Tuesday, June 26, 2018

Case of the Day: Choi v. Tower Research Capital LLC, 2018 U.S. App. LEXIS 12122 (2d Cir. Mar. 29, 2018)


Plaintiffs are Korean citizens who traded on futures on Korea Exchange (KRX), and claimed damages arising from the alleged "spoofing" scheme conducted in New York. The KRX futures are listed the electronic platform of the CME Group based in Illinois, but the plaintiffs entered their trades in Korea. The lower court dismissed, holding the Commodities Exchange Act (CEA) did not apply extraterritorially.

The Second Circuit reversed. Noting the trades were "matched" in the United States, the court found a contract was formed in the United States. The court found it was irrelevant that the trades were "settled and cleared" in Korea, since the contract had already formed in the United States at the moment of the matching. The ability to fix any error in the trade in Korea did not make the contract revocable. The court also found sufficient connection, however indirect, existed between the plaintiffs and the defendant to sustain the New York state law claim on unjust enrichment.


With the financial market becoming ever more sophisticated, the extraterritorial application of the CEA is going to be the next big question. Here, the court cuts against the prevailing trend of pulling back from enforcement beyond borders.

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