19-3466

Set Capital LLC v. Credit Suisse Group AG

In the

United States Court of Appeals

For the Second Circuit ________

AUGUST TERM, 2019

ARGUED: APRIL 30, 2020

DECIDED: APRIL 27, 2021

No. 19-3466-cv

SET CAPITAL LLC, STEFAN JAGER, NIKOLAY DROZHZHINOV,

ALEKSANDR GAMBURG, ACM, LTD.,

Lead Plaintiffs-Appellants,

RAJAN CHAHAL, individually and on behalf of all others similarly 

situated, SHAOLEI QIU, GLENN EISENBERG,

Plaintiffs,

v.

CREDIT SUISSE GROUP AG, DAVID R. MATHERS, TIDJANE THIAM,

CREDIT SUISSE AG, CREDIT SUISSE INTERNATIONAL, JANUS HENDERSON 

GROUP PLC, JANUS INDEX & CALCULATION SERVICES LLC, JANUS 

DISTRIBUTORS, LLC, DBA JANUS HENDERSON DISTRIBUTORS,

Defendants-Appellees.

________

Appeal from the United States District Court

for the Southern District of New York.

________
2 No. 19-3466-cv

Before: WALKER, POOLER, and LYNCH, Circuit Judges.

________

Set Capital LLC, Stefan Jager, Nikolay Drozhzhinov, Aleksandr 

Gamburg, and ACM, Ltd. (collectively, Set Capital) brought this 

securities class action lawsuit against Credit Suisse Group AG, Credit 

Suisse AG, and Credit Suisse International (collectively, Credit 

Suisse); Credit Suisse’s CEO Tidjane Thiam and CFO David R. 

Mathers (together, the Individual Defendants); and Janus Henderson 

Group PLC, Janus Index & Calculation Services LLC, and Janus 

Distributors, LLC, doing business as Janus Henderson Distributors 

(collectively, Janus). Set Capital principally alleges that, on February 

5, 2018, Credit Suisse, Janus, and the Individual 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 (Torres, J.) dismissed the complaint for failure to 

plead a strong inference of scienter. For the reasons that follow, we 

AFFIRM in part and VACATE and REMAND in part. 

________

MICHAEL EISENKRAFT (Laura H. Posner, Carol V. 

Gilden, and Eric S. Berelovich, on the brief), Cohen 

Milstein Sellers & Toll PLLC, New York, New 

York, for Appellants Set Capital LLC, Stefan Jager, 

Nikolay Drozhzhinov, Aleksandr Gamburg, and ACM, 

Ltd.

HERBERT SCOTT WASHER (David G. Januszewski, 

Nola B. Heller, Peter J. Linken, on the brief), Cahill 

Gordon & Reindel LLP, New York, New York, for 

Appellees Credit Suisse Group AG, Credit Suisse AG, 

Credit Suisse International, Tidjane Thiam, and David 

R. Mathers
3 No. 19-3466-cv

JASON M. HALPER (Jared J. Stanisci, Gillian Groarke 

Burns, Tianyin Luo, Victor M. Bieger, on the brief), 

Cadwalader, Wickersham & Taft LLP, New York, 

New York, for Appellees Janus Henderson Group 

PLC, Janus Index & Calculation Services LLC, and 

Janus Distributors, LLC

________

JOHN M. WALKER, JR., Circuit Judge:

Set Capital LLC, Stefan Jager, Nikolay Drozhzhinov, Aleksandr 

Gamburg, and ACM, Ltd. (collectively, Set Capital) brought this 

securities class action lawsuit against Credit Suisse Group AG, Credit 

Suisse AG, and Credit Suisse International (collectively, Credit 

Suisse); Credit Suisse’s CEO Tidjane Thiam and CFO David R. 

Mathers (together, the Individual Defendants); and Janus Henderson 

Group PLC, Janus Index & Calculation Services LLC, and Janus 

Distributors, LLC, doing business as Janus Henderson Distributors 

(collectively, Janus). Set Capital principally alleges that, on February 

5, 2018, Credit Suisse, Janus, and the Individual 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 (Torres, J.) dismissed the complaint for failure to 

plead a strong inference of scienter. For the reasons that follow, we 

AFFIRM in part and VACATE and REMAND in part. 

BACKGROUND

This appeal stems from the February 5, 2018 collapse of the 

market for certain investment vehicles called XIV Notes. XIV Notes 

were a derivative financial product that increased in value when the 

market was calm and decreased in value when the market was 

volatile. The notes were issued by Credit Suisse and priced based on 

the inverse of a volatility index called the S&P 500 VIX Short-Term 
4 No. 19-3466-cv

Futures Index (VIX Futures Index). 

This case concerns Set Capital’s allegation that, after observing 

prior episodes of market volatility, Credit Suisse discerned an ability 

to depress prices for XIV Notes by purchasing VIX futures contracts

on days when volatility spiked. In essence, Set Capital claims that 

Credit Suisse used this knowledge as part of a scheme to sell millions 

of XIV Notes before engineering a near-total collapse in their price

through just 15 minutes of its own trading. Set Capital further alleges 

that Janus, although not directly involved in this manipulative 

scheme, exacerbated the damage by failing to publish accurate prices 

for XIV Notes during the window of time when the value of those 

notes collapsed. The complaint alleges that the scheme cost investors 

$1.8 billion while at the same time allowing Credit Suisse to realize 

more than $475 million in gains.

In the background section that follows, we explain in detail: (1) 

the characteristics of XIV Notes, including their relationship to the 

VIX Futures Index; (2) the way Credit Suisse’s trading impacted 

prices for XIV Notes during prior episodes of market volatility; (3) the 

extent to which Credit Suisse and Janus warned investors about risks 

of investing in XIV Notes; and (4) the remarkable collapse of XIV 

Notes following significant volatility on February 5, 2018. As always 

at this stage of the litigation, we draw our discussion of the facts from 

the complaint, which must be taken as true.1

1. The Characteristics of XIV Notes

XIV Notes were Exchange Traded Notes (ETNs) issued and 

sold by Credit Suisse and placed and marketed by Janus. The notes 

were traded on NASDAQ and were related to the Chicago Board 

Options Exchange’s VIX Index (VIX Index). The VIX Index is not an 

1 See J. App. at 26–125 (complaint).
5 No. 19-3466-cv

asset, but rather a measure of expected volatility in the stock market. 

When the market expects higher volatility, the VIX Index increases. 

When the market expects lower volatility, the VIX Index decreases. 

Because it measures expected swings in the market, the VIX Index is 

sometimes referred to as Wall Street’s “fear index” or “fear gauge.”2

Although the VIX Index is not a tradable asset, investors may 

take a position on future levels of market volatility by purchasing 

futures contracts on the VIX Index.3 When viewed in the aggregate, 

the prices of these futures contracts provide a window into whether 

investors expect market volatility to rise or fall over a specified period 

of time. To help investors digest this information, S&P created the 

S&P 500 VIX Short-Term Futures Index (VIX Futures Index), which 

tracks a portfolio of short-term futures contracts on the VIX Index.

The XIV Notes at issue in this case were designed to track the 

inverse (or opposite) of the VIX Futures Index. This inverse 

relationship between XIV Notes and the VIX Futures Index meant 

that investors in XIV Notes would profit from low volatility in the 

stock market. As market volatility declined and prices underlying the 

VIX Futures Index decreased, the value of XIV Notes would increase 

by an equivalent amount. The converse, of course, was also true. As 

market volatility increased and prices underlying the VIX Futures

Index rose, the value of XIV Notes would decline proportionally.

In the event of early redemption, acceleration, or maturity of 

the XIV Notes, Credit Suisse agreed to pay noteholders based on the 

notes’ “closing indicative value.” An affiliate of Janus, Janus Index & 

Calculation Services LLC (JIC), calculated the closing indicative value 

at the end of each trading day using a formula that automatically 

2 See Compl. ¶ 50.

3 A futures contract is an agreement to purchase or sell a particular

commodity on a later date at a predetermined price.
6 No. 19-3466-cv

adjusted the notes’ value based on the inverse of price changes 

observed on the VIX Futures Index.4 Because the closing indicative 

value was calculated only once each day, JIC also computed an 

“intraday indicative value” every 15 seconds, which was used by 

investors trading their notes in the secondary market.5 JIC used the 

same formula to automatically calculate this value, which was 

promptly distributed by NASDAQ. Although the intraday indicative 

value reflected only a theoretical price for XIV Notes, the secondary 

market price tracked the intraday indicative value on a typical day.

To receive a payment from Credit Suisse based on the closing 

indicative value, XIV noteholders could redeem their notes early or 

attempt to hold their notes through maturity. But noteholders could 

not fully control the timing of their notes’ redemption: As disclosed 

to investors, Credit Suisse could accelerate the redemption of all XIV 

Notes either at its option or upon the occurrence of one or more predefined “Acceleration Events.”6 If Credit Suisse accelerated the notes 

at its option, noteholders would receive a payment based on the 

closing indicative value on a predetermined date no earlier than five 

business days after receiving notice of the acceleration. If Credit 

Suisse declared an Acceleration Event, noteholders would receive a 

payment based on the closing indicative value on the day the 

acceleration was declared. As relevant here, one Acceleration Event 

would occur if, at any point, the intraday indicative value of the XIV 

4 JIC had “the sole ability to calculate and disseminate the Closing 

Indicative Value” of the XIV Notes. J. App. at 187.

5 The Offering Documents (to be described) state that “JIC or its affiliate 

is responsible for computing and disseminating the Intraday Indicative 

Value.” Id. at 135, 145. 

6 An affiliate of Credit Suisse, Credit Suisse International (CSI), had “the 

sole ability to make determinations with respect to . . . certain Acceleration 

Events.” Id. at 187. 
7 No. 19-3466-cv

Notes fell such that it was less than or equal to 20 percent of the prior 

day’s closing indicative value.7

2. Prior Episodes of Market Volatility Impacting XIV Notes

Due to sustained periods of stability in the market, XIV 

noteholders for the most part saw the value of XIV Notes climb from 

2010 until 2018. On three occasions in 2011, 2015, and 2016, however,

significant episodes of market volatility caused the value of VIX 

futures contracts to spike and, correspondingly, the value of XIV 

Notes to drop. During these three volatility spikes, Credit Suisse, as 

well as other issuers of volatility-related ETNs, bought large 

quantities of VIX futures contracts, which were increasing in value, in 

order to offset or “hedge” against potential losses in the ETNs they 

issued, which were decreasing in value.8 Each time they attempted 

to do so, however, there was insufficient liquidity in the VIX futures 

market—that is, not enough VIX futures contracts to meet the 

hedging demand. As a result of this liquidity squeeze, Credit Suisse’s 

hedging purchases caused the price of VIX futures contracts to spike 

over and above what would have been expected based on market 

volatility alone. At the same time, these spikes caused the value of 

XIV Notes—the inverse of the VIX Futures Index—to temporarily 

plummet.

Pursuant to Credit Suisse’s internal risk protocols, all three of 

these liquidity incidents were promptly reported to Credit Suisse’s 

Capital Allocation and Risk Management Committee (CARMC), of 

which the Individual Defendants were members. In response, Credit 

7 Id. at 184.

8 In these circumstances, Credit Suisse routinely hedged by taking short 

positions on VIX futures contracts. Thus, a drop in the VIX Futures Index 

would increase Credit Suisse’s obligations to XIV noteholders but would 

also allow Credit Suisse to profit from its short position. See Compl. ¶ 66. 
8 No. 19-3466-cv

Suisse sought alternative ways to hedge its own exposure to XIV 

Notes. On July 1, 2016, Credit Suisse announced (July 2016 

Announcement) that it may condition all future sales of XIV Notes on 

the counterparty’s agreement “to sell to Credit Suisse certain hedging 

instruments consistent with Credit Suisse’s hedging strategy, 

including but not limited to swaps.”9 

Following the July 2016 Announcement, Credit Suisse

increased the volume of XIV Notes in the market. On June 30, 2017, 

it offered an additional 5,000,000 notes on top of the roughly 9,000,000 

notes that were already issued and outstanding. And on January 29, 

2018, it offered another 16,275,000 notes on top of the roughly 

10,800,000 notes then-outstanding. While only a portion of the 

16,275,000 notes were ultimately sold between January 29 and 

February 5, this last offering flooded the market with millions of XIV 

Notes just days before their value collapsed.10 Notably, Credit Suisse 

offered and issued these notes despite shareholder pressure to 

eliminate sales of volatility-related ETNs. It also took these actions 

even though increasing the volume of XIV Notes outstanding would

require Credit Suisse, in the event of another jump in market 

volatility, to increase its hedging activity by purchasing additional 

VIX futures contracts. As Credit Suisse knew, these purchases would 

exacerbate the illiquidity that contributed to the three prior price 

drops of XIV Notes in 2011, 2015, and 2016.

9 Compl. ¶ 75.

10 Between January 29 and February 2, 2018, Credit Suisse issued at least 

4,200,000 of the 16,275,000 XIV Notes offered, increasing the volume of XIV 

Notes outstanding by more than 38.9%. This increase does not account for 

additional sales of XIV Notes that may have occurred between February 3 

and February 5, 2018, at which point the market for XIV Notes collapsed.
9 No. 19-3466-cv

3. Disclosures in the Offering Documents

Credit Suisse and Janus issued a prospectus for the XIV Notes

as well as a supplement (together, the Offering Documents) in 

connection with their offering of the 16,275,000 notes on January 29, 

2018. The Offering Documents detailed the structure of XIV Notes

(referred to in the documents as “ETNs”), the conditions under which 

Credit Suisse would pay XIV noteholders, and the methods for 

calculating the closing and intraday indicative values.

The Offering Documents also contained numerous warnings

concerning risks of investing in XIV Notes. They informed investors 

that XIV Notes were “designed as short-term trading vehicles for 

investors managing their portfolios on a daily basis.”11 They warned 

investors that “[t]he long term expected value of your ETNs is zero,” 

and emphasized that “[i]f you hold your ETNs as a long term 

investment, it is likely that you will lose all or a substantial portion of 

your investment.”12 

The Offering Documents also cautioned investors that Credit 

Suisse intended to hedge its exposure to XIV Notes through trading 

in related securities, including VIX futures contracts used to calculate 

the VIX Futures Index. In one section, the Offering Documents stated 

that “this hedging activity could affect the value of the [VIX Futures] 

Index, and accordingly the value of the ETNs.”13 In another section, 

they stated, “Although we and our affiliates have no reason to believe 

that our or their hedging activities will have a material impact on the 

level of the applicable underlying [VIX Futures] Index, there can be 

no assurance that the level of the applicable underlying Index will not 

11 J. App. at 166–67 (emphasis omitted).

12 Id. at 154 (emphases omitted).

13 Id. at 151. 
10 No. 19-3466-cv

be affected.”14 The Offering Documents acknowledged that Credit 

Suisse’s hedging trades “may result in [Credit Suisse’s] receipt of a 

profit, even if the market value of the ETNs declines,”15 and further 

warned that Credit Suisse’s trading activity “may present a conflict” 

between the bank’s interests and the interests of investors.16

The Offering Documents additionally advised investors of risks 

related to the pricing of XIV Notes and Credit Suisse’s rights to 

accelerate the notes. With respect to the pricing of XIV Notes, they 

disclosed that the intraday indicative value may not accurately reflect 

the economic value of XIV Notes traded on the secondary market. 

They advised that “[t]he Intraday Indicative Value calculation is not 

intended as a price or quotation, or as an offer or solicitation for the 

purchase, sale, redemption, acceleration or termination of your ETNs, 

nor will it reflect hedging or transaction costs, credit considerations, 

market liquidity or bid-offer spreads.”17 The Offering Documents

further warned that the published prices on the VIX Futures Index 

could be subject to “delay or postponement,” which in turn would 

affect the accuracy of the intraday indicative value.18 With respect to 

acceleration, they specifically advised investors that Credit Suisse 

retained the right to accelerate the notes at any time19 and warned 

that, in the event of an acceleration, investors were “likely to lose part 

or all of [their] initial investment.”20

14 Id. at 188.

15 Id. at 151.

16 Id. at 163.

17 Id. at 177.

18 Id.

19 Credit Suisse could declare an optional acceleration on any business 

day. See id. at 183. It could declare an Acceleration Event only in certain 

circumstances. Id.

20 J. App. at 130, 140, 148, 152. 
11 No. 19-3466-cv

Following their review of the Offering Documents, Set Capital 

purchased XIV Notes during the class period of January 29 through 

February 5, 2018. During this period, Credit Suisse sold XIV Notes 

for prices as high as $135 per note, and the market cap for XIV Notes 

increased to approximately $1.9 billion.

4. Market Volatility on February 5, 2018 and the Collapse of the 

Market for XIV Notes

On February 5, 2018, the S&P 500 dropped 4.1 percent. As 

before, this spike in market volatility increased prices for VIX futures 

contracts comprising the VIX Futures Index and accordingly 

decreased the value of XIV Notes. Over the course of regular trading 

on February 5, the intraday indicative value of the nearly 15 million 

XIV Notes outstanding dropped more than 30 percent from $108.37 

to $72.59.

Within 15 minutes after the close of regular trading at 4:00 p.m., 

Credit Suisse purchased more than 105,000 VIX futures contracts to 

hedge its exposure in sales of XIV Notes. Credit Suisse’s purchases 

amounted to roughly one-fourth of the entire VIX futures market, 

which drove up trading to more than 167 times the usual volume. As 

was the case with the three prior incidents of market volatility, Credit 

Suisse’s hedging trades contributed to a liquidity squeeze that caused 

the prices of VIX futures contracts to skyrocket. By 4:09 p.m., just nine 

minutes into Credit Suisse’s hedge, this further spike in prices on the 

VIX Futures Index caused the value of XIV Notes to plummet to 

approximately $20. Six minutes later, by 4:15 p.m., Credit Suisse’s 

continued purchases of VIX futures contracts drove down the value 
12 No. 19-3466-cv

of XIV Notes to just over $4—a drop of more than 96 percent from the 

prior day’s closing indicative value.21

On top of all this, for one hour from 4:09 p.m. to 5:09 p.m., the 

intraday indicative value for XIV Notes was not updated every 15 

seconds as required and did not reflect an accurate valuation of the 

notes. Instead, during this hour, the intraday indicative value

updated only sporadically and valued the XIV Notes at about $24 to 

$27 per note (the Flatline Value). This published Flatline Value 

persisted notwithstanding that, in reality, each note almost 

immediately was worth between $4.22 and $4.40.22 It was not until 

5:09 p.m. (and after more than thirty minutes during which the 

intraday indicative value failed to update at all) that NASDAQ 

disseminated the correct intraday indicative value of $4.22.23 During 

this hour, investors purchased more than $700 million in XIV Notes 

at inflated secondary market prices based on their incorrect belief that 

XIV Notes had weathered the spike in market volatility without 

triggering an Acceleration Event.

21 The complaint alleges that, based on historical data, a 4 percent drop 

in the S&P 500 should have caused prices for VIX futures contracts to jump 

by approximately 15 to 25 percent. As a result of Credit Suisse’s hedging 

trades, those prices in fact increased by nearly 100 percent. See Compl. 

¶ 170.

22 As Janus points out in its brief, the complaint does not allege that the 

intraday indicative value failed to accurately track the inverse of the VIX 

Futures Index, because that index had itself flatlined during the one hour 

in question. See Br. of Def.-Appellee Janus at 30–31; J. App. at 414–71. 

23 At 4:09:48 p.m., the intraday indicative value of the XIV Notes was 

reported as $27.0855, before updating at 4:12:33 p.m. to a value of $27.1951, 

updating at 4:12:47 p.m. to a value of $26.3182 and then, at 4:13:03 p.m., 

updating to a value of $24.8933. There were slight fluctuations in the 

intraday indicative value until 4:38:34 p.m. when the value froze at 

$24.6961. See Compl. ¶ 174. There was no update thereafter until 5:09:05 

p.m. when the value was reported as $4.2217. Id.
13 No. 19-3466-cv

But, of course, an Acceleration Event had occurred: The 

intraday indicative value of the XIV Notes plummeted more than 80 

percent from the prior day’s closing indicative value. Accordingly, 

on February 6, 2018, Credit Suisse issued a press release stating that 

the XIV Notes had experienced an Acceleration Event and that Credit 

Suisse would permanently cease issuing new XIV Notes. Shortly 

thereafter, Credit Suisse delivered an irrevocable call notice for all 

notes outstanding, selecting February 15 as the accelerated valuation 

date. On February 21, Credit Suisse terminated all XIV Notes and 

paid each investor $5.99 per note, the closing indicative value on 

February 15, 2018. This resulted in approximately $1.8 billion in 

market losses to investors, many of whom were Credit Suisse’s own 

clients.

On April 25, 2018, Credit Suisse’s quarterly report stated that 

its equity sales and trading division earned approximately $490 

million for its own account in the prior fiscal quarter “due to more 

favorable trading conditions, particularly higher levels of volatility 

which benefited our derivatives business.”24 Although Credit 

Suisse’s records are not publicly available, Set Capital estimates that 

Credit Suisse earned between $475 and $542 million in profits when 

it redeemed the XIV Notes.

5. Prior Proceedings

After several plaintiffs sued Credit Suisse and Janus following 

the collapse of the XIV Notes, the actions were consolidated and Set 

Capital, one of the lead plaintiffs, filed a class action complaint. The 

complaint principally asserts three theories of primary liability under 

Sections 9(a) and 10(b) of the Securities Exchange Act of 1934 

(Exchange Act)25 and Section 11 of the Securities Act of 1933 

24 Compl. ¶¶ 16, 194.

25 See 15 U.S.C. § 78i(a) (Section 9(a)); 15 U.S.C. § 78j(b) (Section 10(b)). 
14 No. 19-3466-cv

(Securities Act).26 First, Set Capital claims that Credit Suisse and the 

Individual Defendants engaged in a scheme to manipulate the market 

in violation of Section 10(b) by issuing millions of XIV Notes in 

January and February 2018 knowing or recklessly disregarding that 

their own hedging activity would trigger a liquidity squeeze in VIX 

futures contracts, destroy the value of XIV Notes, and allow Credit 

Suisse to accelerate the notes’ redemption at a substantial loss to 

investors while locking in a profit for its own account. Second, Set 

Capital claims that Credit Suisse and Janus made a material 

misstatement or omission in violation of Sections 9(a) and 10(b) by 

failing to correct the Flatline Value during afterhours trading on 

February 5. Third, Set Capital claims that the Offering Documents 

issued by Credit Suisse and Janus contained material misstatements 

or omissions in violation of Sections 10(b) and 11 by repeatedly 

warning of “risks” they knew were certain to occur. In addition, Set 

Capital claims that Credit Suisse and Janus are secondarily liable as 

“control persons” of Credit Suisse International (CSI) and JIC under 

Section 15 of the Securities Act27 and Section 20(a) of the Exchange 

Act.28

Credit Suisse, Janus, and the Individual Defendants moved to 

dismiss the complaint on November 2, 2018. On August 16, 2019, the 

magistrate judge (Netburn, J.) recommended dismissal of all claims

on the basis that Set Capital failed to plead a primary violation of 

Section 10(b), which overlaps in substance with the elements of 

Sections 9(a) and 11. Specifically, the magistrate judge concluded that 

Set Capital failed to allege an actionable misstatement or omission in 

the Offering Documents and that, although Set Capital sufficiently 

alleged acts of market manipulation and a misrepresentation in the 

26 See 15 U.S.C. § 77k (Section 11).

27 See 15 U.S.C. § 77o (Section 15).

28 See 15 U.S.C. § 78t(a) (Section 20(a)). 
15 No. 19-3466-cv

Flatline Value, the complaint failed to support a strong inference of 

scienter. Because in the magistrate judge’s view the complaint failed 

to allege a primary violation, the magistrate judge also recommended 

dismissal of Set Capital’s secondary claims under Sections 15 and 

20(a). On September 25, the district court issued an order adopting 

the recommendations of the magistrate judge in full and dismissing 

the action with prejudice. This appeal followed.

DISCUSSION

We review a district court’s dismissal of a complaint for failure 

to state a claim de novo, “accepting all factual claims in the complaint 

as true, and drawing all reasonable inferences in the plaintiff’s 

favor.”29 “To survive a motion to dismiss, a complaint must contain 

sufficient factual matter, accepted as true, to ‘state a claim to relief that 

is plausible on its face.’”30 A claim is facially plausible “when the 

plaintiff pleads factual content that allows the court to draw the 

reasonable inference that the defendant is liable for the misconduct 

alleged.”31 

A complaint alleging securities fraud must also satisfy 

heightened pleading requirements set forth in Federal Rule of Civil 

Procedure 9(b) and the Private Securities Litigation Reform Act of 

1995 (PSLRA).32 Rule 9(b) requires litigants to “state with 

29 Anschutz Corp. v. Merrill Lynch & Co., Inc., 690 F.3d 98, 107 (2d Cir. 

2012) (quoting Famous Horse Inc. v. 5th Ave. Photo Inc., 624 F.3d 106, 108 (2d 

Cir. 2010)). 

30 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. 

Twombly, 550 U.S. 544, 570 (2007)). 

31 Cavello Bay Reinsurance Ltd. v. Shubin Stein, 986 F.3d 161, 165 (2d Cir. 

2021) (quoting Iqbal, 556 U.S. at 678). 

32 See ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 

2007).
16 No. 19-3466-cv

particularity the circumstances constituting fraud.”33 To do so, a 

plaintiff must “(1) specify the statements that the plaintiff contends 

were fraudulent, (2) identify the speaker, (3) state where and when 

the statements were made, and (4) explain why the statements were 

fraudulent.”34 The PSLRA, in turn, requires a plaintiff alleging 

securities fraud to (1) specify each misleading statement, (2) set forth 

the facts on which a belief that a statement is misleading was formed, 

and (3) state with particularity facts giving rise to a “strong inference”

that the defendant acted with scienter—the required state of mind.35

In this appeal, Set Capital argues that the district court erred by 

dismissing its market manipulation and Flatline Value claims for 

failure to plead a strong inference of scienter. Set Capital also argues

that the district court erred when it concluded that the complaint does 

not allege actionable misstatements or omissions in the Offering 

Documents. For the reasons that follow, we agree with Set Capital in 

part. We conclude 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. We agree with the district 

court, however, 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. 

33 Fed. R. Civ. P. 9(b). 

34 In re Synchrony Fin. Sec. Litig., 988 F.3d 157, 167 (2d Cir. 2021) (quoting 

Anschutz, 690 F.3d at 108). 

35 15 U.S.C. § 78u–4(b)(2)(A); see also Anschutz, 690 F.3d at 108. 
17 No. 19-3466-cv

I. The Manipulative Scheme

In proscribing the use of a “manipulative or deceptive device 

or contrivance,”36 Section 10(b) of the Exchange Act “prohibits not 

only material misstatements but also manipulative acts.”37 To state a 

claim for market manipulation under Section 10(b), a plaintiff must 

plausibly allege “(1) manipulative acts; (2) damage (3) caused by 

reliance on an assumption of an efficient market free of manipulation; 

(4) scienter; (5) in connection with the purchase or sale of securities; 

(6) furthered by the defendant’s use of the mails or any facility of a 

national securities exchange.”38 

As we have described above, Set Capital claims that Credit 

Suisse and the Individual Defendants manipulated the market by 

issuing millions of additional XIV Notes knowing or recklessly 

disregarding the virtual certainty that their own hedging activity 

would trigger a liquidity squeeze in VIX futures contracts, destroy the 

value of XIV Notes, and allow Credit Suisse to accelerate and redeem 

the notes at a substantial loss to investors while locking in a profit for 

its own account. Credit Suisse and the Individual Defendants

contend that, even accepting these allegations as true, the complaint 

fails to allege a “manipulative act” and does not plead a strong 

inference of “scienter.” We disagree and hold that Set Capital has 

alleged a plausible claim of liability for market manipulation. 

36 See 15 U.S.C. § 78j(b) (Section 10(b)); see also 17 C.F.R. § 240.10b-5 (SEC 

Rule 10b-5).

37 ATSI, 493 F.3d at 99; see also Lorenzo v. SEC, 139 S. Ct. 1094, 1101, 1105 

(2019) (explaining that Section 10(b) of the Exchange Act and SEC Rule 10b5 “capture a wide range of conduct” and are “intended to root out all 

manner of fraud in the securities industry”). 

38 ATSI, 493 F.3d at 101. 
18 No. 19-3466-cv

A. Manipulative Act

We turn first to the threshold question of whether Set Capital 

has plausibly alleged a “manipulative act.” As the Supreme Court 

has observed, the word “manipulative” is “virtually a term of art 

when used in connection with securities markets.”39 It “refers 

generally to practices, such as wash sales, matched orders, or rigged 

prices, that are intended to mislead investors by artificially affecting 

market activity,”40 and “connotes intentional or willful conduct 

designed to deceive or defraud investors by controlling or artificially 

affecting the price of securities.”41 For market activity to “artificially” 

affect a security’s price, we generally ask whether the transaction or 

series of transactions “sends a false pricing signal to the market”42 or 

otherwise distorts estimates of the “underlying economic value” of 

the securities traded.43 While a defendant may manipulate the market 

through open-market transactions,44 some misrepresentation or 

nondisclosure is required.45 Deception is the gravamen of a claim for 

market manipulation, and “the market is not misled when a 

transaction’s terms are fully disclosed.”46

39 Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199 (1976). 

40 Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 476 (1977). 

41 Ernst & Ernst, 425 U.S. at 199. 

42 ATSI, 493 F.3d at 100.

43 Id. (quoting Sullivan & Long, Inc. v. Scattered Corp., 47 F.3d 857, 861 (7th 

Cir. 1995)). 

44 See id. at 100–02. 

45 Wilson v. Merrill Lynch & Co., Inc., 671 F.3d 120, 130 (2d Cir. 2011); cf. 

Lorenzo, 139 S. Ct. at 1100–01 (holding that “dissemination of false or 

misleading statements with intent to defraud” can qualify as a 

“manipulative or deceptive device” prohibited by Section 10(b) and SEC 

Rule 10b-5(a) and (c)).

46 Wilson, 671 F.3d at 130 (internal quotation marks, alteration, and 

citation omitted). 
19 No. 19-3466-cv

The complaint alleges manipulative conduct that is actionable 

under Section 10(b). Accepting the well-pleaded facts as true, three 

prior volatility spikes in 2011, 2015, and 2016 demonstrated the 

impact of Credit Suisse’s hedging trades. Each time volatility spiked,

Credit Suisse’s hedging contributed to a liquidity squeeze in VIX 

futures contracts that depressed the value of XIV Notes further than 

what would have been expected from market volatility alone. The 

complaint alleges that Credit Suisse and the Individual Defendants

used this knowledge as part of an undisclosed scheme to profit at 

their investors’ expense. By offering 5,000,000 XIV Notes on June 30, 

2017 and another 16,275,000 notes on January 29, 2018—millions of 

which were ultimately issued—Credit Suisse exacerbated the risk of 

illiquidity in the VIX futures market and created conditions in which 

it knew that its hedging trades would destroy the value of XIV Notes 

during the next volatility spike. When that spike occurred days later 

on February 5, 2018, Credit Suisse executed on the alleged scheme. It 

purchased more than 105,000 VIX futures contracts, caused the price 

of XIV Notes to plummet by more than 96 percent, and declared an 

Acceleration Event to lock in its profit. If proven at trial, this alleged 

conduct was manipulative under our precedents. 

Credit Suisse argues that the complaint fails to allege any 

“artificial” impact on the price of XIV Notes because its hedging 

trades were “done openly” for the legitimate purpose of “manag[ing] 

risk,” not deceiving investors.47 To be sure, it is generally true that 

short selling or other hedging activity is not, by itself, manipulative—

even when it occurs in high volumes and even when it impacts the 

market price for a security.48 But here, the complaint alleges more 

than routine hedging activity: It alleges that Credit Suisse flooded the 

market with millions of additional XIV Notes for the very purpose of 

47 Br. of Def.-Appellee Credit Suisse at 45–46.

48 See ATSI, 493 F.3d at 101. 
20 No. 19-3466-cv

enhancing the impact of its hedging trades and collapsing the market 

for the notes. In this context, it is no defense that Credit Suisse’s 

transactions were visible to the market and reflected otherwise legal 

activity. Open-market transactions that are not inherently 

manipulative may constitute manipulative activity when 

accompanied by manipulative intent.49 In some cases, as here, 

“scienter is the only factor that distinguishes legitimate trading from 

improper manipulation.”50 To the extent Credit Suisse claims it 

hedged for a legitimate purpose, its position contradicts the 

complaint. As we discuss in detail below, Set Capital specifically 

alleges that Credit Suisse executed its hedging trades on February 5 

for a manipulative purpose—to trigger a liquidity squeeze that would

destroy the value of XIV Notes.

B. Scienter

We turn next to the element of scienter. To establish scienter, 

“a complaint may (1) allege facts that constitute strong circumstantial 

evidence of conscious misbehavior or recklessness, or (2) allege facts 

to show that defendants had both motive and opportunity to commit 

fraud.”51 As the Supreme Court has instructed, we evaluate the 

sufficiency of a complaint’s allegations of scienter “holistically,” 

considering “all of the facts alleged, taken collectively,” rather than 

49 See id. at 100 (requiring only “market activity aimed at deceiving 

investors as to how other market participants have valued a security”).

50 Id. at 102; see also Koch v. SEC, 793 F.3d 147, 153–54 (D.C. Cir. 2015), 

cert. denied, 577 U.S. 1235 (2016) (holding that a “burst of trading” on the 

open market, combined with manipulative intent, was enough to violate 

the Exchange Act); Markowski v. SEC, 274 F.3d 525, 529 (D.C. Cir. 2001) 

(holding that “manipulation can be illegal solely because of the actor’s 

purpose” (internal quotation marks omitted)). 

51 Rombach v. Chang, 355 F.3d 164, 176 (2d Cir. 2004) (quoting Rothman v. 

Gregor, 220 F.3d 81, 90 (2d Cir. 2000)).
21 No. 19-3466-cv

“any individual allegation, scrutinized in isolation.”52 For an 

inference of scienter to be “strong,” as required by the PSLRA, “a 

reasonable person must deem it cogent and at least as compelling as any 

opposing inference one could draw from the facts alleged.”53 

Accepting the facts alleged in the complaint as true, and drawing all 

reasonable inferences in Set Capital’s favor, we conclude that the 

allegations of scienter are at least as compelling as the competing 

inferences urged by Credit Suisse. 

Evidence of Conscious Misbehavior or Recklessness

The complaint alleges circumstantial evidence of conscious 

misbehavior or recklessness that, when viewed holistically and 

together with the allegations of motive and opportunity, supports a 

strong inference of scienter. 

First, the complaint plausibly alleges that Credit Suisse and the 

Individual Defendants knew that, on days when market volatility 

increased, Credit Suisse’s hedging trades would cause a spike in the 

price for VIX futures contracts and an equally significant drop in the 

price for XIV Notes. As alleged in the complaint, Credit Suisse and 

the Individual Defendants would have become aware of this dynamic 

by observing the impact of their hedging trades during the three prior 

volatility spikes. On each of those occasions, Credit Suisse observed 

a liquidity squeeze in the VIX futures market which, as it caused 

prices for VIX futures contracts to spike, contributed to a sharp drop 

in the price for XIV Notes. A juror could reasonably infer that Credit 

Suisse was aware of this dynamic not only because the bank is a 

highly sophisticated financial institution and had experienced it firsthand on prior occasions, but also because of the actions that Credit 

52 Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 323, 326 (2007).

53 ATSI, 493 F.3d at 99 (quoting Tellabs, 551 U.S. at 324) (alterations 

omitted). 
22 No. 19-3466-cv

Suisse and the Individual Defendants took in response. Just seven

days after the third spike in 2016, Credit Suisse (with approval from 

CARMC) issued the July 2016 Announcement conditioning the sale of 

new ETNs on the counterparty’s agreement to sell to Credit Suisse 

additional hedging instruments. Drawing all inferences in favor of 

Set Capital, a reasonable juror could conclude from this evidence that 

Credit Suisse recognized the danger of illiquidity in the VIX futures 

market and identified alternative ways to protect itself.

Second, the complaint plausibly alleges that Credit Suisse 

knowingly or recklessly exacerbated the liquidity squeeze it had 

already observed in the VIX futures market by increasing the number 

of XIV Notes outstanding through its offerings of June 30, 2017 and 

January 29, 2018. When Credit Suisse offered 16,275,000 XIV Notes 

on the latter date, it knew that the scale of its hedging strategy would 

have to increase to account for its additional sales even though the 

liquidity in the VIX futures market would remain roughly the same. 

From these facts, a reasonable juror could conclude that Credit Suisse 

and the Individual Defendants sold millions of these notes either 

knowing or recklessly disregarding a substantial risk that, when the 

next volatility event occurred, Credit Suisse’s hedging trades would 

have an even greater negative impact on the value of XIV Notes than 

they had before. Moreover, the complaint specifically alleges that the 

Individual Defendants were aware of this risk, as Credit Suisse’s 

expansion of XIV Notes breached internal risk limits and thus 

required approval by CARMC. Accepting these allegations as true, 

the complaint invites a reasonable inference that Credit Suisse 

increased the volume of XIV Notes for a manipulative purpose—

specifically, to ensure that Credit Suisse’s hedging trades would 
23 No. 19-3466-cv

destroy the value of XIV Notes during the next volatility spike so that 

Credit Suisse could profit by declaring an Acceleration Event. 

In addition to these central facts, the complaint alleges 

supporting evidence of conscious misbehavior or recklessness that 

bolsters the inference of manipulative intent. Most significantly, 

Credit Suisse made false or misleading public statements regarding 

the expected impact of its hedging trades and the basis for Credit 

Suisse’s decision to declare an Acceleration Event. In the Offering 

Documents, for example, Credit Suisse minimized the expected 

impact of its hedging trades by stating that its hedging activity “could 

affect” the value of the VIX Futures Index54 while at the same time 

affirming that it had “no reason to believe” that any impact would be 

“material.”55 One of the Individual Defendants, Credit Suisse CEO 

Tidjane Thiam, also stated on February 14, 2018 that Credit Suisse 

announced an Acceleration Event because XIV Notes had “stopped 

trading,” when in fact they had not.56 Although these statements are 

relevant only if we assume the truth of other allegations in the 

complaint, they tend to support a culpable inference because the 

complaint plausibly alleges that Credit Suisse and Thiam “knew facts 

or had access to information suggesting that their public statements 

were not accurate.”57 In addition to these facts, the massive economic 

impact of the alleged manipulation, as well as the SEC’s decision to 

54 J. App. at 151. 

55 Id. at 188.

56 Compl. ¶ 208.

57 Emps.’ Ret. Sys. of Gov’t of the Virgin Islands v. Blanford, 794 F.3d 297, 

306 (2d Cir. 2015) (quoting ECA, Local 134 IBEW Joint Pension Tr. of Chicago 

v. JP Morgan Chase Co., 553 F.3d 187, 199 (2d Cir. 2009)). 
24 No. 19-3466-cv

investigate Credit Suisse following the collapse of the XIV Notes, 

strengthen the inference that Set Capital asks us to draw.58 

Credit Suisse principally argues that inconsistencies and 

contradictions in the complaint render Set Capital’s theory of scienter 

“implausible on [its] face.”59 In its view, the complaint alleges that 

Credit Suisse had fully hedged itself by acquiring alternative hedging 

instruments after the July 2016 Announcement. Thus, Credit Suisse 

would have had no need to trade VIX futures contracts at all on 

February 5, 2018 and therefore could not have manipulated the 

market for XIV Notes by doing so. Credit Suisse further argues that, 

if its positions in XIV Notes were indeed fully hedged, its sales of XIV 

Notes in January and February 2018 would not have breached 

internal risk limits and therefore would not have been brought to the 

attention of the Individual Defendants. While the district court 

credited this argument, we find it unpersuasive. Viewed in the light 

most favorable to Set Capital, the complaint does not allege that 

Credit Suisse had “fully” hedged its position. Rather, it alleges that 

Credit Suisse had the right to obtain alternative hedging instruments 

but did not significantly hedge its position until February 5, 2018, 

when it purchased 105,000 VIX futures contracts and caused the value 

of the XIV Notes to collapse. 

Credit Suisse also contends that the July 2016 Announcement 

does not qualify as a “specific document” demonstrating that Credit 

58 See Rothman v. Gregor, 220 F.3d 81, 92 (2d Cir. 2000) (finding that the 

magnitude of the fraud supported an inference of conscious misbehavior or 

recklessness); In re Gentiva Sec. Litig., 932 F. Supp. 2d 352, 380 (E.D.N.Y. 

2013) (observing that, “while the existence of an [SEC] investigation alone 

is not sufficient to give rise to a requisite cogent and compelling inference 

of scienter,” “courts have considered a governmental investigation as one 

piece of the puzzle when taking a ‘holistic’ view”). 

59 Br. of Def.-Appellee Credit Suisse at 28.
25 No. 19-3466-cv

Suisse understood the impact of its hedging activity and knew that a 

future volatility spike would occur.60 We disagree. At the time of the 

July 2016 Announcement, Credit Suisse had observed five years of 

low market volatility punctuated by three volatility spikes. During 

each spike in volatility, Credit Suisse’s hedging trades created a 

liquidity squeeze that depressed the value of XIV Notes. Although 

we readily acknowledge that “no market movements are certain,”61

sophisticated investors like Credit Suisse routinely analyze patterns 

in market data to attempt to predict and profit from future market 

activity. Here, the July 2016 Announcement was issued only seven 

days after the most significant volatility spike in 2016 and it granted 

Credit Suisse the right to obtain additional instruments to hedge its 

exposure to sales of XIV Notes. Drawing all inferences in favor of Set

Capital, the announcement directly reflected Credit Suisse’s 

awareness of the impact of its hedging strategy as well as its view that 

occasional spikes in market volatility would likely continue. 

Finally, Credit Suisse and the Individual Defendants argue that 

the SEC’s investigation cannot animate Set Capital’s “far-fetched” 

theory of scienter, and that the magnitude of the alleged fraud was 

necessarily de minimis because Credit Suisse fully hedged its 

position.62 We agree with Credit Suisse that neither the SEC 

investigation nor the magnitude of the alleged fraud independently 

raises a compelling inference of manipulative intent; we view these 

facts principally as supporting culpable inferences drawn from 

stronger allegations discussed earlier. We disagree, however, with 

60 Id. at 29–31; see also Teamsters Loc. 445 Freight Div. Pension Fund v. Dynex 

Capital Inc., 531 F.3d 190, 196 (2d Cir. 2008) (explaining that, to plead 

scienter based on a defendant’s knowledge of facts showing its public 

statements were inaccurate, a plaintiff “must specifically identify the 

reports or statements” demonstrating knowledge of such facts). 

61 See J. App. at 510 (Opinion of Netburn, J.).

62 Br. of Def.-Appellee Credit Suisse at 34–35. 
26 No. 19-3466-cv

Credit Suisse’s renewed assertion that its hedging made it 

economically impossible for the bank to profit. Accepting the facts 

alleged in the complaint as true, even Credit Suisse’s own quarterly 

report on April 25, 2018 acknowledged that it profited substantially 

from “higher levels of volatility which benefited [its] derivatives 

business.”63 Thus, while not independently sufficient, these facts add 

circumstantial evidence of conscious misbehavior or recklessness and 

bolster the inference of manipulative intent. 

Evidence of Motive or Opportunity

The complaint also points to evidence supporting Credit 

Suisse’s motive and opportunity to engage in the alleged 

manipulative scheme. First, the structure of the XIV Notes, which 

would allow Credit Suisse to profit if the value of the notes collapsed,

provided both motive and opportunity for Credit Suisse to

manipulate the market. Credit Suisse’s effort, through its January 29 

offering, to more than double the volume of XIV Notes outstanding 

enhanced the opportunity for manipulative acts in the days leading 

up to the market’s collapse. Second, the complaint plausibly alleges 

that Thiam was under significant pressure to shift Credit Suisse’s 

investment arm away from volatile assets like XIV Notes. Accepting 

these allegations as true, Credit Suisse’s scheme to expand and then 

destroy the value of XIV Notes would have allowed the bank to profit 

substantially while realizing Thiam’s strategic goal of “right-sizing” 

Credit Suisse’s investment division.64 Third, the complaint alleges

that, in March 2018, Thiam was awarded a $10.2 million bonus for 

successfully shifting Credit Suisse away from volatile assets such as 

XIV Notes. We conclude that, on balance, these allegations support a 

63 Compl. ¶¶ 16, 194.

64 Id. ¶¶ 119–20. 
27 No. 19-3466-cv

strong inference of scienter when viewed together with the evidence 

of conscious misbehavior or recklessness.

Credit Suisse first argues that the structure of the XIV Notes 

does not demonstrate motive or opportunity to commit fraud because 

Credit Suisse had fully hedged its exposure to sales of XIV Notes. We 

have already rejected this argument in a related context, and we 

conclude that it is no more persuasive here. Even assuming that 

Credit Suisse had fully hedged its position, Credit Suisse’s argument 

does not account for its offer to more than double the volume of XIV 

Notes in the market, use its hedging trades to depress prices for XIV 

Notes, and leverage the favorable redemption rights that it built into 

the Offering Documents so that it could profit at investors’ expense. 

As alleged in the complaint, this perfect storm was created through 

Credit Suisse’s market activity, but it would not have been possible 

without the self-dealing structure of the XIV Notes. 

Credit Suisse also challenges Set Capital’s theory of Thiam’s

motive to manipulate the market. Specifically, it asserts that “it 

would have been illogical for Mr. Thiam and Credit Suisse to attempt 

to reduce Credit Suisse’s exposure to risky assets by increasing its 

exposure to risky assets.”65 Credit Suisse also points to the fact that it 

“made good on Thiam’s promise” to reduce exposure to such assets 

by closing two other VIX-related ETNs through the “simple exercise” 

of its right to do so—without an allegation of fraud.66 But these 

arguments falter in the face of the facts alleged in the complaint. If 

Thiam intended to reduce Credit Suisse’s exposure to XIV Notes, then 

his decision to issue millions of additional XIV Notes makes sense 

only if he knew that Credit Suisse could quickly eliminate its 

65 Br. of Def.-Appellee Credit Suisse at 22.

66 See id. at 22–23; see also Compl. ¶ 214. 
28 No. 19-3466-cv

exposure through the alleged manipulative scheme.67 The fact that 

Credit Suisse could have offloaded these risky assets without 

expanding its position does not diminish the inference of scienter but 

rather supports it. 

Finally, Credit Suisse argues that Thiam’s $10.2 million bonus 

had no connection to the February 2018 collapse of XIV Notes because 

it was issued as compensation for the prior fiscal year. While Set 

Capital emphasizes that the discretionary bonus was paid after the 

XIV Notes collapsed and specifically celebrated that Thiam’s 

“strategic shift” was “paying off,”68 we agree with Credit Suisse that 

the culpable inference here is not strong because the complaint alleges 

that the bonus was compensation for 2017. We therefore accord this 

fact only limited weight. 

In summary, we conclude that the complaint plausibly alleges 

both motive and opportunity to commit a manipulative act, as well as 

strong circumstantial evidence of conscious misbehavior or 

recklessness. Taken together, these allegations are “cogent and at 

least as compelling as any opposing inference of nonfraudulent 

intent.”69 We therefore VACATE and REMAND to the district court 

to reinstate the manipulative scheme claims. Because we remand as 

to the primary violation, Set Capital’s secondary “control person” 

claims under Section 20(a) of the Exchange Act are reinstated as well.

67 The allegations here thus go beyond “ordinary profit motive,” Br. of 

Def.-Appellee Credit Suisse at 24, which cannot alone establish a strong 

inference of scienter. See Chill v. Gen. Elec. Co., 101 F.3d 263, 268 (2d Cir. 

1996) (“[A] generalized motive, one which could be imputed to any 

publicly-owned, for-profit endeavor . . . does not support a strong inference 

of fraudulent intent.”). 

68 See Compl. ¶ 212. 

69 Tellabs, 551 U.S. at 314. 
29 No. 19-3466-cv

II. The Failure to Correct the Flatline Value

Sections 9(a) and 10(b) of the Exchange Act prohibit materially 

false or misleading statements in connection with the purchase or sale 

of a security.70 To state a claim for a material misrepresentation or 

omission under these provisions, a plaintiff must allege “(1) a material 

misrepresentation or omission by the defendant; (2) scienter; (3) a 

connection between the misrepresentation or omission and the 

purchase or sale of a security; (4) reliance upon the misrepresentation 

or omission; (5) economic loss; and (6) loss causation.”71 

Set Capital claims that Credit Suisse and Janus, through their 

subsidiaries CSI and JIC, made material misstatements by failing to 

correct the intraday indicative value when it flatlined for nearly one 

hour on the evening of February 5, 2018. CSI and JIC contend that 

there was no misrepresentation in the Flatline Value because it 

accurately reflected the inverse of the VIX Futures Index (which itself 

had failed to update) and that, in any event, the complaint fails to 

allege scienter. Assuming without deciding that the Flatline Value 

materially misled investors, we agree that the complaint fails to allege 

a strong inference of scienter for these claims.

The complaint does not allege any facts showing that either CSI 

or JIC had motive or opportunity to falsify the Flatline Value.72 The 

complaint does not identify specific evidence that CSI profited by 

selling XIV Notes in the secondary market at prices reflecting the 

70 See 15 U.S.C. § 78i(a)(4) (Section 9(a)); 15 U.S.C. § 78j(b) (Section 10(b)).

71 Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, Inc., 552 U.S. 148, 157 (2008) 

(Section 10(b) and Rule 10b-5). Section 9(a)(4) of the Exchange Act closely 

parallels this standard. See I.B. Trading, Inc. v. Tripoint Glob. Equities, LLC, 

280 F. Supp. 3d 524, 539–40 (S.D.N.Y. 2017) (Section 9(a)(4)).

72 See Rombach, 355 F.3d at 176 (holding that complaint may establish 

scienter through facts showing that defendants “had both motive and 

opportunity to commit fraud”).
30 No. 19-3466-cv

inflated Flatline Value. Nor does it allege that CSI benefitted by 

delaying investors’ realization that an Acceleration Event had 

occurred. Likewise, the complaint does not allege facts 

demonstrating that JIC, which was simply a “Calculation Agent,” 

materially benefitted by failing to correct the Flatline Value.

Without an adequate showing of motive or opportunity, Set 

Capital argues that the complaint nonetheless alleges scienter based 

on strong circumstantial evidence of conscious misbehavior or 

recklessness.73 Specifically, Set Capital argues as follows. According 

to the Offering Documents, CSI and JIC were jointly listed as 

“Calculation Agents” responsible for announcing a “Market 

Disruption Event,” which could occur if S&P “fails to publish or 

compute the [VIX Futures Index].”74 In order to identify computing 

errors in the VIX Futures Index, CSI and JIC would have been 

required to monitor the VIX Futures Index and compare it to the 

values of its underlying inputs—i.e., the real-time prices for VIX 

futures contracts. Because careful monitoring would have allowed 

CSI and JIC to observe the flatline in the VIX Futures Index, they must 

have known that a derivative flatline was reflected in the intraday 

indicative value. We are unpersuaded.

First and foremost, CSI was under no obligation to calculate or 

monitor the intraday indicative value. Although the Offering 

Documents referred to CSI as a “Calculation Agent” for some 

purposes, the Offering Documents specified that “JIC or its 

affiliate”—not CSI—was “responsible for computing and 

73 See Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001) (“Where motive is 

not apparent, it is still possible to plead scienter by identifying 

circumstances indicating conscious [misbehavior or recklessness] by the 

defendant, though the strength of the circumstantial allegations must be 

correspondingly greater.” (citation omitted)).

74 Compl. ¶ 152.
31 No. 19-3466-cv

disseminating the Intraday Indicative Value.”75 Thus, we are not 

convinced that CSI’s status as a “Calculation Agent” is specific 

evidence of scienter.

Second, the complaint does not set forth facts raising a strong 

inference that JIC knew that the intraday indicative value had 

flatlined. As stated in the supplement, JIC calculated the intraday 

indicative value every 15 seconds using an automated formula “based 

on the most recent intraday level of [the VIX Futures] Index at the 

particular time.”76 The complaint alleges in a conclusory fashion that 

JIC had access to real-time pricing data for VIX futures contracts such 

that it could have monitored the accuracy of the VIX Futures Index. 

But the complaint does not point to any “specific reports or 

statements” showing that JIC could access this data or that it ever 

monitored the Index.77 The Offering Documents specified that JIC 

would rely on a third party, S&P, to accurately calculate the VIX 

Futures Index. It would be unreasonable to infer that, despite this 

plain effort to reduce JIC’s administrative burden, JIC nonetheless 

devoted resources to calculating a redundant pricing index for VIX 

futures contracts.

Finally, the Offering Documents do not support a finding of 

scienter. While the Offering Documents provide that a Market 

Disruption Event may occur if S&P “fails to publish or compute the 

[VIX Futures Index],” they afford CSI and JIC “discretion in making 

[that] determination[].”78 Because neither CSI nor JIC was required to 

75 J. App. at 135, 145, 195. 

76 Id. at 135.

77 See Teamsters, 531 F.3d at 196 (finding allegation of “access to . . . raw 

data” insufficient to support strong inference of scienter where plaintiffs 

did not “specifically identify the reports or statements containing this 

information” (citation omitted)). 

78 J. App. at 159. 
32 No. 19-3466-cv

declare a Market Disruption Event—either immediately or at any 

time—there can be no reasonable inference that either entity 

“[n]ecessarily” monitored the accuracy of the VIX Futures Index.79 

Moreover, the Offering Documents warned investors that published 

prices on the VIX Futures Index “may occasionally be subject to delay 

or postponement,” which in turn “will affect” the accuracy of the 

intraday indicative value.80 In light of these facts, the complaint does

not allege a compelling inference of scienter. 

In summary, we hold, as the district court found, that the 

complaint fails to plausibly plead that CSI and JIC knowingly or 

recklessly failed to correct the Flatline Value. We therefore AFFIRM 

the district court’s dismissal of these claims.81 

III. Misstatements or Omissions in the Offering Documents

Section 10(b) of the Exchange Act and Section 11 of the 

Securities Act also prohibit material misstatements or omissions in 

registration statements filed with the SEC.82 Unlike claims brought 

under Section 10(b), a plaintiff bringing a claim under Section 11 

“need not allege scienter, reliance, or loss causation.”83 Instead, 

Section 11 imposes absolute liability on the issuer of a registration 

statement if: “(1) the statement ‘contained an untrue statement of a 

material fact,’ (2) the statement ‘omitted to state a material fact 

required to be stated therein,’ or (3) the omitted information was 

79 See Br. of Pls.-Appellants at 46. 

80 J. App. at 177. 

81 Set Capital does not point to any circumstantial evidence showing that 

the Individual Defendants knowingly or intentionally failed to correct the 

Flatline Value. We therefore affirm the district court’s dismissal of these 

claims as to the Individual Defendants as well. 

82 See 15 U.S.C. § 78j(b) (Section 10(b)); 15 U.S.C. § 77k (Section 11). 

83 In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 359 (2d Cir. 

2010). 
33 No. 19-3466-cv

‘necessary to make the statements therein not misleading.’”84 In this 

Circuit, “a statement or omission is material if a reasonable investor 

would view it as significantly altering the total mix of information 

made available.”85

Set Capital claims that the Offering Documents misled 

investors by repeatedly warning of “risks” they knew were certain to 

occur. Among other things, they allege that the Offering Documents 

misrepresented Credit Suisse’s knowledge of the impact of its 

hedging activity and failed to disclose Credit Suisse’s plan to increase 

the volume of XIV Notes in the market before triggering an 

Acceleration Event. Credit Suisse disputes these claims and asserts 

that the Offering Documents contained full and robust disclosures of 

the very risks that came to pass. Although we acknowledge that 

many risks were disclosed, we agree with Set Capital that the Offering 

Documents contain actionable misrepresentations or omissions. 

The Offering Documents warned investors of extensive risks 

related to the purchase of XIV Notes. They urged that the notes were 

intended for “sophisticated investors to manage daily trading risks”86

and advised purchasers that, should they hold the notes long term, 

“it is likely that [they] will lose all or a substantial portion of [their] 

investment.”87 They also prominently disclosed Credit Suisse’s 

intention to hedge its exposure to sales of XIV Notes.88 But, with 

respect to the impact of that hedging, the Offering Documents 

84 Stadnick v. Vivint Solar, Inc., 861 F.3d 31, 36 (2d Cir. 2017) (quoting 15 

U.S.C. § 77k(a)); see also Synchrony, 988 F.3d at 172. 

85 Fed. Hous. Fin. Agency for Fed. Nat’l Mortg. Ass’n v. Nomura Holding Am., 

Inc., 873 F.3d 85, 146 (2d Cir. 2017) (internal quotation marks, alteration, and 

citation omitted). 

86 J. App. at 130. 

87 Id. at 154 (emphasis omitted). 

88 See, e.g., id. at 154–55, 161–62, 188.
34 No. 19-3466-cv

provided a more equivocal advisory. They stated that, while “there 

can be no assurance that the level of the [VIX Futures] Index will not 

be affected,” Credit Suisse and the Individual Defendants “have no 

reason to believe that [their] . . . hedging activities will have a material 

impact on the level of the [VIX Futures] Index.”89

As we explained in Wilson v. Merrill Lynch & Co., Inc., “the law 

is well settled that so-called ‘half-truths’—literally true statements 

that create a materially misleading impression—will support claims 

for securities fraud.”90 In a similar vein, cautionary words about 

future risk cannot insulate from liability an issuer’s failure to disclose 

that the risk has, in fact, materialized in the past and is virtually 

certain to materialize again.91 As the D.C. Circuit explained in Dolphin 

& Bradbury, Inc. v. SEC, there is a “critical distinction between 

disclosing the risk a future event might occur and disclosing actual 

knowledge that the event will occur”—particularly where that 

distinction holds “enormous significance” for investors.92 

89 Id. at 188.

90 Wilson, 671 F.3d at 130 (alterations omitted) (quoting SEC v. Gabelli, 

653 F.3d 49, 57 (2d Cir. 2011), rev’d on other grounds, 568 U.S. 442 (2013)); see 

also In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 239–40 (2d Cir. 2016) 

(discussing the rule against half-truths). 

91 Wilson, 671 F.3d at 130; see also Rombach, 355 F.3d at 173. 

92 512 F.3d 634, 640 (D.C. Cir. 2008); see also In re Harman Int’l Indus., Inc. 

Sec. Litig., 791 F.3d 90, 102–03 (D.C. Cir. 2015) (explaining that “[a] warning 

that identifies a potential risk, but implies that no such problems were on 

the horizon even if a precipice was in sight,” would not qualify as a 

“meaningful cautionary statement” for purposes of safe harbor (citation 

and alteration omitted)); Lormand v. US Unwired, Inc., 565 F.3d 228, 244, 247 

(5th Cir. 2009) (holding that warnings “d[id] not qualify as meaningful 

cautionary language” because they “did not disclose that defendants knew 

from past experience that the [risks] posed an imminent threat of business 

and financial ruin and that some damage from these risks had already 

materialized”).
35 No. 19-3466-cv

Here, the complaint alleges that, following three prior volatility 

spikes, Credit Suisse and the Individual Defendants knew with 

virtual certainty that, upon the next volatility spike, their hedging 

activity would significantly depress the value of XIV Notes. It further 

alleges that Credit Suisse issued millions of additional XIV Notes 

without disclosing its intent to capitalize on this dynamic and trigger 

an Acceleration Event. Accepting these well pleaded allegations as 

true, the Offering Documents misrepresented Credit Suisse’s 

knowledge and intent when they warned that Credit Suisse’s hedging 

activity “could” or “may” impact prices of XIV Notes but affirmed 

that Credit Suisse had “no reason to believe” that it would. While 

these warnings could have possibly sufficed when Credit Suisse first 

issued XIV Notes, the bank conceded in its briefing below that the 

warnings remained unchanged for nearly a decade despite three 

episodes of market volatility putting to rest any uncertainty as to the 

price-impact of Credit Suisse’s hedging.93 Likewise, the Offering 

Documents omitted material facts when they stated that Credit 

Suisse’s hedging trades “may present” a conflict of interest. As 

alleged in the complaint, Credit Suisse had already structured the 

market for XIV Notes to ensure that the next volatility spike would 

allow it to profit at its own investors’ expense. These misstatements, 

if proven at trial, would materially alter the mix of information 

available to Credit Suisse’s investors.94

93 See Slayton v. Am. Express Co., 604 F.3d 758, 773 (2d Cir. 2010) (finding 

cautionary statement in Form 10-Q inadequate in light of “[t]he consistency 

of the defendants’ language over time despite the new information they 

received”). 

94 We recognize that, in In re Proshares Tr. II Sec. Litig., we affirmed the 

district court’s dismissal of claims arising out of similar market events—

namely, illiquidity in the VIX futures market during afterhours trading on 

February 5, 2018. See 839 F. App’x 649, 651 (2d Cir. 2021) (summary order). 

While there are superficial similarities between the two cases, our decision 
36 No. 19-3466-cv

For the reasons discussed in Section I, above, we have already 

concluded that the complaint alleges a strong inference of scienter 

with respect to the manipulative scheme. Because the Offering 

Documents misrepresented Credit Suisse’s knowledge and its intent 

to engage in manipulative acts, we conclude that the complaint pleads 

actionable misrepresentations or omissions that must be reinstated 

and therefore REMAND these claims to the district court. Moreover, 

because we remand as to the primary violations, Set Capital’s 

secondary “control person” claims under Section 15 of the Securities 

Act and Section 20(a) of the Exchange Act are reinstated as well.95 

* * *

To summarize this opinion, the dismissals of the market 

manipulation claim, the actionable misstatements and omissions 

claims, and the related “control person” claims are vacated. We 

affirm the dismissal of the Flatline Value claims. Our decision today 

in Proshares addressed different disclosures related to a different 

underlying securities product—an exchange traded fund (ETF), which 

bundles securities together. See In re Proshares Trust II Sec. Litig., No. 19 cv 

0886 (DLC), 2020 WL 71007, at *1 (S.D.N.Y. Jan. 3, 2020). In part because of 

the material differences between ETFs and ETNs, the complaint in Proshares 

did not allege market manipulation or the failure to fully disclose a conflict 

of interest. See id. Here, unlike in Proshares, the complaint plausibly alleges 

that Credit Suisse gave itself the right to accelerate the notes it issued such 

that it could use its own trading to depress their price, force redemptions, 

and profit at its investors’ expense. Compl. ¶ 7.

95 Set Capital asserts a Section 15 claim against Janus in its capacity as an 

alleged “control person” of Credit Suisse and the Individual Defendants. 

See Compl. ¶¶ 317–21. While Janus argues that this last surviving claim 

against it should be dismissed because it did not control either Credit Suisse 

or the Individual Defendants, see Br. of Def.-Appellee Janus at 33–34, the 

district court did not address the viability of Janus’s control person 

allegations. We therefore leave it to the district court to address this claim 

in the first instance on remand. 
37 No. 19-3466-cv

to reinstate the foregoing claims is based on what we determine to be 

plausible allegations by Set Capital in the complaint. We express no 

view nor prediction as to how the proof of these claims may unfold 

but simply hold that these claims cannot be dismissed at this stage of 

the litigation. 

CONCLUSION

For the foregoing reasons, we VACATE 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. We therefore 

REMAND those claims for further proceedings. We AFFIRM 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.