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

Background

Harrington Global Opportunity Fund, Limited alleged violations of Section 10(b), Rule 10b-5, and Section 9(a)(2) of the Securities Exchange Act of 1934. The plaintiff alleged that defendants—including U.S. and Canadian broker-dealers—engaged in cross-border “spoofing,” meaning they placed orders they did not intend to execute to create a misleading market signal, bought Concordia International Corporation shares at artificially reduced prices, and then canceled the unexecuted orders.

The alleged conduct involved Concordia shares traded on both the Nasdaq in the United States and the Toronto Stock Exchange in Canada. The complaint alleged that defendants placed hundreds of baiting orders during the relevant period, that those orders depressed Concordia’s share price, and that defendants or their customers then bought shares through executing orders. The allegations included more than 900 spoofing episodes, seven detailed examples, and a chart describing 30 additional episodes.

Defendants’ Motion

Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(2), which concerns personal jurisdiction, and Rule 12(b)(6), which tests whether a complaint states a legally sufficient claim.

The Canadian defendants argued that they lacked sufficient contacts with New York. The court held that the complaint adequately alleged a connection between their U.S.-related trading activity and the plaintiff’s claims. It also held that the complaint sufficiently alleged that the Canadian defendants directed conduct at U.S. markets and intended to affect Concordia’s share price there. Because the jurisdictional facts overlapped with the merits, the court concluded that a later stage of the case was the appropriate time to resolve factual disputes about those contacts.

The court also rejected defendants’ statute-of-repose argument. It held that the Second Amended Complaint described the same basic spoofing claims previously asserted in the First Amended Complaint, rather than adding new claims outside the five-year limit in 28 U.S.C. § 1658(b)(2). The court therefore did not address relation back or equitable tolling.

The court further held that the claims were not impermissibly extraterritorial. The complaint alleged trading on U.S. exchanges, including the Nasdaq, and alleged conduct intended to manipulate the price of Concordia stock on U.S. exchanges. The court concluded that the complaint did not, at this stage, show that foreign conduct dominated the alleged activity.

Pleading of the Market-Manipulation Claims

The court held that the complaint adequately alleged manipulative acts. It alleged that defendants placed at least 138,678,121 baiting orders that had no legitimate financial purpose, executed 578,530 purchases at prices depressed by those orders, and quickly canceled the baiting orders. The complaint also identified specific defendants, dates, trading activity, price effects, and the shares purchased by the plaintiff in reliance on the alleged manipulation.

The court held that the complaint sufficiently alleged scienter, meaning the required wrongful state of mind. The allegations described orders canceled within seconds or milliseconds, large imbalances between baiting orders and actual purchases, and cancellations shortly after smaller purchase orders were executed. The court also held that the complaint could plead alternative theories about whether defendants failed to monitor customer trading, implemented inadequate monitoring systems, or identified the manipulation and allowed it to continue.

The court held that the complaint adequately alleged loss causation, meaning a connection between the alleged misconduct and the plaintiff’s economic loss. The complaint alleged that spoofing occurred on 111 of 188 trading days, that the plaintiff traded on 34 of those days, and that it suffered losses from selling Concordia shares at artificially depressed prices.

Finally, the court held that the complaint sufficiently alleged reliance. The plaintiff alleged that it sold Concordia shares while assuming that the market was efficient and free from manipulation. The court concluded that the plaintiff’s separate concerns about Concordia’s price volatility did not eliminate a plausible allegation of reliance on an unmanipulated market.

Disposition

The court denied defendants’ motion to dismiss the Second Amended Complaint and directed the Clerk of Court to close the motion at docket entry 135. This ruling addressed the sufficiency of the allegations at the motion-to-dismiss stage; it did not determine that the alleged spoofing was ultimately proved.