Korein Tillery attorneys filed a lawsuit in the United States District Court for the Northern District of Illinois on behalf of LJM Partners, Ltd. and the commodity pools and investor accounts it managed, alleging violations of the Commodity Exchange Act by as-yet unidentified John Doe Defendants stemming from the so-called “Volmageddon” – an artificial and manipulated spike in the CBOE’s VIX volatility index on February 5, 2018.
On February 5, 2018, as the S&P 500 was experiencing a significant but hardly unprecedented 4.1% decline, the VIX Index (which measures implied volatility of large cap U.S. stocks) saw an increase of 116% — the largest single day percentage increase ever recorded in the VIX. Korein Tillery’s and LJM’s investigation, as set forth in the complaint, discovered that this spike in the VIX was caused not by legitimate market activity, but rather by willful manipulation by as-yet unidentified John Doe Defendants, undertaken to profit their position in VIX options, VIX futures, and VIX-linked exchange traded notes.
To accomplish this manipulation, the John Doe Defendants placed manipulative and artificial bid and ask quotes on certain out-of-the-money SPX Options. Prices (or bid-ask spread midpoints) of these options, traded on the CBOE, are used to calculate the VIX level every 15 seconds during trading hours. By widening the bid-ask spread on these out-of-the-money SPX Options, John Doe Defendants were able (at little or no cost or risk to themselves) to increase level of the VIX.
However, these John Doe Defendants did not merely manipulate the VIX upwards – they also created artificial prices in other commodities and derivatives that are highly correlated to SPX Options, including the options on S&P 500 futures and E-mini S&P 500 futures products that LJM traded heavily in on the CME. LJM and its funds lost over $400 million on February 5-6, 2018 – losses attributable, in whole or in part, to the artificial prices created by John Doe Defendants’ manipulation.
Korein Tillery continues to investigate these claims, and will be pursuing discovery to identify the John Doe Defendants responsible.
COMPLAINT – LINK