Gomez v. Credit Suisse AG
- John Cronan
- 1:22-cv-00115
- U.S. District Court · Southern District of New York
- 31
In Gomez v. Credit Suisse AG, Judge Cronan granted Credit Suisse’s motion to dismiss Adelina Gomez’s securities-fraud lawsuit but allowed her to amend.
Adelina Gomez and the proposed class of similarly situated investors were affected by the dismissal of the complaint and the opportunity to amend. Credit Suisse AG obtained dismissal of its motion-targeted complaint, subject to Gomez’s opportunity to amend.
What happened
Gomez v. Credit Suisse AG concerns Adelina Gomez’s putative class action against Credit Suisse AG under federal securities law. Gomez had short positions in Credit Suisse’s DGAZ exchange-traded notes and alleged that Credit Suisse failed to warn about a possible short squeeze after announcing that it would stop issuing and delist the notes.
Gomez also argued that Credit Suisse manipulated the market by delisting the notes instead of accelerating them while holding a large inventory. Credit Suisse asked the court to dismiss, arguing that its disclosures warned about supply-and-demand risks and that Gomez had not adequately alleged manipulation or an intent to defraud.
Judge Cronan granted Credit Suisse’s motion to dismiss and granted Gomez leave to amend within thirty days. The court concluded that the existing disclosures and publicly available information sufficiently warned about the risk that the notes could trade at a premium, and that Gomez had not plausibly alleged manipulative acts or the required intent; the court stated that failure to amend could result in dismissal of the action with prejudice.
The detailed version
- Gomez v. Credit Suisse AG · No. 1:22-cv-00115
- John Cronan
- Mar. 31, 2023
Background
Adelina Gomez brought a putative securities class action under Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. Gomez held ten short positions in Credit Suisse’s VelocityShares 3x Inverse Natural Gas Exchange Traded Notes, known as DGAZ. After Credit Suisse announced on June 22, 2020, that it would suspend further issuance and delist DGAZ, the notes’ trading price rose sharply above their indicative value. Gomez alleged that she was forced to cover her short positions at a significant loss.
Gomez alleged that Credit Suisse’s press release materially misstated or omitted the risk of a short squeeze and a complete separation between DGAZ’s trading price and its indicative value. She also argued that Credit Suisse engaged in market manipulation by delisting and suspending issuance rather than accelerating DGAZ, while holding more DGAZ units than were outstanding in public circulation.
Court’s analysis
The court applied the standards for a motion to dismiss for failure to state a claim. Because the allegations sounded in fraud, Gomez also had to plead the circumstances of the alleged fraud with particularity and allege facts creating a strong inference that Credit Suisse acted with the required intent, known as scienter.
The court rejected the alleged material omission. It found that DGAZ’s offering documents repeatedly warned that the notes’ trading price could differ significantly from their indicative value, that supply-and-demand imbalances could create a premium, and that Credit Suisse could suspend issuance or delist the notes. The June 22 press release referred investors to those disclosures and warned that delisting and suspended issuance could affect supply, demand, liquidity, and the trading price, including by creating a premium that could cause significant losses. The court stated that the securities laws did not require Credit Suisse to predict the precise way in which a disclosed risk would occur.
The court also found that the alleged market-manipulation theory was inadequately pleaded. Gomez did not identify specific manipulative acts by Credit Suisse, and the complaint did not allege that Credit Suisse sold its inventory at the inflated premium. The court concluded that delisting rather than accelerating DGAZ was neither manipulative nor deceptive based on the allegations presented.
Finally, the court held that Gomez had not pleaded a strong inference of scienter. It found that the alleged investor-fee motive was not persuasive and that the complaint did not show that the relevant information was exclusive to Credit Suisse or identify which employees possessed it. The court also noted that Credit Suisse had delisted eight other exchange-traded notes, had warned about the risks, gave investors time to trade before delisting, and later accelerated the notes after trading was halted.
Disposition
The court granted Credit Suisse’s motion to dismiss. The court also granted Gomez leave to amend because she had not previously amended the complaint and had not known the deficiencies identified by the motion. Any amended complaint had to be filed within thirty days. The court stated that if Gomez did not timely amend and did not show good cause, it would dismiss the action with prejudice. The court did not address Credit Suisse’s additional arguments that it lacked a duty to disclose and that Gomez had not adequately pleaded loss causation.
Read the full 31-page opinion on CourtListener, the free public archive maintained by the Free Law Project.