Harrington Global Opportunity Fund, Limited v. BofA Securities, Inc.

Background

Harrington Global Opportunity Fund, Limited alleged that CIBC World Markets Corp., BofA Securities, Inc., Merrill Lynch Canada Inc., TD Securities, Inc., and TD Securities (USA) LLC violated Sections 10(b) and 9(a)(2) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 through a cross-border market-manipulation scheme called spoofing. Spoofing involves placing a bid or offer with the intent to cancel it before execution.

The plaintiff had previously subpoenaed a non-party customer of CIBC. The customer produced extensive trading records concerning orders and trades submitted by the defendants through CIBC. In May 2024, the plaintiff served a second subpoena seeking 2016 data about the non-party customer’s purchases in the United States through channels outside CIBC. The customer objected, and CIBC opposed the motion in support of those objections. The court had separately ordered that the customer’s identity remain confidential and permanently sealed.

Analysis

Federal Rule of Civil Procedure 26 permits discovery of nonprivileged information relevant to a party’s claim or defense. A subpoena to a non-party is subject to that relevance requirement, and courts give special weight to the burden imposed on non-parties.

The plaintiff argued that the requested data addressed whether the customer spoofed Concordia shares and was relevant to CIBC’s state of mind, or “scienter.” The court rejected both arguments. The complaint described the alleged scheme as involving trading activity under CIBC’s supervision and control. The requested data concerned United States trades that did not occur through any CIBC channel and therefore was not relevant to the trading activity at issue in the complaint.

The court also concluded that the requested data was not probative of CIBC’s scienter under the plaintiff’s theory. CIBC did not know about the outside-channel United States orders when it sent the orders at issue through its own channels. The plaintiff already possessed evidence of suspicious order patterns and possible spoofing cycles involving the customer’s trading through CIBC. The court said the plaintiff could use that evidence to argue that CIBC acted recklessly by failing to ask the customer about United States trading after receiving alerts concerning the customer’s Canadian trading activity.

Disposition

The court denied the plaintiff’s motion to compel. It also directed the Clerk of Court to terminate the motions at ECF Nos. 344 and 345. The order addressed the scope and relevance of third-party discovery; it did not decide the underlying securities claims. Judge Valerie Figueredo signed the opinion and order.