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Morgan Stanley (MS), Others Win VIX Manipulation Suit Dismissal

Morgan Stanley MS, DRW Securities LLC and Barclays Capital, a division of Barclays PLC BCS, have received victory in getting the VIX index manipulation lawsuit dismissed, per a Bloomberg report. The suit claimed that the firms, along with others, manipulated the VIX index in 2018, which resulted in hundreds of millions of dollars in losses to investment funds that bought options contracts tied to the benchmark.

There were claims that the defendants flashed tens of thousands of quotes for out-of-the-money SPX options in February 2018, which were quickly canceled. The defendants were, hence, accused of influencing calculations of the volatility index by Cboe Global Markets, which is the exchange that sets it.

Plaintiff Two Roads Shared Trust claimed that its preservation fund had lost $340 million on the day of the incident and then another $180 million when it was forced to close out its options positions at artificial and inflated levels.

However, U.S. District Judge Manish S. Shah ruled that accuser LJM Partners Ltd. had not adequately alleged that it was injured. Also, claims by Two Roads Shared Trust are not valid as they were barred by the statute of limitations.

MS, Barclays Capital and others have jointly said that the claims by the plaintiffs are false and “fatally flawed.”

In a separate filing, Morgan Stanley said that it was improbable that the bank, acting as a market maker, would manipulate the VIX index to benefit an outright proprietary long position and that its revenues on VIX-linked instruments were “from facilitating customer orders during a period of volatility.”

So far this year, shares of MS have lost 5.4% compared with the industry’s decline of 10.5%.


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Currently, MS carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

A couple of months ago, a lawsuit accusing Wells Fargo & Company WFC of defrauding its shareholders by making commitments to interview diverse job candidates in its hiring process, while it actually faked interviews for positions that had already been filled, was also dismissed.

U.S. District Judge Trina Thompson said that shareholders failed to prove the conduct of fake interviews. Moreover, no evidence was found that could prove that WFC’s chief executive, Charlie Scharf, and senior diversity executives had knowledge of the sham interviews.

The plaintiffs, through the class action suit, had claimed that Wells Fargo had inflated its stock price by issuing a public statement discussing its guidelines mentioning workplace diversity. The said policy was adopted in 2020 and required at least 50% of candidates, who were interviewed for jobs paying at least $100,000, to be minorities, women or people from other disadvantaged groups.

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