The opinion of the court was delivered by: Robert Sweet, Senior District Judge.
The defendants New York Futures Exchange, Inc., Board of Trade of the City of New York, Inc., New York Clearing Corporation, and the New York Futures Exchange Settlement Committee and its Members, except for Norman Eisler (collectively, the "NYBOT Defendants"), have moved under Rules 12(b)(6) and 9(b), Fed. R.Civ.P., to dismiss the amended consolidated complaint of plaintiffs DGM Investments, Inc. ("DGM"), Triumph-Wef Venture LLC, DGM Trading Specialist Fund LLC, Triumph Futures Fund Ltd., Triumph Premier Traders Ltd., and Triumph-MM Venture Ltd. (collectively, "Plaintiffs"). Plaintiffs opposed this motion and moved for discovery. For the reasons set forth below, the NYBOT Defendants' motion is denied for all defendants, but granted as to DGM's claims against them. It is, therefore, unnecessary to rule on Plaintiffs' cross-motion for discovery.
In December 2001, Plaintiff DGM initially commenced this action for damages sustained as a result of a manipulation of settlement prices. The NYBOT Defendants moved to dismiss this complaint, and their motion was granted on October 17, 2002. On May 13, 2002, while this initial motion to dismiss was pending, other plaintiffs filed a separate action that was stayed, pending decision on the motion to dismiss.
By agreement of the parties, Plaintiffs subsequently consolidated the two actions and filed an amended consolidated complaint (the "Complaint") on December 20, 2002. The NYBOT Defendants then moved to dismiss this new complaint pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b) and the doctrine of law of the case. This motion was heard and marked fully submitted on April 9, 2003.
Defendant Board of Trade of the City of New York, Inc. ("NYBOT") is a New York not-for-profit corporation. (Compl. ¶ 11.) NYBOT is the ultimate parent company of defendant New York Clearing Corporation ("NYCC") and defendant New York Futures Exchange, Inc. ("NYFE"). (Compl.¶ 14.) Defendant NYFE, a New York corporation, is a futures and options exchange designated by the U.S. Commodity Futures Trading Commission (the "CFTC") as a contract market for the trading of various commodity futures and options, including the Pacific Stock Exchange Technology Index Futures Contracts and Options ("P-Tech Futures and Options"). (Compl.¶¶ 10, 17.) Defendant NYCC, a New York corporation is the designated clearinghouse of NYBOT's exchange markets, including NYFE. (Compl.¶¶ 18, 32.) The New York Futures Exchange Settlement Committee ("Settlement Committee") was made up of individuals appointed by NYFE and was responsible for calculating settlement prices of the P-Tech Futures and Options contracts. (Compl.¶ 12.) During the period relevant to the Complaint, Norman Eisler ("Eisler") was the Chairman of NYFE and the Settlement Committee. Id.
According to the Complaint, on or about April 1996, NYFE opened trading in PTech Futures and Options contracts. The P-Tech Futures and Options were based on a composite index of 100 technology stocks compiled by the Pacific Stock Exchange. (Compl.¶ 17.) The Complaint alleges that for at least August 1999 through on or about May 15, 2000, Eisler, the Settlement Committee, and NYFE manipulated the market by periodically setting the settlement prices for transactions in options on the P-tech Futures contract market at an artificial level in order to benefit themselves and others. (Compl.¶ 23.) Eisler created these artificial settlement prices while acting for the NYBOT Defendants in his capacity as their agent. (Compl.¶¶ 30, 49, 55-56.)
The NYBOT Defendants, through their Directors and Officers and members, both had knowledge of the price manipulation and, with reckless disregard of their obligations, avoided acquiring such knowledge. (Compl.¶¶ 42-44, 61, 76.) At least six board members of NYFE and, upon information and belief, board members of the other defendants, traded the P-Tech for their own accounts or an account controlled by one or more of them. They thus had a personal interest in the P-Tech Futures Options contract market. (Compl. ¶¶ 62, 79; Goodwin Aff.)
The NYBOT Defendants concealed the systematic and fraudulent manipulation of settlement prices of P-Tech futures and options. (Compl.¶ 41.) They did this in bad faith and for ulterior motives. They hoped to avoid condemnation and exposure by the New York Clearing Corporation ("NYCC"), which would have to assess the other members of NYBOT for the shortfall in Eisler's and others' accounts, and they hoped to perpetuate themselves in office. (Compl.¶¶ 63-64, 80-81.)
NYFE became aware of complaints about false settlement prices, but it failed to take any action to end the manipulation and to enforce NYFE rules governing methods used to settle P-tech Option contract prices. (Compl.¶ 27.) Specifically, the Complaint alleges that the NYBOT Defendants failed to enforce NYFE Rule 315 adequately, which regulates the determination of settlement prices. Id.
Plaintiffs bring claims against the NYBOT Defendants for:
1) bad faith manipulation of market prices and
violation of NYFE Rule 315 in violation of the CEA
(Compl. at 13),
2) bad faith cover-up of manipulation of market
prices in violation of the CEA (Compl. at 16),
3) bad faith failure to maintain a stable and
objective contract market and bad faith failure to
enforce NYFE Rule 315 in ...