BMA LLC v. HDR Global Trading Limited
3:20-cv-03345
N.D. Cal.Mar 12, 2021Background
- Five plaintiffs (four individual traders and BMA LLC) sued BitMEX owner HDR, subsidiary ABS, and founders Hayes, Delo, and Reed alleging market-manipulation losses on BitMEX and Kraken.
- Core theory: Reed (and/or insiders) executed large sell orders on spot exchanges (e.g., Kraken, Bitstamp) that depressed index prices (.BXBT/.BETH), propagated to BitMEX perpetual swaps, triggered liquidation cascades, and enriched BitMEX via its Insurance Fund and liquidations. Nearly all manipulation allegations were pleaded "on information and belief."
- Plaintiffs asserted 17 causes of action including RICO, multiple Commodity Exchange Act (CEA) claims (manipulation, devices, aiding-and-abetting, principal-agent), and various California state-law claims (negligence, fraud, UCL, conversion, unjust enrichment, etc.).
- Defendants moved to dismiss for implausibility, lack of Article III and statutory standing, and failure to plead elements with required particularity. The Complaint spanned 237 pages and relied heavily on other lawsuits, media articles, and leaderboard data.
- The court dismissed the Consolidated Complaint in full for failure to plausibly plead causation, intent, and particularized fraud allegations, and for lack of Article III and statutory standing, but granted leave to amend with instructions to plead facts (and bases for information-and-belief allegations) with specificity.
- The court directed the parties to address coordination/possible transfer with a related SDNY case (Messieh) at the upcoming case management conference.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency/plausibility of manipulation allegations (Rule 8/9(b)) | Allegations on information and belief are warranted because key trading/identity data are uniquely in defendants' control and plaintiffs cited many circumstantial indicators. | Allegations are speculative; plaintiffs failed to plead the who/what/when/where/how of trades by defendants and relied on public material that undermines the "control" claim. | Dismissed: allegations implausible and inadequately particularized; information-and-belief pleading insufficient without factual basis. |
| Article III standing (causation) | Losses were caused by defendants' trades that triggered index movements and liquidations; injuries are concrete. | Plaintiffs cannot fairly trace losses to defendants rather than volatile market forces or third parties; BMA also fails to identify member accounts. | Dismissed for lack of Article III standing—causation not plausibly alleged; BMA’s standing inadequately pled. |
| Statutory standing — RICO and CEA proximate/actual damages | Plaintiffs argue trader-based episodic manipulation occurred repeatedly (daily) and thus satisfy RICO/CEA causation and damages rules; analogize to other manipulation cases. | Plaintiffs must plausibly show that trades by defendants, on specific dates, caused artificial prices and damages; current pleading is speculative. | Dismissed: plaintiffs failed to plead proximate causation for RICO and required showing of actual damages under CEA for trader-based manipulation. |
| RICO (enterprise, predicate acts, particularity) | There was an enterprise composed of corporate defendants, shell entities, Reed family members, and an "Unknown Exchange" laundering proceeds; wire fraud predicates arise from trades. | Allegations graft in unrelated actors without facts; no distinct enterprise; wire fraud requires affirmative misrepresentations and particulars. | Dismissed: no distinct RICO enterprise plausibly alleged; predicate acts (wire fraud/money laundering) not pleaded with requisite specificity. |
| CEA claims (manipulation, scienter, aiding-and-abetting, principal-agent) | Defendants had ability, motive, and opportunity to manipulate indices (.BXBT), caused artificial prices, and intended harm; BitMEX practices (leaderboard, insurance fund, outages) support scienter. | Plaintiffs failed to show an artificial price caused by defendants or specific intent; aiding-and-abetting theory insufficient as to third-party manipulator (Quick-Grove-Mind). | Dismissed: CEA claims (direct manipulation, principal-agent, aiding-and-abetting) inadequately pleaded; scienter not established. |
| State-law claims (negligence, fraud, UCL, conversion, unjust enrichment, etc.) | Defendants owed a duty to maintain a functional marketplace; fraud and UCL borrow the federal claims; conversion arises from alleged dispossession. | State claims rest on the same deficient manipulation/fraud allegations; no special relationship/duty alleged; fraud lacks particularity; UCL unlawful prong fails without underlying violations. | Dismissed: all state-law claims fail for the same pleading defects and (where applicable) lack of duty or reliance. |
| Leave to amend and case coordination | Plaintiffs seek leave to amend, citing potential confidential-witness info and expert analyses to connect trades to defendants. | Defendants argue multiple prior amendments and duplicative filings counsel against further opportunity. | Court granted leave to amend (first dismissal identifying defects), but ordered focused, particularized repleading and tied discovery/CMC to related SDNY action. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading must permit reasonable inference of liability)
- Lujan v. Defs. of Wildlife, 504 U.S. 555 (Article III standing: injury, causation, redressability)
- Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097 (Rule 9(b) particularity for fraud)
- Swartz v. KPMG LLP, 476 F.3d 756 (must identify role of each defendant in multi-defendant fraud)
- Schreiber Distribg. Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393 (fraud pleading: time, place, content, identities)
- Eclectic Props. E., LLC v. Marcus & Millichap Co., 751 F.3d 990 (RICO elements)
- In re Amaranth Nat. Gas Commodities Litig., 730 F.3d 170 (elements of manipulation under the commodities laws)
- ATSI Commc'ns Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (discussion of particularity standards in market-manipulation contexts)
- Canyon Cnty. v. Syngenta Seeds, Inc., 519 F.3d 969 (RICO proximate causation requirements)
- United States v. Green, 592 F.3d 1057 (wire fraud requires an affirmative material misrepresentation)