Investors who accused Credit Suisse of manipulating the market for the bank’s VelocityShares Inverse VIX short-term exchange-traded notes (XIV notes) will not be allowed to revise their lawsuit to include new claims regarding the bank’s lending practices and internal calculations, a federal judge has ruled.
In a decision issued on Monday, U.S. District Judge Analisa Torres upheld a previous ruling by Magistrate Judge Sarah Netburn, denying the investors’ request to file a third amended complaint in the consolidated class action lawsuit. The court found that introducing new theories of liability after five years of litigation would be unduly prejudicial to the defendants.
The investors, including Set Capital LLC, Stefan Jager, Aleksandr Gamburg, and Apollo Asset Ltd., initially filed the class action in August 2018, alleging that Credit Suisse, along with its former CEO and CFO, intentionally manipulated the market for XIV notes, which were designed to provide returns based on the inverse value of the VIX, a measure of market volatility. The investors claimed that Credit Suisse’s actions led to significant losses, culminating in an estimated $1.8 billion in investor losses on February 5, 2018, when the value of XIV notes plummeted unexpectedly due to a delay in the bank’s calculation process.
In the court’s Monday ruling, Judge Torres agreed with Judge Netburn’s January decision, emphasizing that allowing the investors to introduce new claims at this stage would disrupt the fairness of the legal process and would force the defendants to defend against entirely new allegations after years of litigation based on the original claims.
The case stems from the investors’ allegations that Credit Suisse manipulated the market through strategic hedging positions and improper handling of VIX futures contracts, which led to the crash in XIV note prices during times of market volatility. The investors contend that the bank profited significantly from these actions, with estimated profits of up to $542 million.
Despite the court’s denial of the proposed amendments, the case remains active as portions of the lawsuit were revived by the Second Circuit following an earlier dismissal. The ruling marks a significant milestone in the ongoing legal battle between the investors and Credit Suisse.
The investors are represented by Cohen Milstein Sellers & Toll PLLC, Levi & Korsinsky LLP, and Slarskey LLC, while Credit Suisse is represented by Cahill Gordon & Reindel LLP.
