Credit Suisse Class Action Alleges Investor Losses, Challenges Handling of Trade Note Delisting

Credit Suisse Trade Note Class Action Lawsuit Overview:

• Why: The plaintiff argues that the international financial company mishandled a certain ETN investment product that resulted in significant investor loss
• Who: An investor has sued Credit Suisse
• Where: The class action lawsuit was filed in New York federal court.

Credit Suisse faces a class action lawsuit over its “reckless” decision to suspend and delist its exchange traded note (ETN) investment product, DGAZ, without sufficient protections for investors, which resulted in gains for the financial company but significant losses for DGAZ investors. 

ETNs track the price of an underlying market index so that when an index declines, an ETN’s indicative value increases and vice versa. Credit Suisse’s DGAZ ETN tracked the S&P’s GSCI Natural Gas Index. 

DGAZ was popular among investors who believed the S&P index would increase over time, according to the complaint. That meant they could “short” the investment, or borrow it, sell it on the open market, then buy it back in order to return it to the original owner. The goal is to buy the ETN back at a lower price than it was purchased for in order to turn a profit. 

The plaintiff in the class action lawsuit aimed to do just that, according to the complaint. In May 2020, Adelina Gomez initiated 10 short positions in DGAZ, trusting that the ETN would continue to track the S&P’s GSCI Natural Gas Index. 

However, on June 22, 2020, Credit Suisse announced in a press release that DGAZ, among other ETNs, would be delisted from NYSE Arca on July 10 and that DGAZ was suspended effective immediately, according to court documents. Any outstanding DGAZ units would be shifted to an over-the-counter (OTC) market and traded under a new ticker symbol: DGAZF.

This move “forced” Gomez and members of the class to purchase DGAZ at inflated prices to cover their short positions, resulting in “significant monetary loss,” the complaint says. 

Gomez seeks to represent a nationwide class of anyone who initiated a short position in DGAZ prior to the so-called “Manipulation Period” (roughly the first two weeks in August 2020) and purchased DGAZ(F) on the OTC market during the Manipulation Period to cover that short position, in whole or in part. Gomez seeks an award of all recoverable damages sustained by the class.

Credit Suisse’s Faults Are Twofold, According to Complaint

For starters, Credit Suisse’s handling of DGAZ’s delisting and suspension “destroyed” the ETN, “preventing it from achieving its sole objective” of tracking the S&P index. 

On top of that, Credit Suisse failed to warn investors in its press release that the price of the ETN would “become dislocated entirely from the indicative value” despite being aware of that risk, the complaint says. 

Specifically, Credit Suisse was “uniquely positioned” to avoid the resulting short squeeze, or a scenario in which parties holding long obligations can manipulate prices knowing short investors are looking to cover their own investments. 

Instead, “hundreds, if not thousands, of retail investors [were] caught in the short squeeze” while Credit Suisse continued to receive daily investor fees, according to the complaint. 

Did you get burned by Credit Suisse’s delisting of the DGAZ ETN? Share your experience in the comments section below!

The plaintiff is represented by Joseph Peiffer, Daniel Centner and Jason Kane of Peiffer Wolf Carr Kane & Conway, LLP and Daren A. Luma of Daren A. Luma, PLLC.

The Credit Suisse ETN Class Action Lawsuit is Gomez v. Credit Suisse AG, Case No. 1:22-cv-00115, in the US District Court for the Southern District of New York.

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