, for example, is only as good as the data on which it was taught to rely, he explained, citing information from EEOC’s chief analyst. Therefore, an algorithm that relies solely on the characteristics of a company’s current workforce to model an ideal applicant may merely replicate the status quo. If an existing workforce is made up of primarily one race, gender or age group, he said, the algorithm may screen out applicants who do not share those same characteristics.

Employers also should ask vendors what happens in the case of a discovery request, suggested Christine Webber, a co-presenter and plaintiffs’ attorney from Cohen Milstein Sellers & Toll. If an algorithm is challenged in a lawsuit, past litigation suggests an employer could be caught between the vendor’s interest in keeping an algorithm proprietary and the plaintiff’s discovery needs, “and they could be really hung out to dry.”

Webber suggested employers ask whether the inner workings of the algorithm will be shared or if they’ll be protected as trade secrets — “which means the employer has no defense to establish the validity if it’s a disparate impact claim or to establish that there is no disparate impact disparate treatment going on.”

Carolyn Everson’s emails in long-running lawsuit say social network should ‘prepare for worst’

Carolyn Everson, one of Facebook’s most senior advertising executives, said the company had to “prepare for the worst” over claims that it overstated the reach of its advertisements, according to newly released court filings.

The world’s largest social network has been fighting a class-action lawsuit in California since 2018 over claims that its “potential reach metric”, which told advertisers how many people saw their ads, included duplicate and fake accounts.

Facebook has argued that the numbers were only estimates and that advertisers are charged for actual clicks and impressions, rather than for the potential reach of an ad.

But according to filings in the lawsuit that were unredacted over the weekend, Everson, the vice-president of Facebook’s global business group, wrote an email in 2017 that said the metric “clearly impacted [advertisers’] planning”.

. . .

The lawsuit, which was filed in northern California in 2018 by a small-business owner, alleges that Facebook executives knew the potential reach figure was “misleading” and took no action to correct it in order to “preserve its own bottom line”.

It points to research showing Facebook had suggested potential reach in certain US states and demographics that was greater than the actual populations in those geographies.

A Financial Times investigation in 2019 found similar discrepancies in Facebook’s ads manager, an online tool to help advertisers build campaigns, even though the company made some changes to its potential reach definition earlier that year.

Parts of the filings had initially been sealed largely on the grounds that they were commercially sensitive for Facebook.

Cohen Milstein represents a putative class of advertisers who claim that Facebook’s key advertising metrics are false and misleading due to systemic inflation of Facebook’s user base. Learn more about the case.

Employers have become more flexible, especially in the midst of the coronavirus crisis. But during the pandemic and beyond, employers can run into wage and hour violations if they don’t stay on top of employees’ remote work locations, job responsibilities and more, attorneys say.

Here, Law360 examines the common mistakes employers can avoid.

. . .

Miscategorizing Employees, or Trying to Have Your Cake and Eat It Too

Employers should also be careful when designating a position as overtime exempt under the Fair Labor Standards Act’s administrative carveout, especially since a worker’s actual duties don’t always match what’s described in human resources paperwork.

The administrative exemption of the FLSA relieves employers of minimum and overtime wage requirements if an employee’s responsibilities involve mainly nonmanual, managerial and business-operations work and if that employee exercises discretion on important issues, among other requisites.

. . .

Christine Webber, a partner at Cohen Milstein Sellers & Toll PLLC who represents workers in wage and hour and discrimination suits, said that as with the independent contractor versus employee misclassification debate, employers tend to “want it both ways” when it comes to exempt and nonexempt employees.

Employers, she said, need to pay attention to how a worker’s time is actually spent. Webber said employers shouldn’t chip away at a worker’s duties — however well-intentioned — to the point where there’s “really almost no management authority left in the so-called manager.”

For example, by offering to take care of conducting interviews with job applicants so that an employee can instead unload widgets from a truck, employers can in effect take out the very management responsibilities that are meant to justify, at least in part, treating that employee as an exempt professional, Webber said.

. . .

Starting Off on the Wrong Pay

To prevent steep salary and wage disparities among workers, employers should think about nipping the issue at a common source: starting pay.

. . .

To prevent pay gaps from cementing and growing larger, Webber, of Cohen Milstein, said employers should ask themselves, “Where in our system is this being introduced?”

In some states and cities, certain employers cannot ask about a job applicant’s salary history or use prior salary as a benchmark to establish starting pay. Proponents of these bans say they stop people from getting locked in at low pay in perpetuity.

Speaking more broadly about pay equity and how employers should evaluate their practices, Webber said, “The idea is not to be relatively less bad but to see are you actually where you should be and to set your goals accordingly.”

Playing Whack-A-Mole with Compliance

Worker-side attorneys said employers tend to only focus on remedying a single worker’s complaint instead of zooming out and checking the entire system.

Daniel Hutchinson, a partner at Lieff Cabraser Heimann & Bernstein LLP, said employers should consider thinking about a worker’s complaints “as the canary in the coal mine that could potentially be a reason to make broader changes or to get at cultural issues at the company.”

Webber also said employers should check whether an issue is systemic and not just “put a Band-Aid on fixing the one individual who spoke up.”

AT&T Inc. failed Thursday to convince a federal judge in California to transfer to Texas or dismiss it from a proposed class action brought by employees who challenge the way the company calculates certain pensions.

Six former workers sued in the U.S. District Court for the Northern District of California in October, claiming AT&T shortchanges the pensions of workers who retire before age 65 or choose pension formats that pay benefits to their surviving spouses after their deaths. That lawsuit came one month after a similar case was dismissed for lack of standing.

AT&T sought to transfer the case to the Northern District of Texas in January, arguing that the plan is administered in Texas and is governed by the laws of that state. The telecommunications giant also argued that the plaintiffs wrongly joined AT&T Inc. as a defendant because it is not the plan’s administrator.

But Judge James Donato denied both arguments in a brief oral order after holding a remote hearing Thursday. He said AT&T had failed to show that the plaintiffs’ choice of forum was improper and ruled that AT&T Inc. wouldn’t be dismissed at this stage of litigation.

. . .

The plaintiffs are represented by Cohen Milstein Sellers & Toll PLLC and Feinberg Jackson Worthman & Wasow LLP.

Ten more Democratic members of Congress on Wednesday joined a federal lawsuit accusing former President Donald Trump, his personal lawyer Rudy Giuliani and several right-wing extremist groups of conspiring to incite the deadly Jan. 6 Capitol complex riot.

The suit, first filed by Rep. Bennie Thompson, D-Miss., and the NAACP, accuses the defendants of violating a federal law by sparking the violence with the goal of preventing Congress from confirming the election of President Joe Biden. The cited law, the Ku Klux Klan Act, was first used in the late 1800s to target the racist KKK for its violence against Black Americans and its intimidation of members of Congress from the South.

In addition to Trump and Giuliani, the suit names extremist groups the Oath Keepers, the Proud Boys, and Warboys as defendants.

The House members who joined the suit are: California representatives Karen Bass, Barbara Lee and Maxine Waters; Steve Cohen of Tennessee; Bonnie Watson Coleman of New Jersey; Veronica Escobar of Texas; Hank Johnson Jr. of Georgia; Marcy Kaptur of Ohio; Jerry Nadler of New York; and Pramila Jayapal of Washington state.

An amended version of the lawsuit adding the new House members as plaintiffs, and making additional allegations, was filed in U.S. District Court in Washington D.C. It seeks a declaratory judgment that the defendants violated the law through their conduct, an injunction against similar actions in the future and unspecified financial damages.

Trump is now being sued by 11 members of Congress and two U.S. Capitol police officers over the Jan. 6 riot.

Ten more members of Congress are joining a lawsuit against former President Donald Trump over the Jan. 6 riot at the U.S. Capitol, alleging that he and others violated federal law in inciting the attack during the certification of the Electoral College count.

The lawmakers—all Democrats in the U.S. House of Representatives—are adding their names to the lawsuit initially filed by Rep. Bennie Thompson in February. Lawyers with Cohen Milstein Sellers & Toll and the NAACP are representing the members in the suit, alleging Trump violated the Ku Klux Klan Act of 1871 in acting to block the certification of the election results.

Reps. Karen Bass, Steve Cohen, Bonnie Watson Coleman, Veronica Escobar, Hank Johnson, Marcy Kaptur, Barbara Lee, Jerry Nadler, Pramila Jayapal and Maxine Waters are the members seeking to add their names to the suit.

It’s the latest legal effort to try and hold Trump to account for the events of Jan. 6, after the Senate did not convict him during the former president’s second impeachment trial. Rep. Eric Swalwell has separately filed suit, also alleging a violation of the Klan Act alongside other charges. And last week, two U.S. Capitol police officers sued Trump personally for damages over injuries they suffered during the attack.

. . .

The amended complaint filed Wednesday details each members’ experience during the Jan. 6 riot, including how they hid from those invading the Capitol and the fears they experienced at the time. Jayapal developed COVID-19 soon after the breach of the building, which she attributed to hiding in a room with other members who refused to wear masks. Nadler, the chairman of the House Judiciary Committee, hid in a committee room and prepared a “go-bag” in case he needed to quickly evacuate, according to the complaint.

The complaint originally targeted Trump, his personal attorney Rudy Giuliani, and the far-right groups the Proud Boys and the Oath Keepers. Wednesday’s amended complaint also adds the group the Warboys as defendants, as well as Proud Boys chairman Enrique Tarrio.

“We are pleased that such a distinguished group of representatives has joined this suit, which seeks to hold accountable the principal architects of the assault on the Capitol and on democracy that occurred on January 6,” Joe Sellers, a Cohen Milstein partner, said in a statement. “While the threat to the peaceful transfer of power was profound, this lawsuit provides a powerful means to redress the harm caused to these members of Congress, explore in more detail the dark forces that contributed to the insurrection we observed and demonstrate that our courts are available to protect against such lawlessness.”

A group of investors have asked a Pennsylvania federal court to certify their class in a suit over the $6.7 billion merger between EQT Corp. and Rice Energy, which they say lost them millions as a result of misrepresentations.

Investors including lead plaintiffs Government of Guam Retirement Fund and Northeast Carpenters Pension Fund, asked Friday that the court certify a class of “many thousands” of EQT and Rice shareholders who they say lost millions because the company and its executives allegedly misrepresented the viability and successes of the merger, which was supposed to save the company billions through synergies that ended up not panning out.

The proposed class wants Bernstein Litowitz Berger & Grossmann LLP and Cohen Milstein Sellers & Toll PLLC appointed class counsel.

. . .

In the suit, the natural gas producer’s investors claim that EQT misled them about anticipated operating efficiencies and cost reductions that ultimately failed to materialize after its $6.7 billion merger in 2017. In particular, the shareholders alleged that EQT said it would be able to achieve savings by drastically increasing its drilling locations even though the company knew there was insufficient undrilled space to do so.

The suit was filed by the shareholders in June 2019, alleging that EQT had promised that the merger would bring $2.5 billion in synergies and save the company $100 million in 2018. They said those statements were made to them via investor calls, press releases and regulatory filings. The company had said that combining oil and gas leases with Rice Energy would create large, contiguous areas for drilling longer horizontal gas wells in the Marcellus Shale, according to the suit.

After the merger, however, the investors said that the leases weren’t as close together as promised and said the company’s costs went up after the merger. Overall, the cost of drilling in the third quarter of 2018 increased $300 million, the investors said. In addition, a 13% stock drop “eras[ed] nearly $700 million in shareholder value in a single day,” the investors said.

Particularly notable was an October 2018 earnings report cited in the suit, which led to a proxy fight between EQT and Rice Energy’s founders, who challenged the company’s post-merger strategy. The Rice founders won the battle in July 2019, when shareholders voted to give control of the company to brothers Toby and Derek Rice.

After the suit was filed, the defendants moved to kill the suit in January 2020, arguing that investors behind the suit are attempting to “convert their disappointment” with the company’s post-merger performance into securities fraud. The company said that it was indeed possible for it to drill as many new wells as it had promised, and that its statements were thus not misleading.

But U.S. District Judge Robert J. Colville said in December that the amount of acreage possessed by EQT and Rice and the amount of available, undrilled acreage that could be used were “knowable, quantifiable facts at the time defendants and their representations” and kept the case alive.

The investors are represented by M. Janet Burkardt and Jocelyn P. Kramer of Weiss Burkardt Kramer LLC, Salvatore J. Graziano, Adam H. Wierzbowski, Jai K. Chandrasekhar and Jesse L. Jensen of Bernstein Litowitz Berger & Grossmann LLP and Steven J. Toll, S. Douglas Bunch, Susan G. Taylor, Megan K. Kistler, Christina D. Saler, Benjamin F. Jackson and Jessica Kim of Cohen Milstein Sellers & Toll PLLC.