CFTC Opposes Filing of "Friend of the Court" Brief in Price Manipulation Case

Bob Zwirb Commentary by Bob Zwirb

The CFTC requested that the Southern District of New York U.S. District Court deny a prospective amici curiae request for leave to file a brief in support of defendants' summary judgment motion and in opposition to the CFTC's motion for summary judgment. The CFTC argued that the amici - which include the Chicago Mercantile Exchange ("CME") Group, Commodity Markets Council, Futures Industry Association ("FIA"), Intercontinental Exchange, Inc. and the Managed Funds Association ("MFA") - submitted a "belated request to file what is, effectively, a sur-reply in opposition to plaintiff's motion for partial summary judgment, and an additional reply brief in support of defendants' summary judgment motion."

Specifically, the CFTC argued that the amici's proffered brief is:

  • Not Useful: The "amici's attempt to parrot the defendants' arguments": (i) should not be permitted; and (ii) fails to disclose that the defendant is a member of the CME and maintains "various affiliations with FIA";
  • Untimely: The amici: (i) waited "nearly eighteen months" instead of "no later than 7 days after the principal brief of the part being supported" pursuant to Rule 29 of the Federal Rules of Appellate Procedure; and (ii) provided "no justification or excuse for their delay";
  • Without Merit: The amici's proposed brief offers "nothing new" and "ignores the Court's considered decision on the motion to dismiss, the Law of the Case Doctrine and Second Circuit case law. Furthermore, the MFA, FIA and CME previously endorsed the "very legal standard for intent that they now attack, intent to 'affect' or 'influence' the pre-existing price." The amici also "conflate the intent to affect price with the knowledge that an overt act will likely cause a price movement."

    Commentary

    Bob Zwirb
    Bob Zwirb

    Aside from the procedural objections raised by the CFTC, the important issue remains the intent requirement for attempted manipulation. The amici are concerned that the court may adopt the view being advanced by the CFTC that in proving specific intent, it need not show that the defendant intended to create "artificial prices." Such a reading, according to the CME, would "constitute an over-reading of judicial precedent and is unwarranted."

    This may all be a matter of semantics due to various federal courts often articulating the standard for attempted manipulation in shorthand - i.e., having an "an intent to affect price" while leaving out the additional crucial words in the CFTC's standard that such a price "not reflect the legitimate forces of supply and demand" (i.e., an artificial price).

    Be that as it may, the CFTC's pre-existing standard has been clear - that specific intent to create an "artificial" or "distorted" price is a sine qua non of both manipulation and attempted manipulation. As the CFTC stated in the landmark case In re Indiana Farm Bureau Coop Ass'n. Inc., CFTC Docket No. 75-14 (Dec. 17, 1982): "The intent requirement applies to both attempted and completed acts of manipulation. See In re Hohenberg Bros. Co., CFTC No. 75-4, 1977 WL 13562, at *7 (Feb. 18, 1977). To meet the specific intent element of a claim for manipulation or attempted manipulation of a futures contract, the Commission must plead that Defendants 'acted (or failed to act) with the purpose or conscious object of causing or effecting a price or price trend in the market that did not reflect the legitimate forces of supply and demand'" (emphasis added). One would hope that the court would not allow the shorthand formula used by other courts to be exploited here to distort the standard for attempted manipulation.

    This makes sense because the essence of manipulative activity - whether completed or attempted - after all, is conduct "calculated to produce a price distortion." Volkart Bros., Inc. v. Freeman, 311 F.2d 52,58 (5th Cir. 1962).

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