We think that such allegations sufficiently plead that the exchanges misled investors by providing products and services that artificially affected market activity, and that permitting such a case to proceed would be consistent with the “fundamental purpose of the [Exchange] Act . . . of [ensuring] full disclosure,” and the Exchange Act’s “core concern for the welfare of long-term investors who depend on equity investments to meet their financial goals.”
The exchanges assert that the foregoing allegations are insufficient because the plaintiffs do not allege that the exchanges themselves engaged in any manipulative “trading activity.” The exchanges do not cite, and we are not aware of, any authority explicitly stating that such a claim must concern a defendant’s trading activity. Instead, § 10(b) and Rule 10b-22 prohibit “all fraudulent schemes in connection with the purchase or sale of securities,” including schemes that consist of manipulative or deceptive “market activity.” Here, for the reasons described above, plaintiffs have sufficiently alleged that the exchanges engaged in conduct that manipulated market activity, including by deceiving investors into “believing that prices at which they purchase[d] and s[old] securities are determined by the natural interplay of supply and demand, not rigged by manipulators.”
(Citations omitted.)
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
December 19, 2017
