Merrill Lynch, Traders Accused of ‘Spoofing’ Price of Precious Metals Futures Contracts [UPDATE]
by Erin Shaak
Last Updated on March 10, 2021
Robert Charles Class A, L.P. et al v. Merrill Lynch Commodities, Inc. et al
Filed: July 2, 2019 ◆§ 1:19-cv-06172
Merrill Lynch Commodities, Inc. is among the defendants in a proposed class action lawsuit filed over what the plaintiffs claim is the parties’ alleged manipulation of prices for precious metals futures contracts.
Case Updates
March 4, 2021 – Case Dismissed
The lawsuit detailed on this page was dismissed with prejudice after the judge determined the statute of limitations on the plaintiffs’ claims had run out.
Per the dismissal order, the plaintiffs had two years to file an action after discovering their injuries under the Commodity Exchange Act. Though the plaintiffs argued that they were not aware they had been defrauded until criminal complaints against the individual defendants were unsealed, the judge notes that they should have been made aware of the injuries much earlier due to the filing of previous class action complaints and regulatory actions against the defendants, which received widespread media attention.
Moreover, the plaintiffs are not alleged to be unsophisticated and are not held to the standard of an inexperienced investor, the judge added. Nevertheless, the plaintiffs do not allege that they made any inquiry as to the defendants’ conduct before the criminal complaints were unsealed, according to the dismissal order.
The judge further argued that the plaintiffs failed to plausibly allege that they had actually purchased at a price that was higher or sold at a price that was lower than it should have been absent the defendants’ conduct. Aside from mentioning specific dates on which they traded when spoof trades were also placed and noting that the defendants “manipulated thousands of trades,” the plaintiffs fail to specifically identify instances in which they were harmed by the defendants’ conduct, the order stated. In fact, the judge added, given the plaintiffs “steadfastly avoid pleading” that they traded after the spoof on the days on which there were spoof trades, “the only plausible inference” is that they traded before the spoof.
“If they traded after and proximate to the spoof, there is no reason for them not to have alleged it,” the order states. “And, if their trades all occurred before the spoof, there is no plausible inference that the trade took place at a price that was artificially impacted as a result of the spoof.”
Per the judge’s order, the plaintiffs’ allegations were insufficient to survive a motion to dismiss.
The full dismissal order can be read here.
Merrill Lynch Commodities, Inc. is among the defendants in a proposed class action lawsuit filed over what the plaintiffs claim is the parties’ alleged manipulation of prices for precious metals futures contracts.
The lawsuit explains that precious metals futures contracts—legally binding agreements to purchase precious metals at an agreed-upon price in the future—trade on the Commodity Exchange, Inc. (COMEX). According to the case, the defendants, who include Merrill Lynch parent company Bank of America Corporation and two precious metals traders who worked at Merrill Lynch, engaged in a practice known as “spoofing,” which the lawsuit defines as the artificial manipulation of market conditions by which traders enter large buy or sell orders and then cancel the orders.
According to the lawsuit, the practice of placing orders with the intent to cancel them allows traders to illegally manipulate market prices by altering supply and demand.
“In other words,” the complaint reads, “traders place numerous simultaneous orders on both the buy and sell side of a commodity, one set of which—the ‘Spoof Orders’—they intend to cancel, and the opposite set the ‘Genuine Orders.’ When, for example, traders seek to lower the price of a commodity future in order to purchase it at a cheaper price, they place numerous sell orders at consistently lower prices in order to artificially lower the price of that commodity. The traders then execute their genuine buy orders while simultaneously canceling their spoof sell orders.”
The lawsuit charges the defendants engaged in this spoofing scheme in order to profit from artificially favorable market conditions while injuring other traders in the process.
The defendants’ alleged scheme came to light in late-June 2019, when it was revealed that Merrill Lynch had entered into a non-prosecution agreement with the Department of Justice and a settlement agreement with the Commodities Futures Trading Commission as a result of its involvement in the alleged conduct.
The two individual defendants have been indicted on spoofing charges and are awaiting trial, according to the complaint.
The lawsuit seeks to cover anyone who traded precious metals futures contracts on the COMEX between January 1, 2008 and December 31, 2014.
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