21-853 Gamma Traders - I LLC v. Merrill Lynch Commodities, Inc.
United States Court of Appeals For the Second Circuit
August Term 2021
Argued: December 6, 2021 Decided: July 20, 2022
No. 21-853
GAMMA TRADERS - I LLC, individually and on behalf of all others similarly situated, VEGA TRADERS LLC, individually and on behalf of all others similarly situated, MICHAEL PATTERSON,
Plaintiffs-Appellants,
ROBERT CHARLES CLASS A, L.P., ROBERT L. TEEL, YURI ALISHAEV, ABRAHAM JEREMIAS, individually and on behalf of all others similarly situated, MORRIS JEREMIAS, individually and on behalf of all others similarly situated,
Consolidated Plaintiffs-Appellants,
v.
MERRILL LYNCH COMMODITIES, INC., BANK OF AMERICA CORPORATION, MORGAN STANLEY & CO. LLC, EDWARD BASES, JOHN PACILIO,
Defendants-Appellees. ∗
Appeal from the United States District Court for the Southern District of New York No. 19-cv-6002, Lewis J. Liman, Judge.
∗ The Clerk of Court is respectfully directed to amend the caption as set forth above. Before: LYNCH, CARNEY, AND SULLIVAN, Circuit Judges.
Plaintiffs-Appellants brought this suit under the Commodity Exchange Act, alleging that the Defendants-Appellees engaged in fraudulent trading tactics – to Plaintiffs’ detriment – in markets for precious metals. The district court (Lewis J. Liman, Judge) 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 argue that they have adequately pleaded that Defendants’ fraud injured them, both because they traded at such high volume that it is plausible that Plaintiffs were executing trades while prices were being artificially manipulated through Defendants’ fraud, and also because records from other investigations show that on at least nine dates, Plaintiffs traded in the same markets that Defendants were manipulating. Because neither of Plaintiffs’ theories, alone or in combination, adequately alleges that Defendants’ trading activities injured them, we affirm the district court’s dismissal of their complaint for failure to plead an injury. We do not reach the question of whether Plaintiffs’ claims are time-barred. We also reject Plaintiffs’ belated and procedurally improper request for another opportunity to amend their complaint.
AFFIRMED.
ERIC F. CITRON, Goldstein & Russell, P.C., Bethesda, MD (Deborah Clark-Weintraub, Max R. Schwartz, Thomas L. Laughlin, IV, Jeffrey P. Jacobson, Scott+Scott Attorneys at Law LLP, New York, NY; Daniel Woofter, Goldstein & Russell, P.C., Bethesda, MD; Vincent Briganti, Margaret MacLean, Lowey Dannenberg, P.C., White Plains, NY, on the briefs), for Plaintiffs-Appellants Gamma Traders - I LLC, et al.
RICHARD F. SCHWED (Adam S. Hakki, on the brief), Shearman & Sterling LLP, New York, NY, for
2 Defendants-Appellees Merrill Lynch Commodities, Inc., and Bank of America Corporation.
Scott D. Musoff, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, for Defendant-Appellee Morgan Stanley & Co. LLC.
David H. McGill, Kobre & Kim LLP, Washington, DC, for Defendant-Appellee John Pacilio.
Evan Cohen, Finn Dixon & Herling LLP, Stamford, CT, for Defendant-Appellee Edward Bases.
RICHARD J. SULLIVAN, Circuit Judge:
Plaintiffs-Appellants Gamma Traders - I LLC; Vega Traders LLC; Robert
Charles Class A, L.P.; and various individuals (collectively, “Gamma”) brought
this suit pursuant to the Commodity Exchange Act (“CEA”), 7 U.S.C. § 1 et seq.,
alleging that they were harmed by the defendants’ manipulation of futures
markets for four precious metals – gold, silver, platinum, and palladium – as well
as the options markets on those futures contracts. The defendants, who previously
admitted to having manipulated prices in those markets, are three corporations –
Merrill Lynch Commodities, Inc.; Bank of America Corporation; Morgan Stanley
& Co. LLC – and two individuals who were employed by the corporate defendants
(collectively, “Defendants”). The district court (Liman, J.) dismissed Gamma’s
complaint as time-barred and, in the alternative, for failing to adequately plead
3 that Defendants’ conduct had actually injured Gamma. Because we agree with the
district court that Gamma has not adequately pleaded that it was “actual[ly]
damage[d]” by Defendants, as required to state a claim under the CEA, 7 U.S.C.
§ 25(a)(1), we affirm the district court’s dismissal of Gamma’s complaint.
I. BACKGROUND
A. Facts
Defendants manipulated the prices for precious metals futures and option
contracts by “spoofing,” a fraudulent practice in which the spoofing traders send
false supply and demand signals to the market by placing orders to buy or sell that
they never intend to execute. For instance, a trader who wishes to sell gold at a
favorable price might place an offer to buy a large quantity of gold at just below
the market price. The spoofing trader does not intend to actually execute this offer
but instead hopes that other traders, who can see the number of orders available
in the market, will respond to the perceived uptick in demand for gold by
temporarily pushing the actual market price higher. At that point, the spoofing
trader can sell gold at an artificially high price. After selling the gold at inflated
prices, the spoofing trader will then cancel her original offer to buy gold before it
can be executed. Conversely, a spoofing trader who wishes to purchase the
4 commodity at a lower price will place a large sell order, which she does not intend
to execute, and when the market price falls in reaction to this perceived movement
toward a sell-off, she can buy at an artificially depressed price. The process may
also be used, as is alleged here, to manipulate the price of commodity futures and
options contracts.
In addition to publicly placing orders she does not intend to execute, a
spoofing trader can also conceal her actual intention – to trade in the direction
opposite her spoofing – by placing “iceberg” orders. J. App’x at 64 ¶ 37. An
iceberg order entails placing a large order but allowing it to become visible to the
market only in incremental portions. Once a portion of the order is filled, another
predetermined portion becomes visible to the market, and so on until the whole
order has been filled. The purpose of this technique is to avoid price movements
that would otherwise result from placing a single, large order. A spoofing trader
can therefore use iceberg orders to avoid sending accurate supply and demand
signals to the market about orders that she does intend to fill. Thus, a trader
wishing to sell a commodity might attempt to spoof the market by placing many
buy orders she does not intend to execute – falsely signaling high demand for the
commodity and thus driving up the price – while simultaneously placing sell
5 orders above market price using the iceberg technique to prevent the downward
pricing pressure that would otherwise be generated by revealing a large sell order
to other traders. 1 Moreover, there is no mechanism that discloses the identity of
traders who have placed orders in the market, so other market participants will
not be able to detect or react to the suspicious trading activity of one trader placing
both buy- and sell-side orders in the same market.
Defendants in this action used these spoofing techniques repeatedly in their
trading activity, for which they have faced criminal and regulatory enforcement
actions that resulted in the imposition of criminal penalties and fines. Specifically,
on June 25, 2019, Defendant-Appellee Merrill Lynch Commodities, Inc. entered
into a non-prosecution agreement with the U.S. Department of Justice and a
settlement with the Commodity Futures Trading Commission (the “CFTC”), in
which it agreed to pay $25 million in fines, restitution, and forfeiture because of its
traders’ spoofing activities, including those of Defendants-Appellees Edward
1 One might wonder why a trader would ever not use an iceberg order to mask the true volume a trader seeks to buy or sell. On many exchanges, including at least one on which the parties traded here, bids are filled using a “first in, first out” system. For instance, if there are ten orders to buy gold at $1,000, the first one placed will be the one filled by the first seller to offer a price of $1,000, while the other would-be buyers must wait. With an iceberg order, only the visible part of the order receives this timing priority; after it is filled, the remainder of the order must wait at the back of the line, as if it had just been placed for the first time. That forfeiture of priority in the timing hierarchy discourages investors from exclusively using iceberg orders. 6 Bases and John Pacilio, who were indicted individually in the Northern District of
Illinois in July 2018. Defendants’ spoofing activities were frequent and
widespread. The cases brought by the Department of Justice and CFTC have
uncovered thousands of instances of spoofing over a period lasting more than four
years and affecting markets for the four precious metals at issue in this case.
Additionally, as these government investigations and prosecutions were
proceeding, private plaintiffs brought suits alleging price-fixing and market
manipulation, including by spoofing, in various metals markets. See, e.g., Third
Amended Complaint at 6, 121, In re London Silver Fixing, Ltd., Antitrust Litig., No.
14-md-2573 (VEC) (S.D.N.Y. June 6, 2017), ECF No. 258.
B. Procedural History
On June 27, 2019, Gamma commenced this action, alleging that Defendants
had spoofed in the futures and options markets for gold, silver, platinum, and
palladium. Gamma sought certification of a class on behalf of all persons who
bought or sold futures contracts, or options on those contracts, in any of the four
metals markets at issue between January 1, 2007, and December 31, 2014. Gamma
alleged four separate causes of action, including: (1) market manipulation in
violation of the CEA; (2) employing a manipulative and deceptive device in
7 violation of the CEA; (3) principal-agent liability under the CEA, to the extent that
any of the Defendants’ agents, representatives, or others acting on their behalf
assisted in the spoofing schemes; and (4) unjust enrichment for profits derived by
Defendants as a result of their spoofing activities. See generally 7 U.S.C. § 1 et seq.
After Defendants filed a motion to dismiss the initial complaint, Gamma
responded by filing an amended complaint, which is now the operative complaint
under review.
The amended complaint maintained the same class period and four claims
for relief. It alleged that “Defendants spoofed the market for precious metals
futures contracts thousands of times throughout the Class Period.” J. App’x at 56
¶ 11. In particular, Gamma relied on information revealed by various government
investigations and prosecutions to allege that between February 4, 2011, and April
17, 2014, there were nine separate dates on which at least one plaintiff traded, and
at least one defendant spoofed in the opposite direction, in the same market. 2 In
other words, on each of those nine dates in question, at least one defendant was
2Gamma states in its briefing that the complaint identified fourteen dates on which at least one Defendant spoofed and at least one plaintiff traded in the opposite direction in the same market, but the relevant portions of the complaint reflect that although Gamma alleges fourteen specific dates when Defendants spoofed, it makes the additional allegation that it traded only on nine, not fourteen, of the dates identified in the complaint.
8 spoofing the price down and a plaintiff was attempting to sell, or a defendant was
spoofing the price up and a plaintiff was attempting to buy.
After Defendants moved to dismiss the amended complaint, the district
court granted their motion in full, finding that Gamma’s claims were time-barred
and, alternatively, that Gamma failed to state a claim because it did not plausibly
allege that it was harmed by Defendants’ spoofing.
The district court held, in relevant part, that Gamma failed to state a claim
because it did not adequately plead damages under the CEA. 3 The court noted
that a party seeking to recover under the CEA must plead – and, ultimately, prove
– that the CEA violations harmed it by causing it to trade at a manipulated price
that redounded to its detriment. See Harry v. Total Gas & Power N. Am., Inc. (Total
Gas), 889 F.3d 104, 112 (2d Cir. 2018). While “[t]he most direct way to plead such
[a] harm is to point to a specific manipulated transaction or set of transactions
between a plaintiff and a defendant with the plaintiff on the (net) losing end and
the defendant on the (net) winning end,” id., the district court recognized that
3Because we affirm on the basis that Gamma did not adequately plead damages under the CEA, we have no need to address the district court’s determination that Gamma’s claims were untimely. 9 pleading this type of privity is not strictly necessary. It nonetheless concluded that
Gamma’s pleadings did not meet the Total Gas standard.
In reaching that conclusion, the district court rejected Gamma’s argument
that a CEA injury could be inferred from the facts that: (1) there were at least nine
days on which Defendants spoofed and Gamma traded on the same day; and
(2) Defendants’ spoofing extended to thousands of manipulated trades. The
district court rejected the first theory of injury because Gamma never pleaded that
it traded after Defendants spoofed on a particular day – and if it traded before the
spoofing activity, there was no basis in the complaint to infer that the spoofing
affected the price at which Gamma traded. Moreover, in the district court’s view,
the complaint provided no basis to infer that Gamma was harmed by Defendants’
spoofing as opposed to having benefited from it.
The district court further concluded that Gamma’s second theory – that
Gamma traded sufficiently actively, and Defendants spoofed sufficiently
frequently, to render plausible the inference that the spoofing affected the price at
which Gamma traded on at least one occasion – was too speculative. According
to the district court, the relative magnitude of the thousands of trades alleged by
Gamma dwindled when placed in the context of an eight-year class period
10 involving four different futures markets and four additional corresponding
options markets. The district court concluded that “[a]bsent either a far greater
volume of trading or some additional facts pleaded,” it was merely speculative –
as opposed to plausible – that Defendants’ spoofing activities had a negative effect
on Gamma. J. App’x at 163.4
Gamma timely appealed.
II. DISCUSSION
We review de novo the dismissal of a complaint for failure to state a claim.
Deutsche Bank Nat’l Tr. Co. v. Quicken Loans Inc., 810 F.3d 861, 865 (2d Cir. 2015). In
assessing a motion to dismiss, we “accept[] all factual allegations in the complaint
as true[] and draw[] all reasonable inferences in the plaintiff’s favor.” Shomo v.
City of New York, 579 F.3d 176, 183 (2d Cir. 2009) (citation omitted). Because we
hold that Gamma did not adequately plead that Defendants’ spoofing injured it,
we do not reach the question of whether its claims are timely.
A. Failure to Plead Damages
Because the CEA ultimately makes offending parties “liable for actual
damages,” 7 U.S.C. § 25(a)(1), CEA plaintiffs must establish that they were
4The district court also dismissed Gamma’s state-law unjust enrichment claim, but because Gamma does not challenge that dismissal on appeal, we do not pass on it here. 11 personally harmed by the defendant’s fraudulent trading activity, see Total Gas,
889 F.3d at 109–10. Thus, to state a claim for relief under the CEA, a plaintiff must
plausibly plead that the defendant “t[ook] an action that had an impact on the
[plaintiff’s] position,” and that “that impact [was] negative.” Id. at 112. While the
most direct way to plead such an injury is to allege privity (i.e., that the defendant
directly traded with the plaintiff while manipulating the market price), other
factual allegations that give rise to an inference of harm can also be sufficient. See
id. For instance, “should a plaintiff plead that she traded and lost money . . .
during a bout of defendant’s alleged market manipulation in the same contract
type in the same exchange for delivery at [the] same time and place, her pleading
of injury is likely to be nearly as good as if she had pled privity.” Id. (footnote
omitted).
Gamma argues that it would be appropriate to infer that Defendants’
conduct harmed Gamma because: (1) the parties engaged in such a high volume
of trading that it is at least plausible (if not probable) that Defendants’ spoofing
influenced the price at which Gamma bought and sold futures and options
contracts on at least one occasion; and (2) on nine specific dates, Defendants
spoofed and Gamma took positions opposite the Defendants’ in the same markets
12 at some point on each of those days. Neither of Gamma’s theories, either alone or
in combination, is sufficient to support a reasonable inference that Defendants’
spoofing conduct injured it.
1. The Parties’ High Trading Volume
Gamma contends that since Defendants spoofed thousands of times, and
Gamma made thousands of trades, it is implausible as a matter of sheer
probabilities that Defendants’ spoofing activities never once affected the price at
which Gamma traded. This type of pleading based on rote probabilities is hardly
novel, but it is generally disfavored. For example, the Supreme Court has
disparaged this approach to pleading Article III injury in fact, see Summers v. Earth
Island Inst., 555 U.S. 488, 498–99 (2009), and we have explained that, though the
analyses are similar, pleading CEA injury is more demanding than pleading an
Article III injury, see Total Gas, 889 F.3d at 111–12.
A plaintiff cannot simply plead that out of one million trades, there might
be at least one in which he came out on the losing end of a spoof. Yet Gamma
follows precisely that approach, alleging conclusorily that there must have been at
least one trade – though it has no idea which one or when it may have occurred –
in which it came out on the net losing end of Defendants’ market manipulation.
13 In other words, Gamma’s pleadings are far indeed from those that “point to a
specific manipulated transaction or set of transactions . . . with the plaintiff on the
(net) losing end and the defendant on the (net) winning end.” Total Gas, 889 F.3d
at 112 (emphasis added).
The standard of review requires us to draw all reasonable inferences in
Gamma’s favor, see Shomo, 579 F.3d at 183, but the inference that Gamma urges us
to draw is unreasonable. If allegations such as Gamma’s were enough to state a
claim, then any person who traded with even modest frequency could state a CEA
claim against a market-manipulating defendant, without ever plausibly alleging
that she suffered a loss as a result of the defendant’s conduct. This is exactly the
type of “citizens’ arrest[] for commodities fraud” that we have held is
impermissible. Total Gas, 889 F.3d at 110. Put differently, even if there were a
99.9% probability that any given trade was free of fraudulent influence, after
enough trades, it could be argued as a mathematical matter that the frequent trader
will have bought or sold at a spoof-influenced price simply because the volume of
trades is sufficiently large. Gamma’s view implies that even these probabilistic
allegations are enough to plead a plausible claim to relief. The contention that
such meager allegations – which do not even exclude the possibility that the net
14 effect of the defendant’s spoofing was beneficial for the plaintiff – are sufficient to
plead a CEA claim cannot be squared with the CEA’s requirement of proving
“actual damages,” 7 U.S.C. § 25(a)(1), or our admonition in Total Gas that CEA
plaintiffs may recover only upon “establish[ing] that they themselves have been
harmed by Defendants’ activities,” 889 F.3d at 110.
Gamma cites no authority to support its statistical-probability style of
pleading, instead relying solely on Total Gas’s recitation that a CEA plaintiff must
plead only that “at least one” trade was negatively affected by a defendant.
Gamma’s Br. at 24 (quoting 889 F.3d at 112) (emphasis omitted). But that analysis
from Total Gas indicates only that pleading damages from one fraudulent trade, as
opposed to some larger number of trades, is sufficient to state a claim. It says
nothing about the method of pleading damages from that trade or whether
damages can be inferred based on statistical probabilities across a large set of
trades.
Gamma’s reliance on antitrust cases is also misplaced, since price-fixing
behavior – unlike spoofing – results in harms to all market participants, without
the possibility of some market participants inadvertently benefitting from the
illegal conduct. Cf. New York v. Hendrickson Bros., Inc., 840 F.2d 1065, 1075–77 (2d
15 Cir. 1988) (explaining that the evidence amply demonstrated that the State was
injured by a collusive bid-rigging scheme). Here, by contrast, it is not at all clear
whether – even assuming that Gamma was affected by Defendants’ spoofing
scheme – Gamma incurred a net loss or a net benefit from it. Our antitrust law is
therefore inapposite in this context, since a price-fixing conspiracy aims to
consistently push the market price in a single direction, whereas Gamma alleges
that spoofing can artificially move the market in either direction, and yesterday’s
market sellers can become tomorrow’s market buyers. See Total Gas, 889 F.3d at
113 (A CEA plaintiff who does not allege privity “will have to plead additional
facts to make it plausible that the impact on her was harmful rather than neutral
or beneficial.”).
Finally, even if we were to indulge Gamma’s statistical-probability
approach to pleading, it would fail on its own terms. Gamma alleges that it traded
thousands of times and Defendants spoofed thousands of times during the class
period. But as Gamma acknowledges, “[c]ommodities and futures exchanges are
busy places” and “[m]any transactions occur every minute and even every
second.” Gamma’s Br. at 4. Given the enormous trading volume during the eight-
year class period in these highly liquid markets, Gamma’s trades and Defendants’
16 spoofs represented a tiny share of the overall activity in these markets over the
class period. Thus, Gamma’s allegations do not make it plausible – rather than
merely speculative – that Gamma’s own trades interacted with Defendants’
transactions to Gamma’s detriment. See Ashcroft v. Iqbal, 556 U.S. 662, 678–79
(2009).
2. Nine Specific Instances of Spoofing
Gamma alternatively argues that damages may be inferred from the
existence of nine occasions when it traded on the same day that Defendants
spoofed and it took a market position opposite the Defendants’ spoofing. But
Gamma does not plead, even in general terms, how long it takes for the market
price to return to a non-artificial level after a spoof. As the district court pointed
out, if Gamma traded before Defendants spoofed, the spoofing could not have
affected the price at which Gamma traded. And even if we were to assume that
Gamma traded after the spoofs on one or more of these days – which is nowhere
alleged – the complaint provides no factual basis that would justify an inference
that the market price was still artificial by the time Gamma traded. In the absence
of such factual allegations, we cannot reasonably infer that spoofing’s effects last
throughout the day. Even pleading same-day, post-spoof trades does not justify
17 an inference of injury without any factual allegations to support the inference that
the effects of the spoof linger for the remainder of the trading day. See Total Gas,
889 F.3d at 112 n.3 (“A plaintiff and defendant need not have been trading
simultaneously so long as a plaintiff pleads facts indicating that the defendant’s
actions caused price artificiality during the time in which plaintiff was trading.”).
Gamma argues in its reply brief that the effects of a spoof and the duration
of the resulting market distortions are pure questions of fact that cannot be
resolved on a motion to dismiss. The first assertion is true enough – the effects of
spoofing pose questions of fact. But federal pleading standards require Gamma –
as plaintiff – to allege some facts that support an inference of actual injury. See Iqbal,
556 U.S. at 678–79. All Gamma pleads is that “Defendants’ manipulation of the
markets for precious metals futures contracts caused prices to be artificial
throughout the Class Period.” J. App’x at 69 ¶ 46. But this is precisely the sort of
“mere[ly] conclusory statement[]” that we need not credit, even on a motion to
dismiss. Iqbal, 556 U.S. at 678. 5 And while Gamma’s appellate briefs refer to
5 As the district court pointed out, Gamma’s allegations, spanning an eight-year class period covering four different markets, reflect an average of one spoof every few days. Absent some factual allegations supporting Gamma’s contention that spoofs representing such a small share of overall market activity during this extended period nevertheless could have had a continuous effect on the price in every market at issue for eight years, Gamma’s threadbare allegations do not state a claim for damages attributable to Defendants’ spoofing activity. 18 various economic reports it claims indicate that spoofing may have continuing
effects, the law is clear “that a party may not amend pleadings through a brief.”
Kleinman v. Elan Corp., plc, 706 F.3d 145, 153 (2d Cir. 2013). Gamma is limited to
factual contentions it alleged in its operative complaint.
Even without a factual pleading about how long the effects of spoofing last,
Gamma might still be able to state a claim if it pleaded that its trades occurred so
close in time to Defendants’ spoofing as to permit us to infer as a matter of common
sense that the market prices were artificial when Gamma traded. See Irrera v.
Humpherys, 859 F.3d 196, 198 (2d Cir. 2017) (explaining that “[j]udges . . . rely on
their ‘experience and common sense[]’” in “draw[ing] the line between speculative
allegations and those of sufficient plausibility to survive a motion to dismiss”)
(quoting Iqbal, 556 U.S. at 679); see also Total Gas, 889 F.3d at 112 n.3. But Gamma
comes nowhere close to making such allegations here, since it never actually
alleges when its own trades took place. To the contrary, while Gamma pleads with
specificity when some of Defendants’ spoofing occurred – based on information
made available from government investigations and criminal complaints –
19 Gamma concedes that it no longer has ready access to records indicating the time
of its own trades.6
Gamma urges that discovery is the remedy for this problem, and that the
district court wrongly inferred that the trades on these nine particular days
occurred before the spoofing episodes. But before proceeding to discovery, it is
the plaintiff’s burden “to provide facts sufficient to allege a plausible connection
between their trading and [Defendants’ spoofing],” Total Gas, 889 F.3d at 114, and
that they were harmed as a result of Defendants’ spoofing. Without pleading how
long the effects of spoofing last, or that the trades happened so close in time to the
spoofing episodes that we may reasonably infer price artificiality affecting
Gamma’s trading, Gamma has failed to state a claim for relief.
* * *
6 Although brokers must maintain records of their clients’ trades that are time-stamped to the nearest minute, brokers are required to keep this information for only five years. See 17 C.F.R. § 1.31(b). Gamma did not seek its own trading records during that time period because, it claims, it was unaware of its potential injury until after its brokers’ duties to maintain the records had ended. But Gamma does not cite any authority suggesting that the fact that the passage of time has rendered it more difficult for Gamma to access these records entitles it to lower pleading standards. Nor has Gamma pleaded any facts to suggest that its brokers were involved in the spoofing scheme or were otherwise complicit in Defendants’ fraud, such that we might consider whether the brokers’ possible failure to maintain records would warrant an inference at this stage somewhat akin to an adverse-inference jury instruction. Cf. Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002) (discussing standards for an adverse-inference jury instruction). 20 Finally, Gamma repeatedly asserts that the district court erred by not
considering its two theories of damages “together.” Gamma argues that its
allegations are stronger when considered together because the government
identified only thirty specific dates on which Defendants spoofed, and at least one
plaintiff traded at least once in the same market on nine of those thirty dates. In
Gamma’s view, this substantial “hit rate” suggests that the parties engaged in
same-day trading on far more occasions in the full universe of Defendants’
spoofing activity, increasing the likelihood that Gamma was injured on at least one
occasion. Gamma’s Reply Br. at 29.
It is true that we determine whether a complaint states a claim based on “‘all
of the facts alleged, taken collectively,’ not whether an inference [of liability] is
permissible based on ‘any individual allegation, scrutinized in isolation.’”
Kaplan v. Lebanese Canadian Bank, SAL, 999 F.3d 842, 854 (2d Cir. 2021) (quoting
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 323 (2007)). Gamma’s
argument is ultimately unpersuasive, however, because it does not overcome the
deficiencies in its approach to pleading already discussed. Fundamentally,
Gamma’s “hit rate” theory relies on the same type of probabilistic allegations as
its argument based on the sheer number of trades. But Gamma’s hit rate does not
21 support a reasonable inference that it must have traded in close proximity to
Defendants’ spoofing – particularly given Gamma’s failure to allege any facts to
support its theory about the length of time that spoofing affects the market or the
timing of any of its trades in relation to the spoofs. Considering Gamma’s
damages theories “together” therefore is not enough to salvage its claim.
Because Gamma’s allegations as a whole fail to plausibly plead that
Defendants’ conduct damaged Gamma, and because pleading damages is an
element of each of the three claims Gamma presses on appeal, we affirm the
district court’s judgment dismissing the complaint in its entirety.
B. Leave to Amend
At oral argument, Gamma requested for the first time leave to amend its
complaint in the event that we determined that it had failed to plead damages. We
would typically review a district court’s denial of leave to amend for abuse of
discretion. See, e.g., Feinman v. Dean Witter Reynolds, Inc., 84 F.3d 539, 542 (2d Cir.
1996)). But a district court cannot be said to err by “not permitting an amendment
that was never requested.” Horoshko v. Citibank, N.A., 373 F.3d 248, 250 (2d Cir.
2004); see also City of Harper Woods Empls.’ Ret. Sys. v. Olver, 589 F.3d 1292, 1304
(D.C. Cir. 2009) (“When a plaintiff fails to seek leave from the [d]istrict [c]ourt to
22 amend its complaint, either before or after its complaint is dismissed, it forfeits the
right to seek leave to amend on appeal.”).
Counsel for Gamma suggested at oral argument that its failure to seek leave
to amend before the district court should be excused in light of the district court’s
principal holding that the complaint was untimely – a holding that would have
made any request to amend with respect to damages futile. This rationale is
unpersuasive. Gamma would have been equally permitted to amend its complaint
to strengthen its case for timeliness – by, for instance, pleading more specifically
that it had acted with reasonable diligence in pursuing its claims, such that
equitable tolling is available, see Koch v. Christie’s Int’l PLC, 699 F.3d 141, 157 (2d
Cir. 2012) – so the district court’s timeliness holding did not necessarily render a
request for amendment futile.
Furthermore, the parties were aware that the district court’s rulings as to
timeliness and damages were independent of each other. See, e.g., Gamma’s Br. at
36. As a result, it was Gamma’s burden to anticipate that we might reach only one
of them. If Gamma had additional factual allegations to bolster its theory as to
damages, it should have requested the opportunity to amend its complaint to
strengthen its argument in the event that a future appellate panel reversed or did
23 not reach the district court’s timeliness holding. Instead, Gamma’s request for
leave to amend came in rebuttal at oral argument on appeal – far too late for us to
consider it. See Horoshko, 373 F.3d at 250; City of Harper Woods Empls.’ Retirement
Sys., 589 F.3d at 1304.
III. CONCLUSION
The CEA does not deputize traders to rove the commodities markets
hunting for bad behavior. Rather, it makes fraudsters “liable for actual damages.”
7 U.S.C. § 25(a)(1). Here, Gamma 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, see id., and our
caselaw, see Total Gas, 889 F.3d 104. And although Gamma also contends that
Defendants occasionally spoofed in particular markets on the same day that
Gamma took opposite positions in those very markets, these allegations do not
support an inference of damages since Gamma does not allege facts regarding
precisely when its trades took place or the duration of a spoof’s effects on the
24 market price. Accordingly, we AFFIRM the district court’s judgment dismissing
this action.