Choi v. Tower Research Capital LLC
890 F.3d 60
2d Cir.2018Background
- Plaintiffs (five Korean citizens) traded KOSPI 200 futures on the KRX night market, which lists and matches orders via CME Globex (an electronic platform located in Aurora, Illinois); settlement occurs on the KRX in Korea the next day.
- Tower Research Capital LLC (U.S.) executed ~53.8% of KRX night-market trades in 2012 using high-frequency algorithms and is alleged to have engaged in spoofing (entering and cancelling or self-matching large orders) to manipulate prices and profit.
- Plaintiffs traded >1,000 night-market contracts in 2012 and allege they transacted at artificial prices due to Tower’s spoofing; they also allege it is statistically likely they directly matched with Tower traders.
- Korean regulator (FSC) and media identified Tower’s conduct in 2014; Plaintiffs filed a class complaint in December 2014 asserting violations of the Commodity Exchange Act (CEA) and New York unjust enrichment law.
- The district court dismissed, holding application of the CEA would be impermissibly extraterritorial under Morrison and that plaintiffs failed to state an unjust enrichment claim; plaintiffs appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the CEA applies to KRX night-market trades (extraterritoriality) | CEA applies because trades are matched on CME Globex in the U.S., where irrevocable liability attaches | Trades occur outside U.S.; irrevocable liability only attaches at clearing/settlement on KRX in Korea, so CEA is extraterritorial here | Reversed dismissal: plausible that matching on CME Globex in Illinois creates irrevocable liability in the U.S.; CEA claims survive at pleading stage |
| Whether Plaintiffs stated a New York unjust enrichment claim | Plaintiffs enriched Defendants at Plaintiffs’ expense via market manipulation; direct relationship is not required | No direct dealing / substantive relationship; claim fails | Reversed dismissal: direct relationship not required; allegations (likely direct trading and price impact) are sufficient to proceed |
Key Cases Cited
- Morrison v. National Australia Bank Ltd., 561 U.S. 247 (Sup. Ct. 2010) (presumption against extraterritoriality; domestic-transaction test for securities law)
- Loginovskaya v. Batratchenko, 764 F.3d 266 (2d Cir. 2014) (applied Morrison framework to CEA)
- Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir. 2012) (a transaction is domestic if irrevocable liability is incurred or title passes in U.S.)
- Ashcroft v. Iqbal, 556 U.S. 662 (Sup. Ct. 2009) (plausibility pleading standard)
- Kaye v. Grossman, 202 F.3d 611 (2d Cir. 2000) (elements of unjust enrichment under New York law)