Myun-Uk Choi v. Tower Research Capital LLC
| Decision Date | 30 March 2020 |
| Docket Number | 14-CV-9912 (KMW) |
| Parties | MYUN-UK CHOI, JIN-HO JUNG, SUNG-HUN JUNG, SUNG-HEE LEE, and KYUNG SUB LEE, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. TOWER RESEARCH CAPITAL LLC and MARK GORTON, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Plaintiffs are members of a putative class comprised of parties who transacted in certain Korea Exchange futures contracts in 2012. Plaintiffs allege that Tower Research Capital LLC ("Tower") and its Chief Executive Officer, Mark Gorton (collectively, "Defendants"), used fictitious trades and other deceptive techniques to manipulate the prices at which these futures contracts traded on the Korea Exchange during overnight trading sessions using the Chicago Mercantile Exchange's ("CME") Globex Platform ("Globex").
Plaintiffs assert that this conduct violates the Commodity Exchange Act ("CEA"), 7 U.S.C. § 1, et seq., and New York State's prohibition on unjust enrichment. Defendants contend that Plaintiffs cannot satisfy the CEA's threshold requirement that the trading at issue occurred "on or subject to the rules of any registered entity." 7 U.S.C. § 9. The Korea Exchange, Defendants emphasize, is not a registered entity. And the CME's regulatory authority, they argue, does not reach futures contracts created by and traded on the Korea Exchange merely because that trading is facilitated by Globex.
Defendants moved for judgment on the pleadings or, alternatively, summary judgment, on Plaintiffs' CEA claims. (ECF No. 155.) Magistrate Judge Gabriel Gorenstein issued a Report and Recommendation ("R&R"), recommending that the Court grant Defendants' motion for summary judgment.1 (ECF No. 203.) For the reasons set forth below, the Court adopts the R&R and GRANTS Defendants' motion for summary judgment on Plaintiffs' CEA claims.
The facts and procedural history of this case have been recounted by this Court, the Second Circuit, and Judge Gorenstein in his recent R&R.2 Familiarity with these prior opinions is assumed. Relevant background is briefly restated here.
The KOSPI 200 is an index for Korean stocks that trade on the Korea Exchange, South Korea's securities exchange operator. In this way, the KOSPI 200 is akin to the S&P 500 or the Dow Jones. (Second Amended Class Action Complaint ("SAC") ¶ 15, ECF No. 132.) The Korea Exchange includes a KOSPI 200 futures contract in its daytime trading, which allows traders to speculate on the value of the KOSPI 200 index at various future dates. (SAC ¶ 17.)
To facilitate overnight trading of KOSPI 200 futures, the Korea Exchange contracted with the CME Group, Inc., a holding company that owns the CME, as well as the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX), and the Commodity Exchange (COMEX). (SAC ¶ 18.) Under the agreement between the Korea Exchange and the CME Group, futures contracts can be traded on Globex, an electronic platform located in Aurora,Illinois, from 5:00 p.m. to 6:00 a.m. Seoul time. (SAC ¶ 18.) Those who wish to trade in KOSPI 200 futures contracts during those hours submit orders on the Korea Exchange, and then trades are "matched" on Globex. (SAC ¶ 21.) Settlement of all trades occurs on the Korea Exchange the following day. (SAC ¶ 22.)
Plaintiffs allege that Defendants "artificially and illegally manipulate[d] prices of the KOSPI 200 Futures during [overnight] trading . . . for their own profit." (SAC ¶ 59.) Tower traders allegedly entered large volume buy or sell orders on the Korea Exchange overnight futures market and then used the firm's high-frequency technology to immediately cancel their orders or ensure that they themselves were the counterparties on the trades. (SAC ¶ 60.) This created a false impression of supply and demand, driving market prices either up or down. (SAC ¶ 63.) Tower traders then sold contracts at the artificially inflated prices or bought contracts at the artificially deflated prices. (SAC ¶ 61.) In 2012, Plaintiffs allege, Tower traders used this "spoofing" practice to earn more than $14 million in illicit profits. (SAC ¶ 63.) These trades represented approximately 53.8% of all KOSPI 200 futures trades using Globex's overnight trading mechanism in 2012. (SAC ¶ 59.)
In December 2014, Plaintiffs filed a class action complaint on behalf of themselves and all others who transacted in KOSPI 200 futures contracts on the Korea Exchange overnight futures market in 2012 and were harmed by the Defendants' alleged spoofing scheme. (ECF No. 1.) Defendants moved to dismiss the complaint and this Court granted the motion, holding that Defendants' conduct fell outside the territorial reach of the CEA. Choi I, 165 F. Supp 3d. at 50. In response, Plaintiffs amended their complaint; Defendants for a second time moved to dismiss the complaint, and this Court again granted Defendants' motion. Choi II, 232 F. Supp. 3d at 340-342. The Second Circuit reversed, determining that "Plaintiffs sufficiently alleged thatapplying the CEA to Defendants' conduct would not be an extraterritorial application of the [CEA]." Choi III, 890 F.3d at 66.
Following remand, Defendants again moved to dismiss the complaint. While that motion was pending, Judge Gorenstein held a discovery hearing and addressed "talk of additional facts" in Plaintiffs' submissions. (Tr. of Discovery Hearing at 41, ECF No. 97.) Rather than consider the pending motion with those facts outstanding, he directed Plaintiffs to move to amend the complaint. (Id.) Plaintiffs so moved and, over Defendants' opposition, Judge Gorenstein granted the motion to amend.
On August 1, 2019, Defendants filed a motion for judgment on the pleadings or for summary judgment. (ECF No. 55.) In his R&R, issued on December 17, 2019, Judge Gorenstein recommended that the motion be granted. Plaintiffs timely objected to the R&R on January 14, 2020, (Pls. Obj., ECF No. 214), and Defendants responded on February 11, 2020, (Defs. Resp., ECF No. 221.)
A district court "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C). The district court reviews de novo any portion of the magistrate judge's recommendation to which a party objects, but reviews for clear error those portions of the recommendation to which no specific objection is made. Rivera v. Barnhart, 423 F. Supp. 2d 271, 273 (S.D.N.Y. 2006) (Holwell, J.). The district court also conducts clear-error review "when a party makes only conclusory or general objections, or simply reiterates his original arguments." Walker v. Vaughan, 216 F. Supp. 2d 290, 292 (S.D.N.Y. 2002) (Berman, J.) (citation omitted). "[N]ew arguments and factualassertions cannot properly be raised for the first time in objections to the report and recommendation, and indeed may not be deemed objections at all." Razzoli v. Fed. Bureau of Prisons, No. 12-CV-3774, 2014 WL 2440771, at *5 (Preska, J.) (citation omitted).
Summary judgment is appropriate where the moving party "shows there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In determining whether there exists a "genuine" dispute as to material fact, "a court must construe the evidence in the light most favorable to the nonmoving party, drawing all inferences in that party's favor." Jeffreys v. City of New York, 426 F.3d 549, 553 (2d Cir. 2005). The burden of showing that "no [dispute as to any] material fact exists lies with the party seeking summary judgment." Id. (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970)). The summary judgment movant may satisfy that burden by pointing to the absence of evidence to support the nonmovant's claims. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
Once the moving party has shouldered its burden, "[t]he opposing party must come forward with affidavits, depositions, or other sworn evidence as permitted by Fed. R. Civ. P. 56, setting forth specific facts showing there exists a genuine issue of material fact." Rule v. Brine, Inc., 85 F.3d 1002, 1011 (2d Cir. 1996). The nonmoving party successfully demonstrates a genuine issue of material fact if the record is such that "a reasonable jury could return a verdict for the nonmoving party." Fincher v. Depository Tr. & Clearing Corp., 604 F.3d 712, 720 (2d Cir. 2010) (quoting Roe v. City of Waterbury, 542 F.3d 31, 35 (2d Cir. 2008)) (internal quotation marks omitted).
Where, as here, "the nonmoving party bears the burden of proof at trial, summary judgment is warranted if the nonmovant fails to make a showing sufficient to establish the existence of an element essential to its case." Nebraska v. Wyoming, 507 U.S. 584, 590 (1993) (internal quotation marks and citation omitted). Therefore, "[a] defendant moving for summary judgment must prevail if the plaintiff fails to come forward with enough evidence to create a genuine factual issue to be tried with respect to an element essential to its case." Allen v. Cuomo, 100 F.3d 253, 258 (2d Cir. 1996) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
Under the CEA, it is unlawful to use or employ, or to attempt to use or employ, "any manipulative or deceptive device or contrivance" in connection with "any swap, or a contract of sale of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity." 7 U.S.C. § 9(1). Likewise, it is "unlawful . . . to manipulate or attempt to manipulate the price of any swap, or of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity." Id. § 9(3).
Thus, the CEA's anti-manipulation provision applies to the trading of futures contracts that occurs only ...
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