The Seventh Circuit Court of Appeals affirmed Tuesday the dismissal of lawsuits filed by two investment firms seeking to recover massive losses suffered during the February 2018 market volatility event known as "Volmageddon."
In *LJM Partners, Ltd. v. Barclays Capital, Incorporated* (7th Cir. 2026), the appeals court upheld a lower court's decision to dismiss claims by LJM Partners, Ltd. and Two Roads Shared Trust against eight financial firms. The plaintiffs alleged the defendants manipulated the VIX volatility index in violation of the Commodity Exchange Act.
The case stems from the dramatic market events of February 5, 2018, when the S&P 500 plunged and the VIX—a Chicago Board of Exchange index measuring expected S&P 500 volatility—spiked abruptly. LJM Partners and Two Roads had taken positions in options on the Chicago Mercantile Exchange assuming continued low market volatility. When volatility exploded instead, both firms "lost enormous amounts of the money they managed," according to the court opinion.
Circuit Judge Lee, writing for the three-judge panel, noted that the plaintiffs' trading strategy "proved catastrophic when volatility skyrocketed" on that February day. The firms had bet against volatility just before one of the most severe volatility spikes in recent market history.
The litigation began with two separate lawsuits filed in the U.S. District Court for the Northern District of Illinois. Initially, both complaints named only "John Doe Defendants," alleging that unknown firms had manipulated the VIX to impact S&P 500-based derivative markets. After "several years of litigation to identify the John Doe firms," the plaintiffs eventually amended their complaints to name eight specific defendants, including Barclays Capital, Incorporated.
The plaintiffs claimed these defendants violated multiple provisions of the Commodity Exchange Act, specifically sections 6b, 6c, 9, 13, and 25, which govern trading practices and prohibit market manipulation.
Defendants moved to dismiss both complaints, and District Judge Manish S. Shah granted their motion on two separate grounds. For LJM Partners' complaint, the district court determined the firm failed to allege an adequate "injury in fact" necessary to establish Article III standing—the constitutional requirement that plaintiffs must have suffered actual harm to bring a lawsuit in federal court.
For Two Roads Shared Trust, the district court ruled differently but reached the same result. The court held that Two Roads's claims were barred by the Commodity Exchange Act's two-year statute of limitations. The court also declined to apply equitable tolling, a legal doctrine that can extend deadlines when circumstances prevented timely filing.
On appeal, both firms challenged these dismissals before a Seventh Circuit panel consisting of Circuit Judges Jackson-Akiwumi, Lee, and Pryor. The case was argued on May 23, 2024, and decided January 15, 2026.
The Seventh Circuit's affirmance means both investment firms' attempts to recover their trading losses through litigation have failed. The appeals court found no error in the district court's reasoning for dismissing LJM's case on standing grounds or for time-barring Two Roads's claims.
The February 2018 volatility spike, dubbed "Volmageddon" by traders, marked one of the most dramatic market events in recent history. The VIX, often called the "fear index," measures expected volatility based on S&P 500 options prices. When the index spiked, it devastated numerous investment strategies that had profited from years of historically low volatility.
LJM Partners was among the most prominent casualties of the volatility spike. The Chicago-based firm managed funds that systematically sold volatility, collecting premiums while markets remained calm. When volatility exploded, these positions generated massive losses that effectively wiped out the firm.
The case highlights the challenges facing investors seeking to recover trading losses through litigation. Even when losses are enormous, plaintiffs must navigate strict procedural requirements including constitutional standing rules and statutes of limitations.
The Commodity Exchange Act provides private rights of action for manipulation claims, but courts scrutinize such cases carefully. Proving market manipulation requires demonstrating both intent to manipulate and the ability to affect prices artificially.
The timing issues that doomed Two Roads's case reflect the difficulties in investigating complex market events. While the volatility spike occurred in February 2018, identifying specific defendants allegedly responsible for manipulation took years of litigation. By the time Two Roads filed its complaint naming specific defendants, the two-year limitations period had expired.
The decision effectively closes the door on these particular attempts to recover "Volmageddon" losses through the courts. The ruling may also influence how other investors approach similar market manipulation claims, particularly regarding timing requirements and standing allegations.
For the financial industry, the decision provides clarity that dramatic market moves alone do not automatically support manipulation claims, even when the consequences prove catastrophic for some market participants.