American firm’s spoofing saga continues; results in $15 million settlement to traders

Tower Research Capital has agreed to pay $15 million to a proposed class of futures traders who claimed it allowed thousands of spoofed commodities orders, the investors said Friday in seeking court approval for the deal.

The matter stems from October 2018 criminal charges against ex-Tower traders Kamaldeep Gandhi, Krishna Mohan and Yuchun “Bruce” Mao. Prosecutors and the U.S. Commodity Futures Trading Commission said the traders engaged in a technique known as spoofing, in which buy or sell orders are placed with no intention of being executed in order to create an artificial impression of supply or demand.

Tower settled with the U.S. Department of Justice and the CFTC in November 2019, agreeing to pay $67 million in civil and criminal penalties. But this settlement in the ensuing class action goes “above and beyond” the relief provided by the government deals, named plaintiffs Gregory Boutchard, a futures trader, and Synova Asset Management said Friday.

The $15 million agreement was reached after hard-fought negotiations that began shortly after the government settlements were announced and included an in-person mediation in January 2020 that didn’t lead to a deal, but several more months of discussions, according to the motion for preliminary approval.

The proposed class went into those negotiations with the benefit of public disclosures describing the government investigation into defendants’ alleged misconduct and economic analysis performed by their experts, the named plaintiffs said. But continued litigation still poses a risk, including the immediate potential for an adverse ruling on Tower’s pending motions to dismiss the lawsuit, they said.

“The proposed settlement, if approved, exchanges those extensive costs and a lengthy litigation timeline with financial recovery and certainty for the class, finality as to the parties, and the preservation of court time and resources that can be redirected elsewhere,” Boutchard and Synova said.

According to the lawsuit, Tower’s traders placed deceptively large buy or sell orders for e-mini futures contracts on Chicago-based commodities exchanges, only to pull the orders after smaller, true orders on the other side of the market had been filled.

The firm moved to dismiss the case in August 2019, saying that after four attempts, the investors still hadn’t shown how they were harmed by an alleged manipulation of futures contract prices on the Chicago Mercantile Exchange.

Tower and the traders have long argued that the investors have no standing to plead claims under the Commodity Exchange Act because they’ve consistently failed to provide a calculation of the damages they’ve suffered. Tower further argued that both it and Boutchard are members of the CME and any claims related to transactions on the exchange are therefore subject to arbitration, and also raised a statute of limitations defense against all claims.

“Any of these arguments has the possibility of terminating the case and triggering an appeal. While class plaintiffs believe they would have prevailed on defendants’ motions to dismiss, it would be just the first of a number of potential hurdles to prevailing on the merits,” Boutchard and Synova said. “In addition, it is uncertain whether Tower’s settlements with the DOJ and CFTC could have limited the amount of damages recovered for the settlement class at trial.”

Boutchard and Synova are seeking to represent everyone who bought or sold e-mini Dow futures contracts, e-mini S&P 500 futures contracts, e-mini Nasdaq 100 futures contracts or related options traded on the CME and the Chicago Board of Trade between March 1, 2012, and Oct. 31, 2014.

Representatives of the parties could not be immediately reached for comment on Monday.

Boutchard and Synova are represented by Vincent Briganti, Raymond P. Girnys, John Seredynski and Christian Levis of Lowey Dannenberg PC and Anthony F. Fata and Brian O’Connell of Cafferty Clobes Meriwether & Sprengel LLP.

Tower Research Capital is represented by David James Doyle of Freeborn & Peters LLP and David S. Lesser and Jamie Dycus of WilmerHale.

The case is Boutchard et al. v. Gandhi et al., case number 1:18-cv-07041, in the U.S. District Court for the Northern District of Illinois.