A New York lawsuit filed against Credit Suisse Group AG alleges that the firm failed to disclose that it was manipulating its VelocityShares Daily Inverse VIX Short-Term exchange-traded notes (ticker symbol: XIV) through liquidation and that Credit Suisse, the issuer of XIV, and its agents engaged in a fraudulent scheme and business that operated as a fraud or deceit upon those who purchased XIV, especially unsophisticated investors the lawsuit states lost the most.
According to the suit, Credit Suisse created and distributed false and misleading statements concerning XIV when it filed a pricing supplement on January 29, 2018, and engaged in misrepresentations and omissions that harmed investors who purchased the Inverse VIX Short-Term ETNs (XIV).
The suit alleges that Credit Suisse's risk disclosures were materially false and/or misleading because they failed to disclose that Credit Suisse sought to actively manipulate XIV by liquidating its holdings in February in order to avoid a loss, to the detriment of investors.
On February 5, 2018, XIV lost 89.74% of its value during after-hours market activity: it had closed at $99 at 4pm Eastern Time, and had dropped to $10.16 by 6:28pm.
According to the suit, Credit Suisse materially misrepresented XIV's true economic value by permitting investors to purchase the ETN at prices in the $80-range all while representing to the public that the economic value of the notes was much lower—$24.6961—and knowing even further, internally, that the true economic value was already in the $4.22-$4.40 range, resulting in at least $700 million in losses via resulting wealth transfers from "unsophisticated, poorly-informed buyers to sophisticated, well-informed sellers."
Credit Suisse CEO Tidjane Thiam and CFO David Mathers were named as additional defendants.
CEO Thiam gave an interview in which he declared that Credit Suisse adequately disclosed the risks associated with its complex XIV ETN product in prospectus documents, notably that the product is a "daily trading tool for very sophisticated investors," that "your ETN has zero long-term value," and "is not an appropriate investment and you should not invest in it for any period of time superior to one day because you risk losing all or a substantial portion of your investment."
As such, if a broker or financial adviser recommended you invest in the XIV note for any period longer than one day, then, according to Credit Suisse, that recommendation was unsuitable. If a full-service brokerage representative unsuitably recommended you invest in the complex and risky product known as XIV, especially over the long-term or especially if that recommendation involving holding the XIV note in your portfolio overnight from February 5 to February 6, 2018, and this has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.
News: Credit Suisse Sued by Investor Over Crashed Volatility Note (Bloomberg)