In December 2014, the U.S. Court of Appeals for the Second Circuit affirmed1 the district court’s decision2 (our recent article regarding the district court’s decision can be found here) that Credit Suisse AG is not liable for the alleged losses arising from disclosures in the offering documents for its exchange traded notes (“ETNs”).3 The notes at issue in the suit offered leveraged exposure to the S&P VIX Short-Term Futures Index. The value of this issuance decreased significantly in 2012, when the issuer temporarily suspended the issuance of new ETNs.
Regarding the information contained in the pricing supplement, the three-judge panel wrote that it was highly unlikely that the bank’s disclosures could have been misunderstood by a reasonable investor. The Second Circuit found that investors should have realized that Credit Suisse intended the notes to be short-term investments.
The panel explained, “The pricing supplement clearly disclosed in numerous, repeated, sometimes boldfaced warnings that the ETNs were short-term trading vehicles designed to achieve their stated investment objectives only on a daily basis and that the investment’s value was likely to erode if held for longer periods.”4 The panel went on to say that “the hypothetical examples—prefaced by extensive disclaimers … did not suggest that [the notes] were an appropriate long- term investment,” and “the Pricing Supplement and Press Release explained Credit Suisse’s complete discretion over the issuance or nonissuance of new ETNs … no reasonable investor could have read these materials without realizing the risk inherent in purchasing TVIX ETNs.”