432 F.Supp.3d 320
S.D.N.Y.2020Background
- CFTC sued TFS‑ICAP, LLC and TFS‑ICAP Ltd., and brokers Ian Dibb and Jeremy Woolfenden, alleging violations of the Commodity Exchange Act including Count III: entering into/confirming "fictitious sales" and transactions used to report non‑bona fide prices (via practices described as "flying prices" and "printing trades").
- Dibb submitted pre‑motion letters (construed as a Rule 12(b)(6) motion) arguing Count III fails because: Section 4c requires collusion/pre‑arrangement; the alleged conduct increased competition (not dampened it); materiality/intent were not pleaded; and some activities predated CEA coverage in London.
- The Court treated the letter exchange as a motion, allowed supplemental briefing, and applied the Twombly/Iqbal pleading standard for plausibility, drawing reasonable inferences for the non‑moving party.
- The CFTC responded that Section 4c broadly prohibits fictitious sales and any transaction used to cause a non‑bona‑fide price to be recorded; it asserted allegations supporting materiality, Dibb’s constructive knowledge or willful blindness, and lack of good faith.
- The Court concluded the statutory text and precedent do not require collusion; the Complaint plausibly alleges actionable conduct and scienter/willful blindness; and brokers can be subject to enforcement. The motion to dismiss Count III was denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Section 4c requires collusion or prearrangement for a fictitious sale | Section 4c covers any transaction used to cause a non‑bona‑fide price; collusion is not required | Section 4c targets prearranged/collusive trades; absent coordination, conduct is outside statute | Court: Statute and precedent do not require collusion; pleading need not allege prearranged trade |
| Whether "flying prices"/"printing trades" can constitute fictitious sales or cause non‑bona‑fide prices | Alleged practices caused reported prices not reflecting supply/demand and thus fall within §4c(a)(1)–(2) | Such practices increased market activity and competition, not dampened it, so they are not fictitious sales | Court: Publishing non‑bona‑fide transactions can fall within §4c; alleged facts plausibly show prices were not bona fide |
| Whether the Complaint adequately alleges scienter/intent (to negate risk or evade price competition) | Allegations (brokers took no proprietary positions; willful blindness; lack of good faith) suffice to infer scienter at pleading stage | CFTC failed to allege intent to negate risk or price competition required for §4c liability | Court: Intent is a factual inquiry unsuitable for dismissal; allegations permit a reasonable inference of scienter or willful blindness |
| Whether brokers (vs. traders) can be charged under §4c | §4c applies to those who enter into/confirm transactions that cause non‑bona‑fide prices; brokers can be liable | §4c was intended to constrain traders, not brokers, so brokers should be outside §4c reach | Court: Dibb cited no persuasive authority; brokers can be subject to enforcement and pleadings against them are plausible |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: factual allegations must plausibly show liability)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (complaint must raise entitlement to relief above speculation)
- Chambers v. Time Warner, Inc., 282 F.3d 147 (2d Cir. 2002) (court must draw reasonable inferences for non‑movant on Rule 12(b)(6))
- Reddy v. Commodity Futures Trading Comm'n, 191 F.3d 109 (2d Cir. 1999) (intent/ scienter relevant to §4c violations)
- Merrill Lynch Futures, Inc. v. Kelly, 585 F. Supp. 1245 (S.D.N.Y. 1984) (statute aimed at collusive trades but not limited to them)
- In re Initial Pub. Offering Sec. Litig., 383 F. Supp. 2d 566 (S.D.N.Y. 2005) (assess legal feasibility, not evidence weight, on dismissal)
- In re MF Global Holdings Ltd. Sec. Litig., 982 F. Supp. 2d 277 (S.D.N.Y. 2013) (Rule 12(b)(6) standards and drawing inferences)
- In re JWP Inc. Sec. Litig., 928 F. Supp. 1239 (S.D.N.Y. 1996) (scienter allegations require factual support to survive dismissal)