August 28, 2018

A New York federal judge on Monday overruled Y-GAR Capital LLC's objections to a magistrate judge's lead plaintiff appointment in a consolidated securities action facing Credit Suisse Group AG, finding that the magistrate judge did not err in denying Y-GAR Capital's competing lead plaintiff bid.

Y-GAR Capital hoped to lead a proposed class of investors in Credit Suisse's short-term notes inversely related to the stock market's volatility index, who claim the bank misrepresented the value of the notes during a critical time of steep price drops and substantial investor losses. When three substantially similar investor suits were consolidated in June, U.S. Magistrate Judge Sarah Netburn passed over Y-GAR Capital and instead appointed a set of investors she dubbed ‘ACM Group,’ which she found to have the largest financial interest in the case.

In its objection, Y-GAR Capital claimed Judge Netburn erred in finding that ACM Group had the largest financial interest because investor groups should not be appointed over individual investors such as Y-GAR Capital with “by far the largest financial interest.” ACM Group suffered a collective $14.4 million in losses, but its largest individual investor loss was $7.7 million, compared to the $10.2 million in losses suffered by Y-GAR Capital, according to court records.

The investors allege that Credit Suisse and its executives falsely claimed in prospectuses and pricing supplements, one of which was released on Jan. 29, that the bank would calculate the intraday indicative value of the notes and update it every 15 seconds.

Those misrepresentations became evident when updates stopped coming after 4:10 p.m. on Feb. 5, the same time that volatility futures prices began changing drastically, the two earliest suits claim. Investors allege they were buying notes that the bank was representing to be valued at around $24.70 apiece when the bank knew that based on skyrocketing volatility futures prices, the notes actually had a value of between $4.22 and $4.40 each. Falling to such a low triggered an "acceleration event" whereby the notes, due to mature in 2030, were prematurely redeemed by Credit Suisse on Feb. 21, the investors say.

ACM Group is represented by Michael B. Eisenkraft, Steven J. Toll, Eric Berelovich, Carol V. Gilden and Laura Posner of Cohen Milstein Sellers & Toll PLLC, and Eduard Korsinsky, Nicholas I. Porritt, Adam M. Apton and Alexander Krot of Levi & Korsinsky LLP.

The complete article can be accessed here.