In early March 2018, investors filed two lawsuits against Credit Suisse (CS  ) and an associated service provider, Janus Index & Calculation Services LLC of Janus Henderson (LON: HHI). Janus was responsible for estimating the notes' value. On February 5, these estimates went into steep decline, from $72.59 to $4.22 in roughly an hour. The investors claim that in this period, estimates were not updated once every 15 seconds, as would have been appropriate. Hence, investors are seeking reparations relating to damages from the VelocityShares Daily Inverse VIX Short-Term Exchange-Traded Note, which dropped by over 90% in the hours preceding a market selloff.

The inverse VIX (XIVH) financial instrument in question was designed to rise when stock market volatility is low, and drop when volatility is high. Hence, this product is inversely related to the CBOE Volatility Index, or fear index. This index measures volatility in the S&P 500.

The XIV lost much of its value after February 5, when the markets closed after an incident currently under investigation. U.S. equities experienced one of the fastest 10% declines in history, drawing attention to the regions of the market where investors trade on volatility, as the market turbulence was determined to be at least partially sourced to the collapse of several VIX-related exchange traded products. The so-called "Vix-mageddon" was sped up by hedging activities. Traders swiftly sought to capitalize off the predictability of VIX-linked products and the lack of liquidity in the VIX derivatives market. As volatility skyrocketed, traders bought VIX futures and watched the implosion. Credit Suisse has since taken the XIV notes off the market, and other banks and asset managers have either curbed or closed off competing products linked to the fear gauge.

© Credit Suisse / Flickr

The investors seeking reparations claimed that the extremely high estimates of the instrument's yield, combined with the gap in estimations delivered by Janus, compelled them to purchase the notes at inflated prices. Furthermore, Credit Suisse did not notify investors of the market disruption. Investors also claim that Janus misreported the value of the notes themselves. Credit Suisse disagrees, saying that investors were made aware of the risks, and that the delayed estimates could have been due to a disruption in data or the markets and were were not intended to mislead. As such, Credit Suisse and Janus conclude, the VIX product performed as it claimed to, and no faults can be found.

The more recent lawsuit claimed that Credit Suisse failed to announce market disruption, and Janus gave incorrect reports of the XIV's value. Representatives of both institutions have denied any wrongdoing. The CEO of Credit Suisse, Tidjane Thiam, has suggested that perhaps it should be the regulators' duty to curtail retail investors from investing in products that they do not fully understand.