Posted: January 22, 2019

The VIX is Fixed?! Plaintiffs Would Like Some Discovery Real Quick

With apologies for the substandard rhyming in this title, this is a quick post to update you on the current status of the VIX Plaintiff’s motion for expedited discovery. On Friday January 11th, a minute entry on the docket showed that Plaintiff’s motion was denied, without prejudice, with an order with further court dates to be issued once the motion to discuss is fully briefed.

Note: If you’re looking for an overview of the VIX case more generally, take a look at this post for general background on the platform, and this one for a more detailed look at the complaint. Our review of the motion to dismiss can be found here.

Getting back to discovery: in a motion made October 24th, Plaintiff’s motion sought non-anonymized trading data that would allow them to identify the traders responsible for the manipulations detailed in their complaint (the “Doe Defendants”). The non-anonymized trading data that Plaintiffs sought was manipulators is in the possession of Defendants Cboe Global Markets, Inc., Cboe Futures Exchange, LLC, and Cboe Exchange, Inc. (“CBOE”), which operate the trading platforms on which the manipulation occurred. Their requests were, Plaintiffs argued, narrowly tailored to target their need to identify the Doe Defendants, and to minimize the burden on CBOE—they sought only the trading data necessary to identify the manipulators, and only for the settlement days during the class period (for most of the period, that was only once per month).

Plaintiffs posited that such expedited discovery was critical both because of concerns about the expiration of applicable statutes of limitations and repose, and because of risk that the yet-unnamed Doe Defendants may fail to preserve key evidence unless or until they are named. With respect to statute of limitations, Plaintiffs pointed to the two-year statute of limitations applicable to their securities and commodities claims under 28 U.S.C. § 1685(b) and 7 U.S.C. § 25(c), respectively. Anticipating that Defendants would argue that the statutes began to run no later than May 2017, when Griffin and Shams’ academic paper on the subject was published, Plaintiffs stressed the importance of permitting discovery that would allow them to identify the Doe Defendants and name them in an amended pleading prior to May 2019.

With briefing on the motion to dismiss not schedule for completion until January 2019—and therefore no discovery likely to be forthcoming until summer 2019 at the earliest—Plaintiffs expressed genuine concerned about the potential loss of evidence in the interim. While the CBOE should have the trading data needed to identify them, the Doe Defendants will have their own evidence not in possession of the CBOE; specifically, they raised topics like internal chats, emails, and text messages that would be central to proving scienter.

Opposing the discovery request, the CBOE Defendants argue that Plaintiffs’ requested discovery is not “merely” to identify the Doe Defendant manipulators, but “merits discovery, presumably to remedy the substantive defects in their complaint.” A typical request for “Doe Discovery,” Defendants argue, is targeted discovery to determine the wrongdoer’s name. They give examples such as requesting the name of the Internet user associated with a particular IP address, where the user was thought to have committed copyright infringement, or that a “plaintiff might allege that a particular quote, order, or trade was improper, and therefore ma seek targeted discovery to determine the identity of the individual who placed the quite or order that may have resulted in a trade.” Plaintiffs’ discovery request should not be granted, according to the CBOE Defendants, because they cannot point to particular quotes or trades tainted by the wrongdoing, and are instead asking for information about trades that might have been “susceptible” to manipulation, and are basing the determination of susceptibility merely on aggregate data. Echoing arguments made in their motion to dismiss, the CBOE Defendants insist that “such generalized suspicions are insufficient to state a claim for relief,” and posit the theory that the discovery now requested is in the nature of a fishing expedition, with Plaintiffs rummaging for data in hopes of determining “whether any manipulation has occurred, and if so, when.” Without a particularized discovery request, Plaintiffs’ request should not be granted, particularly because the motion to dismiss is still outstanding – if the motions are granted, there would be no discovery, and expedited production would thus place an unnecessary burden on the CBOE Defendants.

Plaintiff’s response brief focuses on rebutting the CBOE Defendant’s argument about improper “merits discovery.” On this point, Plaintiffs point out that the bulk of the CBOE’s motion to dismiss is devoted to defenses that are unique to the CBOE, and thus “irrelevant to the viability of the Doe Defendant claims or merits of [the] discovery motion.” The transactional data that Plaintiffs are seeking would not assist them in overcoming these CBOE-specific defenses; therefore, Plaintiffs argue, it is clear that the discovery is not being sought for the purpose of amending the pleadings as against CBOE, but only to identify additional wrongdoers. What’s more, the complaint alleges that the SOQ process was manipulated routinely and systematically, and that Plaintiffs’ econometric analyses flagged almost all of the settlements as having been manipulated; this is sufficient to justify expedited discovery, say Plaintiffs, because Courts have “repeatedly relied” on such analyses to uphold manipulation claims.

The response brief also emphasizes the “timeliness” purpose of the request: Plaintiffs face undue prejudice because of the increasing threat of timeliness defenses by the Doe Defendants if Plaintiffs are unable to amend the complaint to specifically name those defendant prior to May 2019. In support of this concern, Plaintiffs cited to Rabin v. John Doe Market Makers, Case No. 15-cv-00551 (E.D. Pa.), a seemingly on-point matter in which the plaintiff alleged harm from options trading manipulation, and sought discovery from the relevant exchanges to identify the defendants. Very helpfully to plaintiffs in both that case and the one at bar, the court allowed requested needed to identify manipulators on the grounds that denying such discovery could effectively shield others from liability.

Argument on this discovery motion was held on January 11, 2019, and the minute entry, described above, shows that Judge Shah denied the motion without prejudice. It remains to be seen what Plaintiff’s next steps to identify the Doe Defendants will be, but watch this space for further updates.

This post was written by Alexandra M.C. Douglas.

We welcome your feedback. If you have questions or comments about this post, please e-mail John M. Lundin, the Manipulation Monitor’s editor, at or Alexandra M.C. Douglas at or call John or Alexandra at (212) 344-5400.

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