Lawsuit over TVIX: Another display of the “nothing is ever my fault” philosophy

By Lawrence G. McMillan

In yet another display of the  “nothing is ever my fault” philosophy, a class action lawsuit has been filed against VelocityShares and Credit Suisse on behalf of anyone who purchased the Daily 2x Long VIX Short-term ETNs (TVIX) from November 30, 2010, through March 22, 2012.  

TVIX shares were first issued on November 30, 2010, so the lawsuit covers nearly the entire length of time that they have existed – from day 1 through the day that Credit Suisse began issuing new shares again (this past March). 

The complaint mentions two main things: 1) that the prospectus, despite several examples of hypothetical performance, didn’t spell out the term structure risk (the daily “roll” that takes place in volatility ETN’s).  Of course, that term structure was a benefit to these purchasers during the fall of 2011, when TVIX rose from 15 to 110!  No mention of that. 

I would think that anyone who owned TVIX during that more than 600% increase in price wouldn’t be entitled to be part of the lawsuit – but they are.

Of course, the lawsuit also gets around to CS’s decision to temporarily suspend issuance of new shares, which let the shares float (trade) above net asset value. When share issuance was resumed, the share price plummeted back to fair value.  See our Volume 21, No. 6, for a discussion of what happened during that time.

But the lawsuit seems to skirt that issue (which is probably the only real issue that purchasers could complain about), instead concentrating on the lack of mention of the term structure risk and also citing unrealistically positive hypothetical examples in the prospectus.  Any shareholders could have read about those risks in many places on the internet or in newsletters like ours.

The law firm, Robbins Geller Rudman & Dowd, specializes in class action suits.  I’m sure they’ll get some payment out of CS, which – like almost all stock market class action suits – results in a payment of a few cents per share to purchasers and millions to the law firm.

This article was taken from the most recent edition of The Option Strategist Newsletter.