Plaintiffs, five Korean citizens, transacted on a “night market” of Korea Exchange (“KRX”) futures contracts. The KRX is a derivatives and securities exchange headquartered in Busan, South Korea. On the KRX night market, traders enter orders in Korea when the KRX is closed for business, whereupon their orders are quickly matched with a counterparty by an electronic trading platform (“CME Globex”) located in Aurora, Illinois. The trades are then cleared and settled on the KRX when it opens for business the following morning.Plaintiffs allege that Defendants Tower Research Capital LLC, a New York based high-frequency trading firm, and its founder, Mark Gorton, injured them and others by engaging in manipulative “spoofing” transactions on the KRX night market in violation of the Commodity Exchange Act (“CEA”), 7 U.S.C. §§1 et seq., and New York law. The district court dismissed the action principally on the ground that the CEA does not apply extraterritorially as would be required for it to reach Defendants’ alleged conduct. Because we conclude Plaintiffs’ allegations make it plausible that the trades at issue were “domestic transactions” under our precedent, we do not agree that application of the CEA to Defendants’ alleged conduct would be an impermissible extraterritorial application of the act. We also disagree with the district court’s conclusion that Plaintiffs failed to state a claim for unjust enrichment. Accordingly, we VACATE and REMAND for further proceedings.JOHN M. WALKER, JR., C.J.Plaintiffs, five Korean citizens, transacted on a “night market” of Korea Exchange (“KRX”) futures contracts. The KRX is a derivatives and securities exchange headquartered in Busan, South Korea. On the KRX night market, traders enter orders in Korea, when the KRX is closed for business, whereupon their orders are quickly matched with a counterparty by an electronic trading platform (“CME Globex”) located in Aurora, Illinois. The trades are then cleared and settled on the KRX when it opens for business the following morning.Plaintiffs allege that Defendants Tower Research Capital LLC (“Tower”), a New York based high-frequency trading firm, and its founder, Mark Gorton, injured them and others by engaging in manipulative “spoofing” transactions on the KRX night market in violation of the Commodity Exchange Act (“CEA”), 7 U.S.C. §§1 et seq., and New York law. The district court dismissed the action principally on the ground that the CEA does not apply extraterritorially as would be required for it to reach Defendants’ alleged conduct. Because we conclude Plaintiffs’ allegations make it plausible that the trades at issue were “domestic transactions” under our precedent, we do not agree that application of the CEA to Defendants’ alleged conduct would be an impermissible extraterritorial application of the act. We also disagree with the district court’s conclusion that Plaintiffs failed to state a claim for unjust enrichment under New York law. Accordingly, we VACATE and REMAND for further proceedings.1BACKGROUND2The KOSPI 200, a stock index akin to the S&P 500 or the Dow Jones, consists of the weighted averaged of two hundred Korean stocks traded on the KRX. The KRX also includes a KOSPI 200 futures contract in its daytime trading, which allows traders to speculate on the value of the KOSPI 200 index at various future dates. To facilitate after-hours trading of KOSPI 200 futures, the KRX contracted with CME Group, the product of a merger of the Chicago Mercantile Exchange (“CME”) and the Chicago Board of Trade, to establish an overnight market for futures trading. Pursuant to that agreement, futures contracts on KRX’s “night market” are listed and traded on “CME Globex, an electronic CME platform located in Aurora, Illinois.” Amended Complaint (“AC”) 18. CME Globex “is the same platform which CME [Group] utilizes to trade derivatives [of a wholly domestic character] based on U.S. Treasury bonds, the S&P 500, the NASDAQ 100, the Dow Jones Industrial Average, grains, livestock, weather and real estate.” AC 18. In 2012, the year relevant to this action, approximately 7,000,000 trades of futures contracts took place on the KRX night market. AC 20 n.8.A KRX night market trade begins with the placement of a “limit order” on the KRX system in Korea. Within seconds, the trader’s order is matched with an anonymous counterparty on CME Globex “using the multiple price a[u]ction method through which successful bidders are required to pay for the allotted quantity of securities at the respect price/yield at which they have bid.” AC 21 (internal quotation marks omitted). Following matching, “settlement of all trades occurs the day after on the KRX.” AC 22.In 1998, Gorton founded Tower, a high-frequency trading firm. “High frequency trading firms use computers to create and operate algorithms and, by using those algorithms and technology, execute trades faster than anyone else — making pennies on millions and millions of trades executed in milliseconds.” AC 27. In 2012, Tower aggressively brought its algorithm and technology to bear on the KRX night market, executing nearly 4,000,000 trades of futures contracts, approximately 53.8 percent of all KRX night market trades that year. AC 31.Plaintiffs allege that a significant number of these trades were manipulative, in that Defendants “utilized their algorithmic flash trading abilities to artificially and illegally manipulate prices of the KOSPI 200 Futures during Night Market trading on the CME for their own profit.” AC 31. Specifically, Plaintiffs allege that Tower’s traders “created hundreds and hundreds of fictitious buys and sells to artificially manipulate the price of the KOSPI 200 futures contracts they were trading on the CME Globex.” AC 32.The alleged scheme — which Plaintiffs describe as “spoofing” — operated as follows. Tower’s traders would enter large volume buy or sell orders on the KRX night market and then would use Tower’s high-frequency technology to immediately cancel their orders or ensure that they themselves were the counterparties on the trades. They would do so because the intent was not to execute the trades but to create a false impression about supply and demand and thereby drive the market price either up or down. Once that was accomplished, the traders would sell contracts at the artificially inflated price or buy contracts at the artificially deflated price, eventually reaping substantial profits either way. In 2012, Plaintiffs allege, Tower’s traders used this spoofing practice hundreds of times, earning more than $14,000,000 in illicit profits. AC 35.Plaintiffs, for their part, executed more than 1,000 KRX night market trades in 2012. AC 24. Given the anonymity of CME Globex, Plaintiffs cannot at the moment identify with precision whether they were a counterparty on any of the allegedly manipulative Tower trades, but they allege it to be a near statistical certainty that at least one Tower trader was a direct counterparty with at least one Plaintiff in a KRX night market trade in 2012. AC 31 n.13. In any event, Plaintiffs allege that they traded at artificial prices during and due to Defendants’ spoofing waves.In May 2014, a Korean government regulator, the Financial Services Commission (“FSC”), uncovered Defendants’ scheme and referred Tower to Korean prosecutors. FSC publicly stated that “traders of a U.S. based algorithmic trading specialty company accessed the KOSPI 200 Overnight Futures Market and traded with the use of the [sic] proprietary algorithmic trading technique, which manipulated prices to build their buy and sell positions by creating automatically and repeatedly fictitious trades.” AC 36. Several media outlets also reported on the scheme and identified Tower as the responsible entity. AC
