In this case, Plaintiffs alleged that TD Ameritrade Futures & Forex LLC (TDAFF) engaged in fraud and acted in a recklessly and commercially unreasonable manner by liquidating putative class members’ deep out-of-the-money short put options on the E-mini S&P500® futures contract during the evening trading session on February 5, 2018. Compass Lexecon Senior Affiliate Dr. Christopher Culp testified that Plaintiffs’ experts failed to substantiate their opinions (i) that the evening trading session on that particular day was “riskier” than the afternoon trading session, or (ii) that TDAFF’s decision to liquidate certain customers’ positions during the evening trading was commercially unreasonable. On December 17, 2018, Hon. Cecilia M. Altonaga of the U.S. District Court in the Southern District of Florida denied Plaintiffs’ motion for the certification of the proposed class.
Specifically, on the afternoon of February 5th and the morning of February 6th, the S&P500® and CME Group’s E-mini S&P500® futures experienced unprecedented price declines, which resulted in extreme price volatility. As a result, customers who traded on their own behalf experienced losses on short put options in those contracts. In its capacity as a futures commission merchant, TDAFF was obliged to guarantee the payment obligations of its customers. As such, when mark-to-market losses on certain of its customers’ short put option positions began to exceed customers’ margin on deposit and account equity balances, TDAFF liquidated those customers’ open positions.
Plaintiffs proposed a class of TDAFF customers whose short S&P500® E-mini put options were liquidated specifically in the evening trading session, which Plaintiffs and their experts contended was inherently riskier and less liquid than the CME’s regular daytime trading hours. Dr. Culp submitted a detailed empirical report and testified that the Plaintiffs’ experts erred in their analyses and/or provided inadequate (or no) substantive support for their opinions. Dr. Culp testified that, contrary to the allegations of Plaintiffs and their experts, volume was lower and bid-ask spreads were higher for many put options during the regular afternoon trading session on February 5th vis-à-vis the evening session.
Dr. Culp further opined that Plaintiffs’ experts never addressed the numerous issues pertaining to individualized inquiries that would be required for class certification. Judge Altonaga agreed and concluded that “[i]ndividual issues predominate over common issues” and that “class action treatment is not a superior method for adjudication of this controversy” and denied Plaintiffs’ motion for class certification.
Dr. Culp was supported by a Chicago- and Washington, DC-based Compass Lexecon team led by Senior Managing Director Adel Turki and Compass Lexecon Affiliate Andrea Neves. The team also included Mihir Gokhale, Joseph Goodman, Donald Hong, Andria van der Merwe, Bettina Stärkle, Elizabeth Wall and Laura Yergesheva. Dr. Culp and Compass Lexecon were engaged by Richard Morvillo and Robert Stern in the Washington, DC, office of Orrick, Herrington & Sutcliffe LLP on behalf of TDAFF.