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From Antitrust Law Daily, January 13, 2016

Traders given chance to ‘rehabilitate’ market manipulation claims against JPMorgan

By Jeffrey May, J.D.

Commodities traders will get another shot at pursuing antitrust claims against JPMorgan Chase & Company for allegedly manipulating the market in silver future calendar spreads. Although the federal district court in New York City dismissed complaints filed by three traders in their entirety, the traders were granted leave to replead Sherman Act, Section 2 and New York Donnelly Act claims as long as they are within the four-year statute of limitations period and the plaintiffs add facts to “rehabilitate” these claims. The traders alleged that JPMorgan and related companies manipulated the settlement prices in the market to the benefit of their positions. Despite the court’s observation that the plaintiffs’ claims “far more naturally describe conduct prohibited by the Commodity Exchange Act (CEA),” the CEA claims were dismissed with prejudice because they were time-barred (Shak v. JPMorgan Chase & Co., January 12, 2016, Engelmayer, P.).

Monopoly claims. While “significantly clipped by operation of the statute of limitations,” the plaintiffs’ monopoly claims were not entirely time-barred. Thus, the court considered the sufficiency of the claims that JPMorgan monopolized, attempted to monopolize, or conspired to monopolize the “silver futures spread market.” In order to pursue a monopolization claim, the complaining traders of silver futures contracts—agreements to buy or sell fixed amounts of silver on a certain future date traded on the Commodity Exchange, Inc. (COMEX)—had to allege that JPMorgan possessed monopoly power and the willful acquisition or maintenance of that power.

Monopoly power. The plaintiffs failed to allege monopoly power based on conventional means—JPMorgan’s market share of an alleged silver futures spread market. The court noted that the market definition failed to include possible substitutes for silver spread contracts. Moreover, even if plaintiffs had plausibly defined the relevant market, they did not adequately plead JPMorgan’s share of that market. Instead, they offered “vague generalities about the spread market as a whole combined with evidence about trading in specific spread contracts on specific dates.”

The court was satisfied, however, that the plaintiffs could use an alternative method for demonstrating monopoly power through direct evidence of anticompetitive effects. JPMorgan unsuccessfully contended that the direct-evidence route to demonstrating monopoly power had been closed off. JPMorgan, one of the few major players in the silver futures market, was able to amass a dominant position in certain spread contracts, it was alleged. The plaintiffs further pointed to significant pricing anomalies in certain silver futures spread contracts. These allegations might be sufficient to plead monopoly power, in the court's view. Moreover, while the market definition was not sufficient under a conventional indirect evidence analysis, plaintiffs that allege monopoly power by means of direct evidence of price control were not held to the same standard. These plaintiffs need not “define the market with the same precision and punctiliousness (e.g., to exclude potential interchangeable products) that a plaintiff who alleges monopoly power solely by means of alleging the defendant’s market share must,” according to the court.

Willful acquisition of monopoly power. In any event, the monopoly claims were dismissed because the plaintiffs failed to adequately plead willful acquisition of monopoly power. In order to pursue a monopolization claim, a plaintiff “must demonstrate exclusionary conduct—as opposed to gloves-off, hardnosed market competition—aimed at obtaining or enshrining monopoly power.” The traders identified three categories of allegedly exclusionary conduct: (1) JPMorgan placed large, uneconomic orders just before the close of trading for the purpose of influencing settlement prices; (2) JPMorgan “caused” certain floor brokers and clerks to “harangue” COMEX employees to set JPMorgan’s desired settlement prices, in part by pointing to JPMorgan’s own “uneconomic, artificially tight bids and offers for calendar spreads”; and (3) JPMorgan “refus[ed] to provide spread quotes that would allow Plaintiffs to exit” the market. However, these allegations lacked specifics—including details such as dates, names, amounts, and prices. Moreover, the plaintiffs failed to connect this conduct to a scheme to willfully acquire or maintain monopoly power, the court held. The complaining traders did not make “concrete allegations plausibly suggesting uneconomic behavior intended to acquire or maintain monopoly power, or satisfactorily distinguish[] JPMorgan’s conduct from that of a rational, hard-nosed market actor.”

Conspiracy to monopolize. The traders also failed to allege concerted action to support a conspiracy to monopolize claim under Section 2. They inadequately alleged an agreement between the defendants and COMEX’s settlement committee to manipulate silver spread prices.

Statute of limitations. The statute of limitations period began to run when the plaintiffs liquidated their positions nearly four years prior to the filing of their complaints. The statute of limitations for Sherman Act and Donnelly Act claims was four years. Thus, the plaintiffs’ antitrust claims were not, in their entirety, time-barred, since the liquidations of each plaintiff’s positions were completed less than four years before the filing of the respective complaints.

Commodities Exchange Act claims. The CEA’s two-year statute of limitations, however, doomed the plaintiffs’ three claims under that Act: price manipulation in violation of 7 U.S.C. § 13(a)(2) and § 25(a); manipulation by fraud and deceit in violation of 7 U.S.C. § 9 and § 25; and principal-agent liability under 7 U.S.C. § 2(a)(1)(B). Holding that each plaintiff's CEA claims arose and began to run when the positions were liquidated, the claims could only be saved if the statute of limitations were tolled. The plaintiffs unsuccessfully contended that the statute of limitations for the CEA claims, as well as their other claims, was tolled by the pendency of a related antitrust class action. In order for the CEA claims to be timely, the plaintiffs had to prove not only that the pendency of a class action tolled the statute of limitations, but also that the action ended in March 2013 when the plaintiffs were denied leave to replead their claims (as opposed to December 2012, when a motion to dismiss the class action was granted).

The plaintiffs could not rely on the tolling doctrine announced in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), based on a class action bringing CEA and antitrust claims against the same four JPMorgan defendants involved in the current dispute for alleged manipulation of “COMEX silver futures and options contracts.” The court explained that the doctrine was not applicable because the current complaints were based on alleged misconduct that was distinct from and occurred years after the conduct alleged in the class action. Even if the class action did toll the statute of limitations, the toll would not have extended until March 2013, as the plaintiffs contended. The class action ended—and thus the statute of limitations would have begun to run in December 2012, when the class action was dismissed. An unjust enrichment claim that seemingly duplicated the CEA claims was also dismissed on statute of limitations grounds.

State deceptive practices claims. A claim under New York General Business Law (NYGBL) §349, alleging deceptive acts in the conduct of business, also was time-barred under the same rationale. The NYGBL §349 claim was subject to a three-year statute of limitations. This claim expired in early 2014 (three years after the plaintiffs’ positions were liquidated), about a year before the complaints were filed.

This is Case No. 1:15-cv-00992-PAE.

Attorneys: David A. Bishop (Kirby McInerney LLP) for Daniel Shak, Thomas Wacker and Mark Grumet. Amanda Flug Davidoff (Sullivan & Cromwell LLP) for JPMorgan Chase & Co.

Companies: JPMorgan Chase & Co.

MainStory: TopStory Antitrust StateUnfairTradePractices NewYorkNews

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