United States District Court, S.D. New York
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
TOWER RESEARCH CAPITAL LLC and MARK GORTON, Defendants.
OPINION AND ORDER
M. WOOD, United States District Judge
are members of a putative class comprised of parties who
transacted in certain Korean futures contracts on a Korean
securities exchange (the "KRX") in 2012. Plaintiffs
allege that Tower Research Capital LLC ("Tower")
and its CEO, Mark Gorton (collectively,
"Defendants"), used fictitious trades and other
deceptive techniques to manipulate the prices at which these
futures contracts traded on the Chicago Mercantile Exchange
Globex Platform ("CME Globex"), a trading platform
used by the Korean exchange. Plaintiffs assert that this
conduct violates the Commodity Exchange Act
("CEA"), 7 U.S.C. §§ 1, et seq., as well
as state law.
first moved to dismiss the Complaint pursuant to Federal Rule
of Civil Procedure 12(b)(6). On February 24, 2016, this Court
granted Defendants' motion to dismiss, giving Plaintiffs
leave to file an amended complaint within thirty days.
("Opinion [Doc. No. 41]). Plaintiffs filed their First
Amended Complaint ("FAC") on March 28, 2016. (Doc.
No. 43). Defendants have again moved to dismiss
Plaintiffs' First Amended Complaint. (Doc. No. 48). For
the reasons set forth below, the Court GRANTS Defendants'
Motion. Plaintiffs' First Amended Complaint is dismissed
first filed their class action complaint on December 16,
2014, asserting violations of the CEA §§ 6(c),
6(d), 9(a), and 22(a), 7 U.S.C. §§ 9, 12b, 13(a),
and 25(a), as well as state law unjust enrichment claims. The
following facts are taken from Plaintiffs Amended Complaint
and are assumed to be true for the purposes of
Defendant's Motion to Dismiss. See Tellabs, Inc. v.
Makor Issues & Rights Ltd., 551 U.S. 308, 322
(2007); see also Shipping Fin. Servs. Corp. v.
Drakos, 140 F.3d 129, 131 (2d Cir. 1998) ("When
considering a motion to dismiss ... for failure to state a
cause of action, a court must accept as true all material
factual allegations in the complaint.").
allege that Defendants "manipulate[d] the price of KOSPI
200 futures contracts traded on the CME Globex for their own
profit" by misleading other traders about the prevailing
price and number of contracts available. (FAC ¶ 2). The
KOSPI 200 is an index for Korean stocks, similar to the Dow
Jones Industrial Average or the S&P 500. Id.
¶ 15. KOSPI 200 futures contracts are offered by the
KRX, a derivatives securities exchange headquartered in
Busan, South Korea. Id. While KOSPI 200 futures
contracts are normally traded on the KRX itself, they are
also listed and traded on the CME Globex-an electronic
trading platform affiliated with the Chicago Mercantile
Exchange ("CME")-during the night market when
regular KRX systems are closed. Id. The KRX night
market runs from 5:00 p.m. to 6:00 a.m. Seoul time (2:00 a.m.
to 3:00 p.m. Chicago time). Id. ¶ 18. During
the KRX night market, KOSPI 200 orders are matched on the CME
Globex, at which point the parties enter into a binding
agreement to trade a KOSPI 200 futures contract. Id.
About 10 percent of KOSPI 200 futures contracts are traded on
the CME Globex during the night market. (Pis. Opp'n.at
allegedly manipulated the price of the futures contracts by
entering large-volume orders either to buy or sell KOSPI 200
futures contracts without intending for these orders to be
matched by other users. Id. ¶ 2, 29. Plaintiffs
continue to allege that Defendants created "hundreds and
hundreds" of these fictitious buy and sell orders, and,
over the course of the year, earned approximately $14.1
million through the use of these "spoofing"
tactics. Id. ¶¶ 2, 4.
order for the Defendants to be held liable for
Plaintiffs' claims, their actions must have been subject
to United States law. As noted in this Court's first
Opinion and Order, Morrison v. National Australia Bank
Ltd., 561 U.S. 247 (2010), lays out a framework for
assessing the extraterritorial applicability of the CEA.
Plaintiffs establish CEA jurisdiction in United States courts
under Morrison in one of two ways. The alleged
illegal transactions must have either (1) taken place on a
registered United States exchange, or (2) have been made in
the United States. 561 U.S. 247 (2010). The Second Circuit
elaborated on Morrison's second prong in
Absolute Activist Value Master Fund Ltd. v. Ficeto,
in which it found that a transaction is "made" in
the United States when plaintiffs "allege facts
indicating that irrevocable liability was incurred, or that
title was transferred, within the United States." 677
F.3d 60, 62 (2d Cir. 2012); see also Starshinova v.
Batratchenko, 931 F.Supp.2d 478, 486 (S.D.N.Y. 2013)
(Wood, J) (applying this standard to a claim brought under
the CEA). From the outset, the parties have disputed (1)
whether the KOSPI 200 futures trades took place on a U.S.
exchange or a Korean exchange, and (2) whether the alleged
transactions took place in the United States or in South
Court granted Defendants' first motion to dismiss after
finding that Plaintiffs could not satisfy either prong of
Morrison. Plaintiffs could not prove either that the
trades in question took place on an American exchange, or
that the alleged transactions occurred within the United
States. (Op. at 9). The Court also dismissed Plaintiffs'
state law unjust enrichment claims after finding that
Plaintiffs failed to show the direct relationship with
Defendants necessary to support the claim. Id. at
have now amended their complaint and ask the Court to
reconsider their claims. Plaintiffs maintain that they have
satisfied both prongs of the Morrison test, and that
their Amended Complaint sufficiently pleads a state law
unjust enrichment claim. The Court disagrees. With regard to
their Commodities Exchange Act allegations, Plaintiffs have
still failed to allege a sufficient nexus with a U.S.
exchange or a U.S. financial transaction to justify a claim
under Morrison. Plaintiffs have also not provided
additional information that makes it any more plausible that
they would succeed on their unjust enrichment claim. The
Court finds that Plaintiffs' Amended Complaint once again
fails to state a claim upon which relief can be granted.
Plaintiffs have still failed to prove that the CME Globex is
an American exchange under Morrison
Court noted in its first Opinion and Order, the fact that the
CME constitutes a legitimate, registered exchange does not in
itself render the CME Globex a certified exchange. Nothing in
Plaintiffs' Amended Complaint has mitigated this
Court's view of the substantive differences between the
CME, a certified exchange, and the CME Globex, an electronic
trading platform. While the CME continues to possess the
hallmarks of a traditional exchange as defined by the
Commodity Futures Trading Commission (CFTC), the CME Globex
does not. The CME Globex does not possess its own set of
rules or a mechanism for enforcing them, nor is it structured
in the same way as a traditional board of trade.
so, Plaintiffs allege two separate basis for their claim that
the CME Globex constitutes an exchange under
Morrison. They first argue that the CME Globex
comports with the general definition of "exchange"
used by the CFTC and various financial publications. (FAC
¶ 18). They also maintain that the CEA itself defines
"exchange" as to encompass the CME Globex.
Id. The Court is not persuaded by either of these
claims. First, the CFTC maintains a public list of
organizations it considers registered exchanges, and does not
include CME Globex on that list.Second, according to the CEA,
a "registered entity" is a domestic U.S. contract
market registered with the CFTC. 7 U.S.C. § la(40). As
previously noted, the CME Globex is not registered with the
CFTC as a domestic contract market. The fact that the CME
Globex might, in Plaintiffs' opinion, comport with a
dictionary or CFTC website definition of ...