IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

LAST ATLANTIS CAPITAL LLC, et al.,

Plaintiffs,

v.

AGS SPECIALIST PARTNERS, et al.,

Defendants.

)

) 

) 

)

)

) Nos. 04 C 397

) 05 C 5600

) 05 C 5671

)

)

)

)

MEMORANDUM OPINION AND ORDER

Presently before me is a motion by Knight Financial Products,

LLC (“Knight”) for summary judgment. In that motion, Knight argues

for dismissal of the Rule 10b-5 claim against it, and also argues

that I should decline to exercise jurisdiction over any remaining

state law claims. Both Knight and plaintiffs have inundated this

court with filings related to Knight’s motion for summary judgment. 

In addition to filing a response to Knight’s motion, plaintiffs

have also filed a Rule 56(f) affidavit, in which plaintiffs’

counsel avers both that plaintiffs’ response is adequate to defeat

Knight’s motion and that plaintiffs require additional discovery to

adequately respond to Knight’s motion. I have reviewed these

submissions, and conclude that summary judgment is warranted here. 

Thus, Knight’s motion for summary judgment is granted. In

addition, I reject plaintiffs’ request that they should be entitled

to take more discovery before responding to Knight’s motion.
I. Factual Background

I borrow from Magistrate Judge Keys’s apt summation of the key

dispute in this case:

At the heart of plaintiffs’ claim is an inherent tension

between direct access customers and specialists, stemming

from their competing efforts to profit from market

anomalies. The Specialist Defendants are dealer/brokers

charged with establishing the bid and offer prices for

every option in a designated option class; this price is

known as “the quote.” Specialists fill orders by

matching buyers’ orders to purchase options with contraside customer orders to sell options at the same price. 

In the event that there are no existing contra-side

customer orders, specialists execute orders by buying or

selling the designated option from their own proprietary

account. Direct access customers, like Plaintiffs,

utilize arbitrage trading strategies in an attempt to

take advantage of price discrepancies in the options

markets. For example, if a specialist’s buy bid on one

exchange is $5.00 and a specialist’s sell bid on a

different exchange for that same option is $4.90 on

another exchange, Plaintiffs attempt to execute

simultaneous orders to sell on the first exchange and buy

on the second exchange to achieve a 10 percent profit per

option, while incurring minimal risk.

Plaintiffs claim that, like the direct access

customers, specialists also profit from capitalizing on

market anomalies. Specialists are able to realize

significant profits from such “spreads,” if and when they

are able to fill orders from their own proprietary

accounts. However, because direct access customers

purportedly have access to better information and

technology than typical customers, they have cut

substantially into the specialists’ profits. Plaintiffs

claim Defendants intentionally discriminated against

orders placed by direct access customers since April 1,

2001, in favor of more lucrative orders placed by less

sophisticated customers. Specifically, Plaintiffs charge

that the Specialist Defendants have: “[I]dentified the

origin, and then knowingly mishandled the execution of

thousands of orders to buy and sell options that were

sent to defendants by engaging in various illegal trading

practices such as refusing to automatically, or promptly,

execute the orders or send confirmations upon the

2
execution of orders, changing (or “fading”) the quoted

prices after receiving the orders, delaying the execution

of orders, refusing to honor requests to cancel orders,

and unilaterally terminating or adjusting the prices on

orders that were previously executed and confirmed, and

conducting thousands of proprietary trades for the

Specialists’ own accounts that were executed in advance

of, or instead of, executing Plaintiffs’ marketable limit

orders (i.e. order to purchase or sell a set amount of

options at a specific price equal to the bid or offer

price actually disseminated by a Specialist on a

particular exchange).” 

Defendants have consistently denied discriminating

against orders placed by direct access customers in

general, and Plaintiffs in particular. Defendants

acknowledge that a higher-than-average percentage of

direct access customers’ orders go unexecuted, but

explain that this is a result of the proliferation of the

software used by direct access customers; because these

customers rely upon the same kind of computer program to

identify market anomalies, and because these computer

programs instruct direct access customers to place

virtually identical orders at the same time, direct

access customers flood specialists with multiple orders

for the same options, making it impossible to fill them

all.

11/23/09 Report and Recommendation, Docket # 725 at 3-5. 

II. Analysis

A. Summary Judgment Standard

Summary judgment is appropriate if “the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no genuine

issue as to any material fact and that the moving party is entitled

to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). Once

the moving party shows that there is no genuine issue of material

fact, the burden of proof shifts to the nonmoving party to

3
designate specific facts showing that there is a genuine issue for

trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).

B. Rule 10b-5 

Section 10(b) of the Securities Exchange Act of 1934, 15

U.S.C. § 78j(b), prohibits the use “in connection with the purchase

or sale of any security . . . [of] any manipulative or deceptive

device or contrivance in contravention of such rules and

regulations as the Commission may prescribe.” Pursuant to this

section, the SEC promulgated Rule 10b-5, which provides in

pertinent part:

It shall be unlawful for any person, directly or

indirectly, by the use of any means or instrumentality of

interstate commerce, or of the mails or of any facility

of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to

omit to state a material fact necessary in order to make

the statements made, in the light of the circumstances

under which they were made, not misleading, or

(c) To engage in any act, practice, or course of business

which operates or would operate as a fraud or deceit upon

any person, in connection with the purchase or sale of

any security.

17 C.F.R. § 240.10b-5. 

Knight argues for summary judgment because plaintiffs have

failed to put forward any evidence that Knight expressly

communicated a falsehood to plaintiffs. Plaintiffs respond by

4
asserting that there are genuine issues of material fact in 1

dispute with respect to whether Knight issued express and implied

misrepresentations in violation of Rule 10b-5(b), and whether

Knight committed a deceptive or manipulative act in violation of

Rule 10b-5(a) and (c). Plaintiffs further argue that even if I

accept Knight’s argument, they have presented sufficient evidence

of Knight’s express misrepresentations to plaintiffs to survive

summary judgment.

C. Claims under Rule 10b-5(a) and (c)

To prove a claim under Rule 10b-5(a) or (c), a plaintiff must

show that the defendant (1) committed a deceptive or manipulative

act, (2) with scienter, (3) that the act affected the market for

securities or was otherwise in connection with their purchase or

sale, and (4) that defendants’ actions caused the plaintiffs’

injuries. Last Atlantis Capital LLC v. Chicago Bd. Options Exch.,

Inc., 455 F. Supp. 2d 788, 793 (N.D. Ill. 2006). 

The parties’ primary argument centers on whether, when dealing

with an options specialist, Rule 10b-5 allows for an implied

misrepresentation, or whether an express representation is

required. Plaintiffs assert that under the “shingle theory,”

specialists, such as Knight, may be liable for securities fraud

 Plaintiffs’ position that the arguments raised by Knight 1

are barred by the law of the case doctrine is unsupported. While

I have issued numerous opinions in this case, I have not

addressed the issues Knight raises here.

5
based on implied misrepresentations. Under the “shingle theory,”

a broker-dealer that “does business with the public . . . impliedly

represents that he will deal fairly with the public.” Brennan v.

Midwestern United Life Ins. Co., 286 F. Supp. 702 (N.D. Ind. 1968). 

“[A] broker-dealer, by accepting an order . . . impliedly

represents that the order will be executed in a manner consistent

with the duty of best execution.” Newton v. Merrill Lynch, Pierce,

Fenner & Smith, Inc., 135 F.3d 266, 269 (3d Cir. 1998). Relying on

the shingle theory, plaintiffs’ primary argument is that Knight, by

hanging out its professional shingle as a specialist, impliedly

represented to plaintiffs that it would follow all applicable rules

and that it deceived plaintiffs when it engaged in certain actions

which violated those rules. 

In support of its assertion that an express representation is

required for a specialist to be liable under Rule 10b-5, Knight

points me to the Second Circuit opinion in United States v.

Finnerty, 533 F.3d 143 (2d Cir. 2008) (“Finnerty III”). Rather

frustratingly, Knight glosses over the subtleties of the history of

Finnerty III, and makes no attempt to parse out the differences

between sections (a), (b) and (c) of Rule 10b-5. A detailed

examination of the history of Finnerty III is critical to

understand what the Second Circuit actually held.

In United States v. Finnerty, Nos. 05 Cr. 393 DC, 05 Cr. 397

DC, 2006 WL 2802042, at *1-2 (S.D.N.Y. Oct. 2, 2006) (“Finnerty

6
I”), a New York Stock Exchange (“NYSE”) specialist was charged with

criminal violations of Section 10(b) and Rule 10b-5 based on

alleged mishandling of customers’ options orders in violation of

NYSE rules. The district court dismissed the Rule 10b-5(b) charge,

concluding that with respect to section (b) – which requires an

“untrue statement of fact” or the omission of a material fact

necessary to make another statement not misleading – the shingle

theory was not available to specialists. Finnerty I, 2006 WL

2802042, at *7. In distinguishing cases involving excessive

markups which allowed for omission liability (that is, liability in

the absence of express statements), the district court noted that

“the securities dealer [in the excessive markup cases] solicits

customers by actively holding himself out as someone who is

representing the best interests of the customer.” Id. at *6. The

district court went on to conclude that specialists do not actively

solicit customers, do not “hang [] out [their] professional

shingle,” and do not impliedly represent themselves the way that

securities dealers in excessive markup cases do. Id. 

Thus, the district court in Finnerty I dismissed the Rule 10b5(b) charge, but allowed the counts under sections (a) and (c) to

proceed to trial. After trial, the district court concluded that

the government failed to put on sufficient evidence of a “deceptive

act” as required by sections (a) and (c). United States v.

Finnerty, 474 F. Supp. 2d 530, 538 (S.D.N.Y. 2007) (“Finnerty II”). 

7
The court reasoned that in order for the specialist’s conduct to be

deceptive, there must be evidence of what the customers expected

when they were allegedly deceived. Id. at 539. Because the

government failed to put forward evidence of the customers’

expectations (i.e., proof of what the customers “think they are

getting”), the government failed to show how the customers were

deceived. Id. The district court stated that “[e]ven assuming

Finnerty violated NYSE rules against interpositioning, the 2

Government still had to demonstrate that the customers were

deceived – that they were aware of the rules, expected the

specialists to comply with them, and acted in accordance with those

expectations.” Id. at 541. Without evidence of a “deceptive act,”

then, the district court granted the motion for judgment of

acquittal for the charges based on Rule 10b-5(a) and (c). Id. at

545.

On appeal, the government appealed only the granting of the

judgment of acquittal, which dealt exclusively with Rule 10b-5(a)

and (c), and did not appeal the ruling relating to Rule 10b-5(b)

(in which the district court rejected the application of the

shingle theory to a specialist). Finnerty III, 533 F.3d at 148. 

Thus, the Second Circuit’s opinion in Finnerty III could not have

“Interpositioning” describes when a specialist trades on 2

his own account between existing investor orders (thereby earning

a profit on the discrepancy in prices) when there are buy and

sell orders that can be matched. Finnerty II, 474 F. Supp. 2d at

533.

8
addressed the district court’s conclusion that, under Rule 10b5(b), a specialist is not liable for implied misrepresentations

under the shingle theory. Instead, the Second Circuit addressed

only the district court’s ruling on Rule 10b-5(a) and (c), and the

district court’s requirement of a “deceptive act.” Id. at 146.

In arguing for reversal, the government maintained that

Finnerty had held himself out as a specialist obligated to follow

exchange rules, that customers would have expected him to follow

the rules, and they were therefore deceived when he failed to

follow them. Id. at 149-50. While it never refers to this

argument as the “shingle theory,” the Second Circuit rejected the

equivalent of the shingle theory when it stated, 

Some customers may have understood that the NYSE rules

prohibit a specialist from interpositioning, and that the

rules amount to an assurance (by somebody) that

interpositioning will not occur. As a consequence, some

customers may have expected that Finnerty would not

engage in the practice. But unless their understanding

was based on a statement or conduct by Finnerty, he did

not commit a primary violation of § 10(b)[.]

Id. at 150. The Second Circuit, therefore, took the district

court’s reasoning a step further and held that a specialist may be

liable under sections (a) and (c) if the customers expected that

the specialist would not engage in a practice prohibited by

exchange rules and if that understanding was “based on a statement

or conduct by” the specialist.

9
With no Seventh Circuit case law directly on point , I will 3

follow the Second Circuit’s holding in Finnerty III that implied

misrepresentations under the shingle theory are insufficient to 4

prove securities fraud under Rule 10b-5(a) and (c). Knight has

provided undisputed evidence that, putting aside the options orders

ultimately received by Knight, plaintiffs did not have any direct

 Plaintiffs provided an amicus curiae brief submitted by 3

the SEC to the Second Circuit in support of the pending appeal in

In re Refco Capital Mkts. Ltd. Brokerage Customer Sec. Litig.,

586 F. Supp. 2d 172 (S.D.N.Y. 2008). The district court in In re

Refco granted a broker-dealer’s motion to dismiss because its

former customers failed to allege any express deceptive acts by

their broker-dealer that could support a securities fraud claim. 

The SEC did not argue that Finnerty III was wrongly decided, but

argued that a customer can state a securities fraud claim against

its own broker-dealer under the shingle theory of implied

misrepresentations. Because In re Refco and the related appeal do

not involve claims against a specialist, and in light of the

difference between typical broker-dealers and specialists (as

highlighted in the Finnerty cases), I do not find the argument

presented by the SEC to be on point here.

 Plaintiffs point to an administrative settlement that the 4

SEC reached with Finnerty on May 28, 2009 to support their

argument generally that implied misrepresentations may form the

basis for a securities fraud claim against a specialist. I do

conclude that consideration of this administrative settlement is

not appropriate. As Knight pointed out, such settlements are not

precedent. In re Finnerty, et al., Release No. 381, at 65 (SEC

July 13, 2009) (stating that SEC settlements have no precedential

value). Further, on July 13, 2009, the SEC issued an adjudicated

decision in which the Administrative Law Judge dismissed

securities fraud charges against the non-settling defendants,

stating, “[e]ven if the defendant knew he had violated a NYSE

rule and tried to cover it up, violation of an NYSE rule does not

establish securities fraud, even in the civil context.” In re

Finnerty, et al., Release No. 381, at 62 n.90 (citing Finnerty

III, 533 F.3d at 151). Therefore, the later adjudicated decision

relied on Finnerty III to reject the argument propounded by

plaintiffs here.

10
communications with Knight. Plaintiffs have put forward no 5

evidence that they were clients of, or had accounts with, Knight. 

Because of the similarities between Knight and Finnerty, I find the

holding in Finnerty III to be persuasive.6

Thus, pursuant to the holding in Finnerty III, in order to

prove a claim under either of these sections, plaintiffs must

provide evidence of: (1) customer expectations, and (2) a deceptive

statement or act on the part of the specialist. Finnerty III, 533

F.3d at 150. Plaintiffs assert that they have provided evidence of

those two requirements. 

 Plaintiffs’ attempt to deny Knight’s Statement of 5

Undisputed Facts 9 is rejected. As an initial matter,

plaintiffs’ general citation to all of the plaintiffs’ affidavits

is improper. Next, plaintiffs cite to “Lowry Supp. Decl. At ¶¶

4,8 and Ex. A thereto at ¶¶ 11,13," which does not support the

notion that Knight and plaintiffs communicated to each other. 

Rather, all the citations provided by plaintiffs support the fact

that plaintiffs placed orders to either buy or sell options,

which orders (once they were routed to their own broker-dealers

and then sent to the respective Exchanges) ultimately were

received by Knight. This is not the type of direct

communications which would support the argument that Knight had a

typical customer/broker relationship with plaintiffs.

 Plaintiffs point to Kurz v. Fidelity Mgmt. & Research 6

Co., 556 F.3d 639 (7th Cir. 2009), to support their argument that

a specialist may be liable for securities fraud based on implied

misrepresentations. Plaintiffs’ reliance on Kurz is misplaced. 

While the Seventh Circuit did make the general observation that

“not revealing to investors a failure to comply with one’s duties

about transactions in their securities can lead to liability

under the securities acts,” id. at 642, such a statement is not

dispositive here because Kurz did not involve options

specialists, such as Knight. 

11
While plaintiffs have provided evidence relating to the

Finnerty III requirements, ultimately they have failed to tie

together the two requirements. Through affidavits, plaintiffs have

provided evidence that they expected Knight would act in accordance

with all applicable rules when handling and executing the orders

they submitted to the Exchanges. Plaintiffs also provided evidence

that they relied on Knight to execute their orders in a fair and

proper manner. In addition, plaintiffs provided evidence that

Knight made public statements regarding its promise of “best

execution” through press releases and through its own website. 

Pls’ Am. St. of Add’l Facts 19 (citing Friedman Decl. at Exs. 8-

16). Examples of these statements include: “Our appointments of

[new executives] will help ensure that our operations and execution

capabilities keep pace with our efforts to establish Knight

Financial Products as the standard for best execution in the

options industry,” Ex. 10 at 1 (emphasis added); “Knight helps its

clients meet their fiduciary obligation of obtaining best execution

for the securities orders that they route on behalf of their

customers,” Ex. 8 at 2 (emphasis added).

However, despite providing these important pieces of evidence,

plaintiffs fail to provide any proof that the plaintiffs’

expectations were based on the alleged misrepresentations made by

Knight. The key language in Finnerty III states that a customer’s

expectation “must be based on a statement or conduct” by Knight. 

12
Finnerty III, 533 F.3d at 150. Because plaintiffs failed to put

forward evidence that their expectations were based on Knight’s

alleged misrepresentations, they have failed to put forward

sufficient evidence to survive summary judgment.7

Finally, plaintiffs also argue, in an apparent attempt to

suggest that Knight (although admittedly a specialist) was more

like a typical broker-dealer than the specialist in Finnerty III,

that “Knight actively solicited customers by, inter alia, directing

monetary payments to certain brokerage firms in exchange for their

agreements to direct customer orders to the Exchanges at which

Knight was a designated specialist and by holding itself out as a

superior specialist firm that provided best execution and that

represented the best interest of its customers.” Pls’ Am. St. of

Add’l Facts 18. In support, plaintiffs cite to Knight’s website

and press releases which tout Knight’s promise of “best execution.” 

Id. (citing Friedman Decl. at Ex. 8-17). It is not at all clear

 Plaintiffs also argue that Knight made false statements 7

when it provided quotes for certain options and then failed to

honor those quotes when plaintiffs submitted their orders. 

Plaintiffs, through their own affidavits, aver that they relied

on those quotes and were deceived by them. Plaintiffs have

provided me with no authority to support their argument that the

quotes themselves amount to an express misrepresentation. What

they are really arguing is that the price quotations were

deceptive because Knight violated exchange rules when handling

orders. As Knight points out, this argument is an attempt by

plaintiffs to morph their implied representation argument into

something that looks more like an express representation. 

Because I conclude that this argument is merely another way of

stating their implied misrepresentation theory, I reject it. 

13
which exhibits, of the ten referred to generally, support

plaintiffs’ argument regarding monetary payments made by Knight to

other brokerage firms. Exhibit 17, attached to Attorney Friedman’s

Declaration, is simply entitled “Marketing Fees, November 29, 2002"

and is practically undecipherable. Plaintiffs fail to explain what

the chart is, what the entries mean, what the fees listed (ranging

from $0.00 to $0.50) cover or how this chart supports their

assertion. In addition, I cannot conclude that Knight, as

plaintiffs overstate, “actively solicited customers” by making

statements on its own website and in press releases when there is

no evidence that plaintiffs, or other public customers, ever saw or

had knowledge of these statements. There is no evidence that

Knight sought plaintiffs as customers, nor is there evidence that

Knight made payments to broker-dealers in an attempt to secure more

public customers. For these reasons, I reject plaintiffs’ attempt

to characterize Knight as more akin to a typical broker-dealer than

a specialist as described in Finnerty III.

In light of the above, plaintiffs have failed to put forward

evidence that their expectations that Knight would follow all

applicable rules were based on statements or conduct by Knight. As

a result, Knight’s motion for summary judgment on Rule 10b-5(a) and

(c) is granted.

14
D. Claim Under Rule 10b-5(b)

To prove a claim under Rule 10b-5(b), the plaintiffs must show

that (1) the defendant made a misstatement or omission, (2) of

material fact, (3) with scienter, (4) in connection with the

purchase or sale of securities, (5) upon which plaintiff

justifiably relied, and (6) that the false statement or omission

proximately caused the plaintiff’s damages. Last Atlantis, 455 F.

Supp. 2d at 793. 

In Finnerty I, the district court concluded that, under Rule

10b-5(b), the shingle theory was not applicable to specialists

where the plaintiff failed to put forward evidence of misleading

statements. 2006 WL 2802042, at *6. Relying on the language of

subsection (b), the court noted that “the rule’s plain language

thus makes clear that liability for an omission pursuant to

subsection (b) requires a statement to have been made.” Id. The

court went on to distinguish its case from excessive markup cases,

in which the securities dealer solicits customers by actively

holding himself out as someone who is representing the best

interests of the customer. Finally, the court concluded that

allowing implied misrepresentations in this case would “render the

text of subsection (b) meaningless.” Id. at *7. In particular,

the “part that says an omission is prohibited if it ‘make[s] the

statements made, in the light of the circumstances under which they

15
were made, not misleading’ would be superfluous.” Id. (quoting

Rule 10b-5(b)).

I am persuaded by the Finnerty I court’s reasoning with

respect to specialists. For the reasons given above, plaintiffs

failed to provide evidence that their expectations that Knight

would follow all applicable rules was based on Knight’s allegedly

false statements. As a result, Knight’s motion for summary

judgment on the Rule 10b-5(b) claim is granted.

E. Fiduciary Duty

Plaintiffs maintain that their Rule 10b-5 claim should

nonetheless survive summary judgment because a fiduciary-type

relationship existed between Knight and plaintiffs. Further, 8

plaintiffs argue that a jury should decide whether Knight owed

plaintiffs a fiduciary duty. 

 Through a notice of additional legal authority filed 8

after briefing was completed, plaintiffs provided me with a copy

of Rule 2320 issued by the Financial Industry Regulatory

Authority (“FINRA”). In light of the fact that Knight was not a

member of FINRA (or its predecessor, NASD), I conclude that this

rule is not relevant in this case. 

16
Plaintiffs have cited no controlling or persuasive authority9

suggesting that Knight, as a specialist, owed plaintiffs a

fiduciary duty. Instead, plaintiffs point to cases which discuss

when a fiduciary duty is created between a broker-dealer and a

customer. “Under some circumstances, a broker or dealer will have

a fiduciary duty to a particular customer. That duty, however, is

not based on one’s status as a dealer. A fiduciary relationship

arises only when the dealing between the customer and the dealer

presuppose a special trust or confidence.” Cong. of the Passion,

Holy Cross Province v. Kidder Peabody & Co., Inc., 800 F.2d 177,

182 (7th Cir. 1986). Even assuming that this general statement

could be applied to specialists, plaintiffs have failed to put

forward evidence from which a reasonable jury could conclude that

plaintiffs had a special relationship of trust and confidence with

Knight. As the Seventh Circuit made clear, it is not enough that

Knight acted as a broker-dealer for them. Plaintiffs, in their

affidavits, attempt to bolster their claims of a fiduciary duty by

 While plaintiffs cite many cases in support of their 9

claim of a fiduciary relationship, none of those cases involve

options specialists and in all of those cases the defendant,

unlike Knight, had direct dealings with the investors. See,

e.g., Kurz v. Fidelity Mgmt. & Research Co., 556 F.3d 639 (7th

Cir. 2009) (noting that an investment company had a duty to

disclose to its own customers that it was not providing them with

best execution of their trades, and therefore could be held

liable under the securities laws for such conduct); Wsol v.

Fiduciary Mgmt. Assoc., Inc., 266 F.3d 654, 657 (7th Cir. 2001)

(noting that executing brokers have a fiduciary relationship with

their customers). Given the differences between typical brokerdealers and specialists, I do not find these cases persuasive. 

17
stating conclusorily that they placed special trust in Knight. 

Without more than just an averment that this “special trust”

existed, including how such a relationship was formed and why the

relationship between plaintiffs and Knight engendered such trust,

plaintiffs have failed to provide sufficient evidence of a special

relationship of trust or confidence. Plaintiffs have not submitted

any evidence that they had any direct communications or contact

with Knight or that they were clients of Knight’s. There is no

evidence that plaintiffs maintained accounts with Knight. 

Plaintiffs’ involvement with Knight sprung solely from the fact

that their orders were submitted through plaintiffs’ own brokers to

the exchanges which routed them to Knight as a specialist. 

Other district courts have concluded that no fiduciary duty

exists between a specialist and an investor, mainly due to the

impersonal nature of the relationship between the two. In United

States v. Hunt, No. 05 Cr. 395(DAB), 2006 WL 2613754, at *6

(S.D.N.Y. Sept. 6, 2006), the court held that ‘[w]hile specialists

may have an obligation to maintain the market economy, they do not

owe the public a fiduciary duty, and therefore an alleged breach of

fiduciary duty cannot serve as a basis for security fraud.” 

Because specialists serve two masters, both the buyer and seller,

they “have no loyalty to buyers or sellers, as they execute orders

for both.” Id. at *6; see also Finnerty II, 474 F. Supp. 2d at 544

(noting that the case law supports argument that there is no

18
fiduciary duty between a specialist and his public customers).

In Spicer v. Chicago Bd. Options Exch., Inc., No. 88 C 2139,

1990 WL 172712, at *15 (N.D. Ill. Oct. 30, 1990), a case from this

district dealing with market makers, the court found that 10

plaintiff failed to put forward evidence which would support his

argument that the market makers owed a fiduciary duty to investors. 

Contrasting market makers to brokers who act as agents of their

clients when they are determining which investments to make on

behalf of their clients, the court concluded that “market makers

are not fiduciaries for investors even in the sense that brokers

may be – nothing in the complaint alleges that market makers advise

or influence investors or hold or spend money for them.” Id. at

15. 

In light of the above, and based on the evidence submitted, I

cannot conclude that a reasonable jury could find that plaintiffs

and Knight had a fiduciary relationship.

III. Additional Discovery Denied

The main evidence lacking here concerns whether or not

plaintiffs relied on the alleged misrepresentations contained in

the Knight press releases and on the Knight website in forming

 The function of “market-makers,” who are “individual 10

traders appointed to maintain a fair, orderly and liquid market

in one ore more classes of option contracts,” is similar,

although not identical, to that of specialists. Spicer v.

Chicago Bd. of Options Exch., Inc., 977 F.2d 255, 256 (7th Cir.

1992).

19
their expectations that Knight would provide “best execution,” and

otherwise follow all rules applicable to specialists. Because this

information resides with plaintiffs themselves, I see no need to

allow plaintiffs additional time for discovery. Plaintiffs’

request for additional discovery, pursuant to its submission of a

Rule 56(f) affidavit, is therefore denied. 

IV. Conclusion

For all the foregoing reasons, Knight’s motion for summary

judgment [584] is granted. Knight’s motion for leave to file a

response to plaintiffs’ notice of controlling legal authority [747]

is granted. Likewise, plaintiffs’ motion for leave to file a reply

to Knight’s response to plaintiffs’ notice of controlling legal

authority [749] is granted. Plaintiffs’ motion to continue or deny

the motion for summary judgment filed by Knight pursuant to Fed. R.

Civ. P. 56(f) until after completion of discovery [651] is denied.

In light of the fact that all federal claims against Knight are

dismissed, I decline to exercise jurisdiction over the remaining

state law claims. Therefore, any state law claims against Knight

are dismissed, as well.

 ENTER ORDER:

 ____________________________

 Elaine E. Bucklo

 United States District Judge

Dated: March 26, 2010

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