The U.S. Court of Appeals for the Second Circuit in New York revived a lawsuit by five Korean traders alleging that Tower Research Capital LLC and founder Mark Gorton engaged in manipulative "spoofing" transactions on the Korea Exchange night market in violation of the Commodity Exchange Act and New York law.
The Korea Exchange is a derivatives and securities exchange headquartered in Busan, South Korea. On the KRX night market, traders enter orders in Korea when the Korea Exchange, or KRX, is closed for business, and their orders are quickly matched with a counterparty by an electronic trading platform in Aurora, Illinois. The trades are cleared and settled on the KRX when it opens for business the following morning.
The decision overturns a ruling by U.S. District Judge Kimba Wood and returns the case to her. The district court dismissed the action principally on the ground that the Commodity Exchange Act does not apply extraterritorially as would be required for it to reach defendants' alleged conduct.
"Because we conclude Plaintiffs' allegations make it plausible that the trades at issue were 'domestic transactions' under our precedent, we do not agree that application of the CEA to Defendants' alleged conduct would be an impermissible extraterritorial application of the act," the decision read. "We also disagree with the district court's conclusion that Plaintiffs failed to state a claim for unjust enrichment."