Burned Exchange-Traded Notes Investor Slaps Credit Suisse With Lawsuit

Josh O'Neill

19 March 2018

was sued by an investor who was stung last month after betting against stock market turbulence.

Rajan Chahal filed the lawsuit last week in federal court in New York against the bank, chief executive Tidjane Thiam and David Mathers, finance chief, alleging they failed to disclose the company was manipulating its VelocityShares Daily Inverse VIX Short-Term exchange-traded notes, known by the trading symbol XIV, Bloomberg reported. Chahal’s complaint sought class-action status on behalf of other buyers.

“Credit Suisse was actively manipulating the Inverse VIX Short ETNs by liquidating its holdings in various financial products to avoid a loss,” Chahal’s attorneys wrote in the complaint. The filing mainly draws on public information, but Chahal aims to unearth more evidence to add merit to the case.

VIX exchange-traded products, which were designed to profit in calm markets, have drawn intense scrutiny from US regulators after a blowup centered around a spike in volatility in early February shone a light on complex trading strategies accessible to everyone from hedge funds to the average Joe investor.

Credit Suisse, however, disputed Chahal’s claims.

“The publicly available prospectus accurately and fully disclosed the risks of an investment in XIV, which is only intended for sophisticated institutional clients,” the Swiss bank told this publication in an email. “Credit Suisse did not engage in any conduct designed to mislead investors regarding XIV’s value or cause the February 5, 2018, decline in XIV’s price.”

Chahal is seeking justice for all investors who bought the Credit Suisse exchange-traded notes beginning January 29, when the bank filed a pricing supplement on 16,275,000 of the notes. He claims the notes contained misleading statements.