Set Capital LLC v. Credit Suisse Group AG, No. 19-3466 (2d Cir. 2021)
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Set Capital filed a class action against Credit Suisse, Individual Defendants, and Janus, principally alleging that, on February 5, 2018, defendants executed a complex fraud to collapse the market for VelocityShares Daily Inverse VIX Short Term Exchange Traded Notes (XIV Notes), earning hundreds of millions of dollars in profit at their investors' expense. The district court dismissed the complaint for failure to plead a strong inference of scienter.
The Second Circuit concluded that the complaint plausibly alleges a strong inference of scienter to support Set Capital's claim for market manipulation, and that it has identified actionable misstatements or omissions in the Offering Documents. However, the court agreed with the district court that the complaint does not support a strong inference that Credit Suisse and Janus acted with scienter when they failed to correct the Flatline Value during afterhours trading on February 5. Therefore, the court vacated the judgment dismissing the claims pertaining to the manipulative scheme, the alleged misstatements or omissions in the offering documents, and the corresponding liability of control persons. The court remanded those claims for further proceedings. The court affirmed the judgment dismissing the claims for failure to correct the Flatline Value, while vacating the district court's denial of leave to amend those claims.
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