The U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of two high-profile lawsuits stemming from catastrophic trading losses during the February 5, 2018 market volatility event known as "Volmageddon," according to a decision issued January 15, 2026.
LJM Partners, Ltd. and Two Roads Shared Trust filed separate federal lawsuits alleging that eight unnamed financial firms manipulated the VIX volatility index in violation of the Commodity Exchange Act. The investment firms suffered enormous losses when their low-volatility trading strategies collapsed during the historic market turbulence.
The VIX, which measures expected volatility of the S&P 500, spiked dramatically on February 5, 2018, when the stock index plunged. LJM and Two Roads had positioned themselves on the Chicago Mercantile Exchange assuming continued low market volatility, a strategy that proved catastrophic when volatility skyrocketed.
Circuit Judge Lee, writing for the three-judge panel that included Judges Jackson-Akiwumi and Pryor, upheld the district court's dismissal on multiple grounds. The appeals court found that LJM's complaint failed to establish an injury sufficient for Article III standing, a constitutional requirement for federal court jurisdiction.
For Two Roads, the court determined that the firm's claims were barred by the Commodity Exchange Act's two-year statute of limitations. The district court had declined to apply equitable tolling to excuse the untimely filing, and the appeals court affirmed that decision.
The litigation began with both firms filing lawsuits in the U.S. District Court for the Northern District of Illinois, initially naming only "John Doe Defendants" as they worked to identify the specific firms they accused of manipulation. After several years of litigation, the plaintiffs amended their complaints to name eight specific defendants.
The defendants moved to dismiss both complaints, which Judge Manish S. Shah of the Northern District of Illinois granted in full. The appeals followed, with oral arguments heard by the Seventh Circuit on May 23, 2024.
The February 2018 volatility spike became known as "Volmageddon" due to its devastating impact on funds and trading strategies that had bet on continued market calm. The event particularly affected exchange-traded products tied to volatility, with some funds losing virtually their entire value in a single day.
LJM Partners and Two Roads alleged that the eight defendant firms violated multiple provisions of the Commodity Exchange Act, including sections 6b, 6c, 9, 13, and 25, which prohibit various forms of market manipulation and fraudulent conduct in commodity trading.
The firms claimed the defendants manipulated the VIX index to impact S&P 500-based derivative markets. However, the specific details of the alleged manipulation scheme were not detailed in the available court documents.
The standing issue that doomed LJM's case relates to the constitutional requirement that plaintiffs demonstrate they suffered a concrete injury that can be traced to the defendant's conduct and is likely to be redressed by a favorable court decision. The Seventh Circuit found LJM failed to meet this threshold requirement.
The statute of limitations problem that ended Two Roads's case reflects the strict two-year deadline imposed by the Commodity Exchange Act for bringing manipulation claims. Courts may apply equitable tolling in exceptional circumstances to excuse late filings, but the district court found no such circumstances warranted extending the deadline for Two Roads.
The decision represents a significant victory for the eight defendant firms, whose names were revealed only after years of discovery litigation. The ruling effectively ends the plaintiffs' attempts to recover what court documents suggest were hundreds of millions in trading losses.
The Volmageddon event highlighted the risks inherent in volatility trading strategies that had become increasingly popular among institutional investors. Many funds that sold volatility protection collected steady premiums for years before the February 2018 spike wiped out their gains and more.
The Seventh Circuit's affirmance means the plaintiffs have exhausted their federal court options unless they petition the Supreme Court for review, though such petitions are rarely granted. The decision also may discourage similar manipulation claims arising from the February 2018 volatility event.
The case numbers are 23-3109 and 23-3138, appealing from district court cases 1:19-cv-368 and 1:20-cv-831. The appeals were consolidated for decision by the Seventh Circuit, which has jurisdiction over federal appeals from Illinois, Indiana, and Wisconsin.