Merrill, BofA, Morgan Stanley secure dismissal of spoofing complaint
The New York Southern District Court has sided with Merrill Lynch Commodities, Bank of America Corporation, and Morgan Stanley & Co in a spoofing lawsuit which was brought to an end today.
Judge Lewis J. Liman signed a Memorandum & Opinion granting the defendants motion to dismiss a complaint accusing them of market manipulation via a practice known as spoofing.
The plaintiffs in this case are Gamma Traders – I LLC, Vega Traders, LLC, Robert Charles Class A, L.P., Robert L. Teel, Michael Patterson, Yuri Alishaev, Abraham Jeremias, and Morris Jeremias. They brought the action in June 2019 targeting Merrill Lynch Commodities, Inc. (MLCI), Bank of America Corporation (BAC), Morgan Stanley & Co. LLC (MSC), Edward Bases, John Pacilio , and John Doe Nos. 1-18.
The plaintiffs alleged that the defendants unlawfully and intentionally manipulated the price of contracts for COMEX Gold Futures, COMEX Silver Futures, NYMEX Platinum Futures, and NYMEX Palladium Futures and options on those futures contracts traded on the New York Mercantile Exchange (NYMEX) and the Commodity Exchange, Inc. (COMEX) from January 1, 2007 through December 31, 2014. According to the complaint, the defendants violated the Commodity Exchange Act, 7 U.S.C. §§ 1, et seq. (the CEA), and the common law.
Defendants have then moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6).
The judge granted the motion to dismiss based on several arguments.
First, the defendants argue first that all of the plaintiffs’ claims are time-barred by the statute of limitations under the CEA. A claim pursuant to the CEA must be brought “not later than two years after the date the cause of action arises.
The Court notes there were a number of lawsuits referring to CEA violations by the defendants filed much earlier. These lawsuits and the accompanying attention paid by the media to the lawsuits and regulatory investigations of market manipulation were sufficient to put a reasonable investor of ordinary intelligence on, at least, inquiry notice of their CEA injury.
Hence, the Court sided with the defendants that the plaintiffs’ claims, included in a complaint filed in June 2019, are time-barred.
In addition, the defendants argue that the complaint should be dismissed because the plaintiffs have failed to plead actual damages under the CEA.
The Court noted that the plaintiffs identify 30 days on which the defendants manipulated the price of one or more precious metals futures contracts. Each of those dates corresponds to a spoof identified by both date and time in the Indictment and Superseding Indictment.
At least one plaintiff is alleged to have traded “on” 14 of those same dates. No plaintiff is alleged to have traded on the remaining 16 days on which the defendants spoofed. Thus, on over half of the days on which the defendants spoofed, no plaintiff is alleged to have traded.
Plaintiffs, moreover, avoid pleading that, on the dates there were spoof trades, they traded after the spoof. Given the specificity of the information available to the plaintiffs in terms of the date and time of a trade, the only plausible inference is that they traded before the spoof, the Court concludes. If they traded after and proximate to the spoof, there is no reason for them not to have alleged it.
And, if their trades all occurred before the spoof, there is no plausible inference that the trade took place at a price that was artificially impacted as a result of the spoof.
The Court also found no basis for an inference that the plaintiffs were harmed as a result of the defendants’ alleged manipulation as opposed to having been benefitted. Therefore, the plaintiffs’ allegations that their trades occurred on the same days as the spoofs cannot establish, without more, that they suffered harm resulting from the alleged CEA violation.
Defendants’ motion to dismiss the unjust enrichment claim was also granted. The defendants argue that the plaintiffs’ claim for unjust enrichment must be dismissed because the plaintiffs have not alleged that they transacted directly with the defendants.
For all these reasons, the Judge granted the defendants’ motion to dismiss. The Clerk of Court today closed the case.