A federal class action lawsuit is seeking to uncover key players behind the alleged widespread manipulation of Wall Street's "fear index," which plaintiffs claim has resulted in potentially hundreds of millions of dollars in losses to investors nationwide.
The complaint, filed late Friday in Chicago federal court, comes as U.S. regulators are stepping up scrutiny of the CBOE Volatility Index, or VIX, which is widely watched as a measure of investor anxiety. Last month, the Commodity Futures Trading Commission, the U.S. Securities and Exchange Commission and Wall Street’s self-regulator, the Financial Industry Regulatory Authority, all indicated they were investigating the possible rigging of the market.
Friday’s lawsuit said that unnamed traders were able to manipulate the process for settling VIX contracts by aggressively betting on S&P 500 options prices in order to influence the prices of VIX futures. VIX values are derived from lower-level, illiquid S&P options, meaning that a relatively small number of trades can have disproportionate effect on the VIX.
“By manipulating the VIX derivative market, the defendants not only profited off their deceit at the expense of honest investors, but damaged the integrity of an entire industry,” Michael Eisenkraft, co-counsel for plaintiff Atlantic Trading USA and the putative class said in a statement announcing the suit.
The proposed class is represented by Eisenkraft, and Carol Gilden of Cohen Milstein Sellers & Toll, who are based respectively in New York, Chicago and Washington; along with Anthony Fata and Daniel Herrera of Cafferty Clobes Meriwether and Sprengel in Chicago.
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