Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Platinum Partners Value Arbitrage Fund v. Chicago Board Options Exchange

Court of Appeals of Illinois, First District, Fourth Division

March 29, 2018

PLATINUM PARTNERS VALUE ARBITRAGE FUND, LIMITED PARTNERSHIP, and PLATINUM PARTNERS LIQUID OPPORTUNITY FUND, LIMITED PARTNERSHIP, Plaintiffs-Appellants,
v.
CHICAGO BOARD OPTIONS EXCHANGE and OPTIONS CLEARING CORPORATION, Defendants Options Clearing Corporation, Defendant-Appellee.

         Appeal from the Circuit Court of Cook County No. 10 CH 54472 The Honorable Michael T. Mullen, Judge, presiding.

          JUSTICE GORDON delivered the judgment of the court, with opinion. Presiding Justice Burke and Justice McBride concurred in the judgment and opinion.

          OPINION

          GORDON, JUSTICE

         ¶ 1 In the case at bar, the trial court denied a motion for summary judgment by defendant Chicago Board Options Exchange (CBOE) but granted summary judgment for defendant Options Clearing Corporation (OCC). Although this suit continues below, we have jurisdiction to hear this appeal, since the trial court entered a finding pursuant to Illinois Supreme Court Rule 304(a) (Ill. S.Ct. R. 304(a) (eff. March 8, 2016)) that there was no just reason to delay the appeal of the summary judgment granted in favor of defendant OCC.

         ¶ 2 This court previously reviewed this same case, when the trial court previously dismissed it on the ground that defendants were shielded from suit under the doctrine of regulatory immunity. Platinum Partners Value Arbitrage Fund, Ltd. Partnership v. Chicago Board Options Exchange, 2012 IL App (1st) 112903, ¶ 2. This court reversed the trial court's dismissal, stating: "Where defendants privately disclose information about the price adjustment of a stock option to selected market participants before that information is made publicly available, the doctrine of regulatory immunity does not apply." Platinum Partners, 2012 IL App (1st) 112903, ¶ 2.

         ¶ 3 In addition, we found that the trial court had erred in dismissing plaintiffs' complaint pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2010)), because the complaint had stated multiple causes of action. Platinum Partners, 2012 IL App (1st) 112903, ¶ 30. This court found that plaintiffs had sufficiently pled a cause of action against both defendants with respect to all of their claims: (1) violation of the antifraud provision in section 12(F) of the Illinois Securities Law of 1953 (815 ILCS 5/12(F) (West 2002)); (2) violation of the antifraud provision in section 12(I) of the Illinois Securities Law of 1953 (815 ILCS 5/12(I) (West 2002)); (3) violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/10a(a) (West 2002)); and (4) common law fraud. Platinum Partners, 2012 IL App (1st) 112903, ¶¶ 21, 26-29.

         ¶ 4 After this court remanded the case to the trial court, the trial court subsequently granted summary judgment to defendant OCC on the sole ground of regulatory immunity. The trial court stated that it "need not reach the merits of Plaintiffs' claims against OCC. Instead of determining whether Plaintiffs have proven their causes of action, this Court instead holds that the doctrine of regulatory immunity precludes liability for any cause of actions based on OCC's activities." Platinum Partners Value Arbitrage Fund v. Chicago Board Options Exchange, Inc., No. 10-CH-54472 (Cir. Ct. Cook County Dec. 20, 2016).

         ¶ 5 On appeal, plaintiffs claim that the trial court disregarded this court's prior opinion in this case and erred in finding that defendant OCC's conduct in this case was entitled to regulatory immunity. For the following reasons, we reverse and remand for further proceedings.

         ¶ 6 BACKGROUND

         ¶ 7 I. Undisputed Facts and Our Prior Opinion

         ¶ 8 The following facts are not in dispute. Plaintiffs are Cayman Islands investment funds. Plaintiffs invested in options for shares of the India Fund, Inc. (IFN), a fund that invests in the stock of companies located in India. IFN options were traded by defendant CBOE, and defendant OCC cleared and settled the trades. At issue in the case at bar is plaintiff's investment in "put" options that gave it the right to "put" or sell IFN shares to an option seller at a predetermined price, called the "strike price." The value of the option depended on how much more the strike price was than the regular price of IFN shares.

         ¶ 9 On Friday, December 17, 2010, plaintiff held approximately 25, 000 IFN options. After the market closed on December 17, 2010, IFN announced a capital gains distribution to its shareholders of $3.78 per share. The rules of defendants CBOE and OCC permit an adjustment to the strike price of options to account for such a distribution. To account for the negative impact that a distribution of a corporation's assets generally has on the value of its stock, an option's strike price may be adjusted downward. Defendant OCC's published guidelines state that adjustments are made on a "case by case basis."

         ¶ 10 On Monday, December 20, 2010, plaintiff purchased more than 50, 000 additional put options for IFN stock. During the afternoon of December 20, 2010, defendants CBOE and OCC publicly announced a downward adjustment of $3.78 to the strike price of IFN options, resulting in a loss to plaintiffs. The events preceding this public announcement are the subject of this lawsuit.

         ¶ 11 In essence, defendant argues on appeal primarily that plaintiffs should have known that the strike price would be adjusted and that other investors already knew, while plaintiffs argue that, although an adjustment was permitted, it was not required, and that defendant OCC privately disseminated news of the adjustment to a few investors prior to the public announcement. Thus, defendant points to documents suggesting that plaintiffs should have known, while plaintiffs point to documents showing that defendant privately disseminated information.

         ¶ 12 However, as we discuss below, [1] whether or not plaintiffs should have known has no impact on the question of whether defendant's acts, if any, of private dissemination are entitled to regulatory immunity. What plaintiff knew or should have known could possibly affect questions concerning damages or causation or other elements but it does not affect the threshold question of whether there were private acts of dissemination and, if there were, whether these acts were entitled to regulatory immunity. As a result, we describe below the evidence relating to these threshhold questions, which were the only questions on which the trial court ruled. The trial court stated explicitly that it did not reach the merits of plaintiffs' causes of action and that it ruled for defendant OCC solely on the ground that its acts were shielded by regulatory immunity. Platinum Partners, No. 10-CH-54472.

         ¶ 13 The question of whether plaintiffs knew or should have known, or should have been able to predict, the upcoming price adjustment is a question of fact that may be material to the issue of damages or causation or possibly other elements of plaintiffs' claims, but it is unrelated to (1) the factual question of whether defendant OCC privately disseminated information and (2) the solely legal question of whether private disseminations, if any, are protected by regulatory immunity. This court already answered the second, purely legal question in our last opinion: private disseminations are not protected by regulatory immunity. Platinum Partners, 2012 IL App (1st) 112903, ¶ 2 ("Where defendants privately disclose information about the price adjustment of a stock option to selected market participants before that information is made publicly available, the doctrine of regulatory immunity does not apply."). Thus, the only question left in this case with respect to regulatory immunity is the first, factual question of whether private dissemination occurred.

         ¶ 14 II. Evidence Concerning Private Dissemination

         ¶ 15 The subjects of this suit are statements made by employees of defendant OCC during private telephone calls or emails with investors other than plaintiffs. These employees included both members of defendant OCC's help desk and its national operations group. The national operations group administers the options adjustment process. In December 2010, when the relevant events occurred, John Peplinski was the vice president of the national operations group, and Kenneth Rypel was a director of corporate actions who reported to Peplinski. The help desk provides information about the trading of options and about defendant OCC's bylaws and adjustment rules. In December 2010, defendant OCC's website listed a toll-free number and an email address for its help desk.

         ¶ 16 Prior to IFN's announcement on Friday, December 17, 2010, of a capital gains distribution, employees of both the help desk and the national operations group gave varying answers to investors who contacted them, including that, if IFN announced a capital gains distribution, defendant OCC would "probably" adjust the stock price. There is no dispute about this fact on this appeal.

         ¶ 17 However, on Monday, December 20, 2010, after IFN announced its capital gains distribution but before defendant OCC's public announcement of a strike price adjustment, the help desk and national operations employees indicated in various private conversations with investors that defendant OCC was going to adjust the strike price, stating that the adjustment was expected or anticipated or simply, flat out, that "there will be an adjustment." Again, there is no dispute about this fact on this appeal, and we provide detailed examples below.

         ¶ 18 A. Help Desk

         ¶ 19 Disclosures made by the help desk after IFN's announcement on December 17 but before defendant's announcement on December 20 included the following.

         ¶ 20 An audio recording produced by defendant OCC showed that at 7:57 a.m. on December 20, 2010, a caller[2] to the help desk spoke with Jeffrey Huddleston, a help desk employee.[3] The caller stated that he was looking at IFN and wondered whether there was going to be an adjustment. Huddleston stated that his "guess is probably yes, " but he would "see if [he] can get a confirmation." Huddleston then put the caller on hold and contacted Marla Turner in national operations, who confirmed that there would be an adjustment but she did not know whether it would be announced that day or the next. Huddleston returned to the caller and stated that, while they were not certain whether the announcement would be made that day, "there will be an adjustment." The caller then asked: "So the memo is either gonna go out today or tomorrow; but for sure, there's gonna be an adjustment?" To which, Huddleston replied: "Correct."

         ¶ 21 Another audio recording produced by defendant OCC shows that another caller contacted the help desk at 8:19 a.m. on December 20, 2010, and spoke with Huddleston. The caller asked about IFN and Huddleston immediately replied that "there will be an adjustment" and "we hope to have a memo out either today or tomorrow." Then the caller asked: "You knew that right off the bat. Have you been getting a lot of calls on it?" Huddleston replied, "Yes, we have." The two then had the following conversation:

"CALLER: Okay. But when-let me ask you a question. When you say, 'It's my understanding, ' I'm assuming you spoke to-
HUDDLESTON: To our operations area.
CALLER: And they said. This will be adjusted.
HUDDLESTON: You know what-
CALLER: They anticipate it to be adjusted.
HUDDLESTON: Let's put the-let's use the word ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.