The opinion of the court was delivered by: Richard J. Holwell United States District Judge
MEMORANDUM OPINION AND ORDER
The Securities and Exchange Commission ("SEC") brings this action against Moises Saba Masri ("Saba") and Albert Meyer Sutton ("Sutton") for violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The SEC alleges that Saba and Sutton manipulated the closing price of a security, T.V. Azteca S.A. de C.V. American Depositary Receipts (TZA), on August 20, 1999. Defendants move for summary judgment under Rule 56 of the Federal Rules of Civil Procedure dismissing plaintiff's complaint in its entirety. For the reasons stated below, defendants' motion is granted in part and denied in part.
The following facts, drawn from the parties' Rule 56.1 statements, affidavits, depositions, and other exhibits, are undisputed. The inferences and conclusions drawn from these facts, however, are not. Defendant Saba is a Mexican citizen and resides in Mexico. He is an active trader of securities and makes thousands of trades each year. Beginning in 1998, Saba began trading securities in accounts held at Middlegate Securities Limited, a brokerage firm located in New York City. Sutton is an Executive Vice President of Middlegate, and was the registered representative handling Saba's brokerage accounts at all relevant times. Tentafin Limited ("Tentafin"), an Irish company, owned an account at Middlegate through 1999 with total assets measuring in the hundreds of millions of dollars. (Decl. of David A. Feldman ("Feldman Decl."), Exs. 5--12.) Saba opened and directed trades in this account, which were handled, without discretion, by Sutton. Sutton and Saba had an informal understanding that, in the absence of contrary instructions, allowed Sutton to fill an order at an average price within approximately one-eighth of the price that prevailed at the time the order was placed by Saba. (Reply Decl. of Moises Saba Masri ("Saba Reply") ¶ 3.)
TZA is a security traded on the New York Stock Exchange. On December 15, 1998, Saba deposited 1,301,100 TZA shares into the Tentafin account from another account owned by Saba and his father at Middlegate. Between December 15, 1998 and August 31, 1999, through the Tentafin account at Middlegate, Saba sold and bought back TZA put*fn1 and call*fn2 options as well as TZA shares. Between February 24 and March 3, 1999, Saba sold 8,600 TZA August 5 put options,*fn3 earning a net premium of $765,883.88. Between February 24 and their expiration on August 21, there were thirty-two days on which the TZA August 5 put options were "in the money." (Feldman Decl., Ex. 25.) However, no TZA August 5 put options were assigned to Tentafin. (Defs.' Rule 56.1 Statement ¶ 48.) In addition, Saba sold 8,150 TZA August 7.5 put options, earning a net premium of $1,060,536.10.*fn4 These options were "in the money" every day from sale to expiration and each one was assigned to Tentafin by the settlement date on August 23, requiring Tentafin to purchase 815,000 TZA shares at $7.50 per share plus commissions, for a total cost of $6,136,962. (Id. ¶¶ 53, 78.) In addition to TZA options, Saba had sold put options for a number of other securities set to expire on August 21, 1999. Finally, Saba sold a total of 11,500 TZA November 5 call options, earning a net premium of $1,151,948.82.
Between August 17 and August 19, 1999, Tentafin's cash account had a positive balance ranging from roughly $58,000 to $670,000. Between those same dates, Tentafin had a fed call*fn5 ranging from roughly $590,000 to $7,500,000. Saba could have satisfied the fed call by liquidating any of a number of positions in the Tentafin account. On August 20, 1999, Tentafin had a net worth of roughly $292 million, its cash account had a balance of roughly $670,000, and it had a fed call of roughly $4 million. After all assignments and expirations of options took place in connection with Tentafin's positions with an August 21, 1999 expiration date, the fed call was satisfied. (Defs.' Rule 56.1 Statement ¶ 80.)
At the start of the trading day on August 20, 1999, Saba controlled over two million TZA shares in the Tentafin account and over ten million TZA shares in another account at Middlegate. In the afternoon of August 20, 1999, Saba called Sutton and requested that Sutton purchase TZA shares for the Tentafin account. After placing the order with Sutton, Saba left his office for the day and had no further communications with Sutton. The parties dispute the size of the order placed by Saba because the original order ticket indicated that amounts of 100,000 and 150,000 had been written on the ticket and crossed out before 200,000, the number of TZA shares ultimately purchased, was written in below. (Decl. of Ryan Farney ("Farney Decl."), Ex. 8.) Sutton executed Saba's order by effecting seven discrete orders through a floor trader, Ira Sabin, for an average price of $5.1369 during the final ten minutes of trading that day. One unrelated trader also executed one order for 3,000 TZA shares during those ten minutes. The following table summarizes these trades:
TimeQuantityPriceLimit (best ask*fn6 at time of trade)Best bid n5 immediately after trade
3:58:16 (unaffiliated order)3,000$5.125Unknown ($5.125)$4.9375
4:00:0255,000$5.1875$5.375 ($5.1875)Market close
At the close of the market on August 20, 1999, the price and the best bid for TZA were both above $5. Saba's purchases constituted approximately 94% of all TZA buy-side activity during the last hour of trading on August 20, 1999, and 75% of all buy-side activity for the day. The 200,000 share purchase exceeded by 20,000 the average daily volume of shares traded over the preceding thirty trading days.
On August 25, 1999, $27,399,980 was transferred into the Tentafin account. No fed call existed at the time of this transfer. On August 31, 1999, Saba transferred 1,301,100 TZA shares out of the Tentafin account and back into another account at Middlegate (the same number originally transferred in late 1998). By their expiration date on November 20, 1999, all 11,500 TZA November 5 call options were assigned to Valleygreen Ltd., the Saba account to which Tentafin had transferred its position on these options, and Saba was required to deliver 1,150,000 TZA shares at $5 per share. The 200,000 TZA shares that Saba purchased on August 20, 1999 were sold at this time.
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the burden of demonstrating that no genuine issue exists as to any material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323--25 (1986). In reviewing the record, the district court must assess the evidence in "the light most favorable to the non-moving party," resolve all ambiguities, and "draw all reasonable inferences" in its favor. Am. Cas. Co. v. Nordic Leasing, Inc., 42 F.3d 725, 728 (2d Cir. 1994); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
The moving party can satisfy its burden by showing that the opposing party is unable to establish an element essential to that party's case and on which that party would bear the burden of proof at trial. See Celotex, 477 U.S. at 321; Gallo v. Prudential Servs., 22 F.3d 1219, 1223--24 (2d Cir. 1994) ( "[T]he moving party may obtain summary judgment by showing that little or no evidence may be found in support of the nonmoving party's case."). Indeed, summary judgment is "mandated" when "the evidence is insufficient to support the non-moving party's case." Distasio v. Perkin Elmer Corp., 157 F.3d 55, 61 (2d Cir. 1998).
If the moving party meets its burden, the "non-movant may defeat summary judgment only by producing specific facts showing that there is a genuine issue of material fact for trial." Samuels v. Mockry, 77 F.3d 34, 36 (2d Cir. 1996); Celotex, 477 U.S. at 322--23. An alleged factual dispute between the parties will not by itself defeat a motion for summary judgment, since "the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247--48 (emphasis in original). Specifically, the non-moving party cannot rely on mere allegations, denials, conjectures, or conclusory statements, but must present ...