Gamma Traders - I LLC v. Merrill Lynch Commodities, Inc., No. 21-853 (2d Cir. 2022)Annotate this Case
Plaintiffs brought a suit under the Commodity Exchange Act (CEA), alleging that the Defendants engaged in fraudulent trading tactics – to Plaintiffs’ detriment – in markets for precious metals. The district court granted Defendants’ motion to dismiss under Rule 12(b)(6) for failure to state a claim, concluding that Plaintiffs’ claims are time-barred and that Plaintiffs did not adequately plead that they were injured by Defendants’ fraudulent trading activity. On appeal, Plaintiffs contend that their claims took years to accrue, and were therefore timely because they were not on notice of their injury. They separately argued that they have adequately pleaded that Defendants’ fraud injured them.
The Second Circuit affirmed the dismissal for failure to plead an injury. The court concluded that neither of Plaintiffs’ theories, alone or in combination, adequately alleges that Defendants’ trading activities injured them. The court explained that the CEA does not deputize traders to rove the commodities markets hunting for bad behavior. Rather, it makes fraudsters liable for actual damages.
Here, Plaintiff has not plausibly alleged that it was damaged. Instead, it theorizes that its regular participation in the relevant commodities markets supports an inference that it was injured by Defendants’ spoofing at least once. But this argument is so broad that endorsing it would permit any regular market participant to proceed to discovery any time a significant market player has repeatedly committed fraud – contravening both the statute and case law. Further, Plaintiffs’ allegations do not support an inference of damages.