Edmar Fin. Co. v. Currenex, Inc.

1

EDMAR FINANCIAL COMPANY, LLC, et al., Plaintiffs, v. CURRENEX, INC., et al., Defendants.

No. 21-cv-6598 (LAK)

United States District Court, S.D. New York

May 18, 2023

Daniel L. Brockett Christopher M. Seek Quumn Emanuel Urquhart &amp Sullivan, LLP (NYC) Jeremy D. Andersen Quinn Emanuel Urquhart & Sullivan, LLP (Los Angeles) Mark Ruddy Ruddy Gregory PLLC Attorneys for Plaintiffs

Peter G. Wilson Christian T. Kemmtz Elliott M. Bacon Hannah O Koesterer Katten Muchin Rosenman LLP Attorneys for Defendant HC Technologies, LLC

Carmine D. Boccuzzi Jr. Rishi N. Zutshi Cleary Gottlieb Steen & Hamilton LLP Attorneys for Defendant Goldman Sachs & Co. LLC

Gregg L. Werner Alexander B. Simkin Ropes & Gray LLP (NYC) Robert G. Jones Ropes & Gray LLP (Boston) Samer Musallam Ropes & Gray LLP (Washington D.C.) Attorneys for Defendants Currenex, Inc., State Street Bank and Trust Company, and State Street Global Markets International Limited.

OPINION

LEWIS A. Kaplan, District Judge.

Table of Contents

Background...................................................................I

I. Foreign Exchange Trading and Limit Order Books........................2

A. Matching Engines and Tiebreaking Rules.........................4

B. Confidentiality of User Transaction Information....................5

II. Currenex and State Street's Public Representations Regarding the Platform .... 6

III. Currrenex Allegedly Gave Secret Privileges to Certain Liquidity Providers on the Platform..........................................................8

Discussion...................................................................11

I. Fraud Claims Against Currenex and State Street.........................13

A. False Statements and Actionable Omissions......................13

1. Express Misrepresentations.............................13

2. Omission of Material Facts..............................16

B. Reasonable Reliance.........................................19

C. Out-of-Pocket Losses........................................21

II. Conspiracy to Defraud and Aiding and Abetting Fraud....................23

III. Antitrust Claims..................................................26

A. Per Se Antitrust Violation.....................................26

B. Rule of Reason Violation.....................................28

1. The Relevant Market...................................29

2. Antitrust Injury.......................................30

IV. RICO Claims....................................................33

A. Association-in-Fact Enterprises................................34

B. Pattern of Mail or Wire Fraud..................................36

C. RICO Conspiracy...........................................39

V. Breach of Implied Covenant of Good Faith and Fair Dealing...............40

VI. Tortious Interference with Contract...................................42

VII. Tortious Interference with Prospective Economic Advantage...............43

VIII. NY. General Business Law § 349 Claims..............................44

IX. Unjust Enrichment Claims..........................................48

X. Statute of Limitations and Equitable Tolling............................51

XI. Personal Jurisdiction...............................................54

XII. ForumNon Conveniens............................................58

Conclusion..................................................................61 This putative class action involves a widely used foreign exchange trading platform operated by Currenex, Inc. ("Currenex").^[1] Defendant Currenex is accused of conspiring with a narrow subset of participants on the trading platform - Goldman, Sachs & Co. LLC ("Goldman Sachs"), HC Technologies, LLC ("HC Tech"), State Street Bank and Trust Company ("State Street"), and unidentified Doe Defendants (collectively, the "Trading Defendants") - to provide them with secret privileges that enabled them to "rig" auctions for foreign exchange transactions.^[2]

All defendants move to dismiss for lack of subject-matter jurisdiction and failure to state a claim. (Dkt 53) Certain defendants move also to dismiss as to them on the ground of improper venue and for lack of personal jurisdiction. (Dkt 56) For the following reasons, defendants' motions each are granted in part and denied in part.

Background

Currenex operates a foreign exchange ("FX") trading platform where banks, corporations, hedge funds, investors, and other traders from around the world engage in FX transactions (the "Platform"). Plaintiffs - all of whom "traded on, provided liquidity for, or otherwise attempted to transact FX spot trades" on the Platform during the relevant period - bring claims under the Sherman Act and the Racketeer Influenced and Corrupt Organizations Act ("RICO Act").^[3] They sue as well on state law claims for fraud, unjust enrichment, tortious interference, and breach of the implied covenant of good faith and fair dealing.

The following facts are alleged in the amended complaint, the truth of which are assumed when considering a motion to dismiss the amended complaint,^[4]

I. Foreign Exchange Trading and Limit Order Books

In order to understand the claims in this case, it is helpful first to provide some background information on FX trading and "limit order book" systems, like the Platform.

FX trading involves an exchange of one country's currency for that of another.^[5]Currencies are traded in pairs, with the Euro/U.S. dollar ("EUR/USD"), U.S. dollar/Japanese Yen ("USD/JPY"), and British pound/U.S. dollar ("GBP/USD") constituting the most commonly traded currency pairs.^[6] The value of currency pairs generally are quoted to three or five decimal places.^[7]For instance, the EUR/USD rate could be 1.09925, which would mean that one Euro is worth 1,09925 U.S. dollars. Thus, if the value of the Euro increases relative to the value of the U.S. dollar, then the value of EUR/USD increases and vice versa.

FX transactions usually are executed over-the-counter ("OTC"), meaning a customer must use a dealer to execute the trade. The dealers traditionally have been known as the "sell-side" of the transaction because they "sell" liquidity - i.e., they "sell" the ability to transact by being willing to deal. The customers, whether buying or selling currency, traditionally have been known as the "buy-side" because they take (or "buy") liquidity. The sell-side/buy-side terminology often is used regardless of whether the party is buying or selling a given currency.^[8]

The Platform is a "limit order book" system, which is an electronic alternative to OTC trading on which every Platform user can choose to be on the sell-side (i.e., supplying liquidity) or on the buy-side (i.e., taking liquidity).^[9] On limit order book platforms, users can act on the sell-side by posting a "limit order," which indicates to other platform users a "bid" price (the price at which they are willing to buy) or an "ask" price (the price at which they are willing to sell). Thus, a limit order book is a centralized record of outstanding limit orders maintained by the exchange. Limit orders remain on the limit order book until executed or cancelled. Users can act also on the buy-side by submitting a "market order" - i.e., an order indicating the quantity they want to buy or sell at the best available price currently offered on the Platform. Market orders are matched with the limit orders in the book, creating an executed trade.^[10]

A. Matching Engines and Tiebreaking Rules

The "matching engine" is the mechanism by which market orders are matched with limit orders in the book. Thus, the rules that govern the matching engine determine the "rules of the 'auction.'"^[11] Plaintiffs claim it is industry practice to disclose those rules so that "all auction participants have an equal understanding of what rules govern, so they can make informed decisions about whether to participate and what strategies to adopt to compete for business on the platform."^[12]Accordingly, the matching engine is an important feature of FX trading platforms like the Currenex Platform.^[13]

The rules governing what to do in the event of a "tie" - i.e., what to do if two platform users submit the same bid price or ask price - are particularly important. An FX marketplace can have multiple tiebreaking rules to determine whose bid or offer should be executed first, such that if one rule fails to resolve a tie, the matching engine can go on to the next tiebreaking rule, and so on, until the tie is broken.^[14]

By far the most common tiebreaking rule is referred to as "first in, first out" or "FIFO."^[15] Under a FIFO system, the record of outstanding limit orders first is sorted based on price, such that the best-priced limit orders are placed at the front of the queue with the best bid and ask prices referred to as the top of book "quotes." Then, if two limit orders have an identical price, the earlier submitted order will receive priority in the queue.^[16]

Another common tiebreaking rule prioritizes "firm orders" over limit orders that are subject to "last look" functionality, which gives liquidity providers the right to accept or reject a trade at a particular price after being matched with a market order.^[17] "Last look" functionality acts as a risk control for liquidity providers, protecting them, for instance, from entering into a transaction at a "stale" price or a price that breaches its credit line availability.^[18]

B. Confidentiality of User Transaction Information

In a limit order book system, like the Currenex Platform, the identity of buy-side and sell-side counterparties typically are kept anonymous unless the counterparties have agreed on a disclosed relationship.^[19] While platform users can see the outstanding limit orders...