U.S. judge rejects class action against high-speed trading firm in Korean 'spoofing' case

A screen displays market news as traders work on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, September 13, 2022. REUTERS/Andrew Kelly
  • Tower Research said to rig KOSPI 200 futures in 2012
  • Judge says individual issues predominated

(Reuters) - A U.S. judge ruled on Tuesday that a lawsuit by Korean traders accusing New York-based high-frequency trading firm Tower Research Capital LLC and its founder Mark Gorton of conducting illegal "spoofing" trades at their expense cannot proceed as a class action.

U.S. District Judge Kimba Wood in Manhattan said the traders fell "far short" of establishing that common issues of law or fact predominated over individual questions, and therefore class certification on their unjust enrichment claim was improper.

Daniel Sommers at Cohen Milstein Sellers & Toll represents the plaintiffs, while Noah Levine at Wilmer Cutler Pickering Hale and Dorr represents the defendants. Neither immediately respond to requests for comment.

Tower was accused of having rigged prices of KOSPI 200 futures contracts in 2012, making an estimated 53.8% of all such trades on South Korea's "night market," by placing and quickly canceling trades or acting as its own counterparty.

The plaintiffs, who traded these contracts, said this created artificial supply and demand, enabling Tower to sell contracts at inflated prices and buy them at deflated prices.

They sued on behalf of entities that traded with Tower in the contracts during the night market in 2012.

But in a 26-page decision, Wood said the plaintiffs offered neither a credible theory nor convincing empirical evidence to show why the prices they got resulted from Tower's spoofing.

She said the inability of a plaintiffs' expert to substantiate whether Tower altered any prices was a "glaring flaw," and that the expert's model did not distinguish trades made at prices that had not allegedly been manipulated.

Wood said the expert's use of "arbitrary assumptions" and "misleading labels" left the plaintiffs bereft of "generalized proof to identify and measure the artificial prices created by Tower's algorithm."

The judge also said individual issues would predominate in efforts to show that Tower traded at the plaintiffs' expense.

Wood ordered both sides to submit a joint letter by Oct. 25 to discuss the next steps in the case.

Her decision came 15 months after a federal appeals court narrowed the lawsuit, saying Tower's trading was not subject to U.S. commodities law.

The state law-based unjust enrichment claim is the only remaining claim, Wood said.

The case is Choi v. Tower Research Capital LLC, U.S. District Court for the Southern District of New York, No. 14-09912.

For plaintiffs: Daniel Sommers of Cohen Milstein Sellers & Toll

For defendants: Noah Levine of Wilmer Cutler Pickering Hale and Dorr

Read more:

2nd Circuit upholds Tower Research win in Korean futures case

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