149 F. Supp. 3d 874
N.D. Ill.2015Background
- Putative class of public investors sued CME, CBOT, CME Group and four executives for conduct between Jan 1, 2005 and Apr 10, 2014, alleging exchanges favored high-frequency traders (HFTs) via a "Latency Loophole," special data access and clandestine incentive/rebate agreements.
- Plaintiffs claim exchanges sold "real-time" market data while giving HFTs faster/preferential access, enabling HFTs to profit at public investors’ expense and causing artificial prices, lost trading value, fraud, and unjust enrichment.
- Causes of action: multiple CEA claims (manipulation, false information, failure to enforce), aiding-and-abetting, common-law fraud, federal antitrust claims (Sherman Act §§1–2, Clayton Act/Robinson-Patman), and unjust enrichment.
- Defendants moved to dismiss under Fed. R. Civ. P. 12(b)(6); the court analyzed pleading sufficiency, statute-of-limitations/discovery-rule timing, and whether statutory private rights or elements were adequately alleged.
- Court found plaintiffs’ allegations largely conclusory, failed to plead required elements (e.g., artificial price, causation, specific intent, particularized fraud, anticompetitive agreement or monopoly power), and granted the motion to dismiss the Second Amended Complaint.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness (statutes of limitations) | Injuries were discovered publicly on May 1, 2013 (WSJ article), so filings within a year are timely under discovery rule | Claims beginning in 2005 are time-barred absent later discovery | Court declined to dismiss on statute-of-limitations ground at pleading stage because discovery-rule date (May 1, 2013) made timeliness plausible |
| Private right under CEA (§22/§25) | CEA and CFTC rules were violated by exchanges enabling/manipulating markets; private causes under §25(b) and (a) apply | §25 narrowly limits private causes to specified transactional contexts; plaintiffs didn’t plead required transactional nexus or facts | Court: plaintiffs failed to plead the requisite transactional/causal facts to invoke a private right for many CEA theories; §25 limits private suits and plaintiffs’ allegations were insufficient |
| Manipulation / Aiding & Abetting under CEA | Exchanges created market structure enabling manipulation and thus are liable for manipulation or for aiding HFT manipulators | Exchanges argue HFT trading (not exchanges’ conduct) would be the manipulative acts; exchanges’ provision of services is not an act that caused artificial prices; plaintiffs lack specific intent, artificial price, causation, and particularized damages | Court: dismissed manipulation and aiding/abetting claims — plaintiffs did not plausibly allege artificial prices, that exchanges caused them, or specific intent/knowledge of CEA violations by HFTs |
| Fraud and omissions (state law) | Exchanges knowingly misrepresented data as "real-time" and concealed latency/rebates; executives made misleading statements | Statements (e.g., single "pipe"/data feed) were technically true; fraud not pled with Rule 9(b) particularity; no concrete reliance/damages tied to specific misstatements | Court: fraud dismissed for failure to plead a materially false statement and for lack of particularized allegations meeting Rule 9(b) |
| Antitrust (Sherman §§1–2, Clayton) | Secret incentive/rebate agreements with HFTs unreasonably restrained trade, discriminated on price/services, and produced/exacerbated CME Group monopoly power | Agreements encouraged trading (not restraining it); plaintiffs fail to allege an unreasonable restraint, relevant market shares, anticompetitive effects, or monopoly conduct by defendants | Court: antitrust claims dismissed — plaintiffs did not plead an agreement producing an unreasonable restraint, nor facts showing monopoly power or anticompetitive conduct by defendants |
| Unjust enrichment | Defendants were unjustly enriched by HFT-driven trading and fees at class members’ expense | Unjust enrichment depends on underlying unlawful conduct; plaintiffs failed to state underlying claims | Court: unjust enrichment claim dismissed because predicate statutory and fraud claims failed |
Key Cases Cited
- Yeftich v. Navistar, 722 F.3d 911 (7th Cir. 2013) (pleading standards and construing complaint in plaintiff's favor under Rule 12(b)(6))
- Long v. Shorebank Development Corp., 182 F.3d 548 (7th Cir. 1999) (pleading and inference standards)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for pleadings)
- Williamson v. Curran, 714 F.3d 432 (7th Cir. 2013) (limits on materials considered on Rule 12(b)(6))
- Damato v. Hermanson, 153 F.3d 464 (7th Cir. 1998) (aiding-and-abetting liability under CEA and knowledge requirement)
- Toys "R" Us, Inc. v. Fed. Trade Comm’n, 221 F.3d 928 (7th Cir. 2000) (methods for proving monopoly power/market definition)
- In re Dairy Farmers of Am., Inc. Cheese Antitrust Litig., 801 F.3d 758 (7th Cir. 2015) (elements of manipulation and antitrust pleading principles)
- Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409 (7th Cir. 1989) (elements of attempted monopolization)