Credit Suisse Facing Suit Over TVIX Flap
Swiss banking giant Credit Suisse (NYSE: CS) may wish it had never issued the now notorious and highly controversial VelocityShares Daily 2x VIX Short-Term ETN (NYSE: TVIX). As was widely reported earlier this year, Credit Suisse halted new shares creations in TVIX, in turn forcing the ETN to trade at a substantial premium to its closing indicative value.
That created an easy short opportunity for traders looking to exploit the market price/closing indicative value gap, ensuring that TVIX and other volatility products would become one of the stories of the year in the exchange-traded products business.
Unfortunately for Credit Suisse, the bad news related to TVIX just keeps on coming. New York-based law firm Wolf Haldenstein Adler Freeman & Herz has filed a class action suit against the bank covering investors that held through March 22, the ETN's day of infamy.
The firm, which say it "is one of the most prominent class action firms in the world" on its Web site, is looking to recover damages on behalf of TVIX investors during the class period. TVIX "Offering Documents used to solicit purchases of TVIX ETNs by members of the Class materially understated certain risks associated with these investments. Defendants also misleadingly omitted to disclose necessary information and material risks of certain scenarios transpiring that might lead to large losses from investments in TVIX ETNs," according to a statement issued by the firm.
Benzinga was the first to note that Credit Suisse ADRs traded sharply lower on March 22, the day TVIX fell almost 30% because TVIX, like all ETNs, are debt instruments, making investors that hold them unsecured creditors of the issuing bank.
While no credit issue related to TVIX has come to pass for Credit Suisse, the bank's handling of TVIX and share issuance has proven to be a thorny issue to say the least.
This isn't Wolf Haldenstein Adler Freeman & Herz's first rodeo with a Swiss bank. The firm led action against UBS (NYSE: UBS) in a case that alleged the bank "failed to pay its Financial Advisors for overtime that they worked in violation of the Fair Labor Standards Act ('FLSA'), a federal statute, and New York state wage and hour laws."
For those wondering why Wolf Haldenstein Adler Freeman & Herz sounds familiar, it's because the firm is also going after Facebook (Nasdaq: FB) regarding the social media darling's recently botched IPO.
As for TVIX, it currently trades at $9.40, still a premium to a closing indicative value of $8.86.
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