S.Ct. 872, 878 (2004) (finding implied repeal did not apply to the
Telecommunications Act of 1996, in part because of a savings
clause); Thill Sec. Corp. v. New York Stock Exch., 633 F.2d 65, 69-
70 (7 Cir. 1980) (finding implied repeal did apply to an
antirebate rule, regulated by the SEC); Kaplan v. Lehman Bros., 371
F.2d 409, 410-411 (7 Cir. 1967) (finding implied repeal did apply
to SEC regulations regarding commission rates).

Defendants argue that the SEC’s regulation of options trading
is so pervasive that judicial action under the antitrust laws would
interfere with the objectives of that regulation. The SEC has a
long history of regulating options trading, beginning with § 2 of
the Securities Exchange Act of 1934, which provided for regulation
of a national securities market. 15 U.S.C. § 78b. Congress
specifically gave the SEC specific and plenary authority to set the
terms and conditions of options trading. See 15 U.S.C. § 78i; H.R.
Rep. No. 97-626(I) (1982) (clarifying the jurisdiction of the SEC
over options trading). The SEC has promulgated many rules
concerning options trading, both specifically and by expanding more
general rules to also cover options trading. See 17 C.F.R. §
240.11Ac1-1; Firm Quote and Trade-Through Disclosure Rules for
Options, Exchange Act Release No. 34-43591, 2000 WL 1721161 (Nov.
17, 2000).

On September 11, 2000, the SEC issued a settlement order

concerning a number of exchanges and alleged anti-competitive


U.S.C. § 78u-4(b) (2). The motion to dismiss with respect to Count

III is GRANTED.

III.

Counts I and II are dismissed pursuant to the doctrine of
implied repeal. Count III is dismissed for failure to meet the
pleading requirements of Rule 9(b) and the PSLRA. As I have
dismissed all federal claims in the complaint, I decline to
exercise jurisdiction over the remaining state law claims. The

complaint is DISMISSED.

ENTER ORDER:
oy é
LAO é Zz Burkle

Elaine E. Bucklo
United States District Judge

Dated: March 30, 2005

10


conflict with an overall regulatory scheme that empowers [the SEC]
to allow conduct that the antitrust laws would prohibit.” In re:
Stock Exch. Options Trading Antitrust Litigation, 317 F.3d 134, 149
(2° Cir. 2003) (holding that the antitrust laws were impliedly
repealed with respect to options trading). In this case, they do.
The motion to dismiss Counts I and II is GRANTED.

Il.

Defendants argue that plaintiffs have not pleaded Count III,
alleging violations of § 10b of the Exchange Act and SEC Rule 10b-
5, with the required specificity. Under Rule 10b-5, “the plaintiff
must establish 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 the
plaintiff justifiably relied (6) and that the false statement or
omission proximately caused the plaintiff’s damages.” Otto v.
Variable Annuity Life Inc. Co., 134 F.3d 841, 851 (7 Cir. 1998).
“[P]lleading fraud with specificity is both an element of the SEC
Rule 10b-5 cause of action and a pleading requirement of the
Federal Rules.” In re HealthCare Compare Corp. Secs. Litig., 75
F.3d 276, 280-81 (7 Cir. 1996); see also Fed. R. Civ. P. 9(b). To
satisfy the particularity requirement, the plaintiff must allege
“the who, what, when, where, and how: the first paragraph of any
newspaper story.” Dileo v. Ernst & Young, 901 F.2d 624, 627 q7

Cir. 1990). In addition, the complaint must comply with the


conduct. Certain Activities of Options Exchanges, Exchange Act
Release No. 43268, 2000 WL 1277616 (Sept. 11, 2000) (“Settlement
Order”). The Settlement Order required the exchanges to implement
and enforce rules concerning aspects of options trading, including
order processing, quotes, and reporting procedures. Id. Since
that date, the SEC has continued to monitor and regulate the
options trading market, recently publishing a request for
comments/concept release for potential rules addressing efficiency
in the options trading markets and potential conflicts of interest.
Competitive Developments in the Options Markets, Exchange Act
Release No. 34-49175, 2004 WL 210588 (Feb. 3, 2004).

Given this history of consistent regulation of the options
trading market, the SEC’s regulatory scheme can be said to be
pervasive in this area. Even plaintiffs’ complaint illustrates
this pervasiveness; plaintiffs allege violations of SEC rules and
of the Settlement Order, discuss the SEC’s investigation of options
trading, and seek relief, in part, in the form of new Exchange
Rules. Applying federal antitrust law in this area creates the
very real possibility of subjecting the defendants to conflicting
standards of conduct. Gordon, 422 U.S. at 689 (noting that
conflicting standards are likely to arise because of the different
aims of antitrust law and SEC regulation). That the defendants
alleged actions may violate both antitrust law and SEC regulations

does not control. The question instead is, do “the antitrust laws


which discussed the exchanges auto-execution systems for processing
orders. Every other allegation is directed at the Exchange
defendants, the Market Maker defendants, or simply “defendants.”
Such general pleading, lumping all defendants into a single group,
is insufficient to meet the required pleading standards.
Tricontinental, 215 F. Supp. 2d at 947 (citing Sears v. Likens, 912
F.2d 889, 893 (7'* Cir. 1990); Goren v. New Vision Int’l, Inc., 156
F.3d 721, 730 (7 Cir. 1998) (“Rule 9(b) is not satisfied where the
complaint vaguely attributes the alleged fraudulent statements to
‘defendants.’)).

Plaintiffs also fail to satisfy the “when” pleading
requirement. Plaintiffs state that the fraudulent conduct by the
defendants took place over a time period stretching from September
2000 until the present. Such a large and vague time period does
not meet the requirement for particularity. Cathedral Trading, LLC
v. Chicago Bd. Options Exch., 199 F. Supp. 2d 851, 857-58 (N.D.
Tll. 2002). Similarly, plaintiffs fail on the “why” component.
Rather than explain why the few statements cited in the complaint
are false, plaintiffs allege simply that the statements are false
or misleading. Such boilerplate statements of falsity are
insufficient. Id. at 857 (stating that plaintiffs must explain in
the complaint what statements are false and why they are false).

In view of these serious defects in pleading, plaintiffs do

not allege facts to support a “strong inference of scienter.” 15


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

LAST ATLANTIS CAPITAL LLC, LOLA
LLC, LULU LLC, GOODBUDDY SOCIETY
LLC, FRIENDLY TRADING LLC, and
SPEED TRADING LLC,

Plaintiffs,
v.

CHICAGO BOARD OPTIONS EXCHANGE,
INC., AMERICAN STOCK EXCHANGE LLC,
PACIFIC EXCHANGE, INC.,
PHILADELPHIA EXCHANGE, INC., AGS
SPECIALIST PARTNERS, BEAR HUNTER
STRUCTURED PRODUCTS LIC, BEAR
WAGNER SPECIALISTS LLC, BOTTA
CAPITAL MANAGEMENT LLC, COHEN,
DUFFY, MCGOWAN & CO., INC., D.A.
DAVIDSON & CO., INC., EQUITEC
PROPRIETARY MARKETS, LLC, EQUITEC
STRUCTURED PRODUCTS, LLC, EQUITEC
TRADING LLC, EQUITEC-PREMIER LLC,
EQUITEC-BROWN LLC, EQUITEC-FELDMAN
LLC, EQUITEC-FURMAN LLC, EQUITEC-
SCHWARTZ LLC, GENEVA DPM LLC, GROUP
ONE TRADING LP, KNIGHT FINANCIAL
PRODUCTS LLC, KNIGHT TRADING GROUP,
INC., LABRANCHE & CO., INC.,
LABRANCHE STRUCTURED PRODUCTS LLC,
MDNH TRADERS LLC, MDNH PARTNERS LP,
MORGAN STANLEY, MORGAN STANLEY DW,
INC., MORGAN STANLEY & CO., INC.,
SLK-HULL DERIVATIVES LLC, SPEAR,
LEEDS & KELLOGG LP, SPECIALISTS DPM
LLC, SUSQUEHANNA INTERNATIONAL
GROUP LLP, SUSQUEHANNA INVESTMENT
GROUP, SUSQUEHANNA SECURITIES, TD
OPTIONS LLC, VAN DER MOOLEN OPTIONS
USA LLC, VAN DER MOOLEN HOLDINGS
NV, and WOLVERINE TRADING LP,

Defendants.

MEMORANDUM OPINION AND ORDER

No.

04 Cc 397


pleading requirements of the Private Securities Litigation Reform
Act (“PSLRA”), 15 U.S.C. § 78u-4(b}, which requires the complaint
to specify each allegedly misleading statement and the reasons why
it is misleading, and to “state with particularity the facts giving
rise to strong inference that the defendant acted with” scienter.

Plaintiffs’ pleadings fail in several respects. First,
despite the length of the 99-page complaint, plaintiffs fail to
clearly plead the “what” of the alleged fraud. Plaintiffs
generally refer to misleading price quotes, implied
representations, and false representations to the public, the
media, and the SEC, but fail to identify even a single false or
misleading statement, express or implied. Plaintiffs argue that
they do not have to do so because documentation of the facts is in
the hands of the defendants, and defendants are aware of their own
conduct. While plaintiffs need not detail each allegedly
fraudulent transaction (of which they claim there are hundreds, if
not thousands), they must plead at least one such transaction
where, if the plaintiffs’ allegations are true, defendants’
statements are false. See Tricontinental Indus. LTD v. Anixter
215 F. Supp. 2d 942, 947-48 (N.D. Ill. 2002).

Plaintiffs also fail to provide the “who” required by Rule
9(b) and the PSLRA. The only allegations that are specifically
tied to a particular defendant involve two paragraphs quoting from

releases from the Pacific Exchange and the Philadelphia Exchange,


competitive restraints on the options trading market. Defendants
move to dismiss the complaint. I Grant that motion.
I.

On a motion to dismiss, I accept all well-pleaded allegations
in the complaint as true, Turner/Ozanne v. Hyman/Power, 111 F.3d
1312, 1319 (7th Cir. 1997), and grant the motion only if the
plaintiff can prove no set of facts to support the allegations in
her claim. Strasburger v. Bd. of Educ., 143 F.3d 351, 359 (7th Cir.
1998).

In Counts I and Il of the complaint, plaintiffs allege
violations of § 1 of the Sherman Act and §§ 4 and 16 of the Clayton
Act. Defendants argue that these antitrust counts must be
dismissed, as the enactment of the Securities Exchange Act of 1934,
15 U.S.C. § 78 et seqg., and subsequent regulation by the SEC
impliedly repealed the application of antitrust law with respect to
options trading. Implied repeal arises in two situations. First,
repeal is implied “when a federal regulatory scheme is so pervasive
that ‘agency initiative or full deliberation controls every aspect
of’ the defendant’s behavior.” Amer. Agriculture Movement, Inc. v.
Board of Trade, 977 F.2d 1147, 1158 (7° Cir. 1992); see also Gordon
v. New York Stock Exch., 422 U.S. 659 (1975). Second, implied
repeal arises when the activities attacked either were required by
law or the relevant agency or were scrutinized and approved by the

relevant agency. Id. See also Verizon Comm., Inc. v. Trinko, 124


underlying interest (here, securities traded on a national
securities exchange) at a fixed price when certain conditions are
met. Dealers, who effect transactions for themselves, and brokers,
who effect transactions for others, supply the market for publicly-
traded options. A bid price is the highest price at which a dealer
or broker is willing to buy an option; an ask or offer price is the
lowest price at which a dealer or broker is willing to sell an
option, The exercise price is the price at which the option owner
has the right to exercise the option to buy or sell. The price of
a given option is affected by a wide variety of market factors

including the current price of the underlying interest, the
forecast volatility, and supply and demand.

Plaintiffs allege that defendants have acted in concert to
artificially restrict the prices of options, forcing plaintiffs to
buy higher and sell lower than would normally happen in a freely
competitive market. Plaintiffs also allege that defendants have
failed to complete orders placed by the plaintiffs in a timely
manner or at all; changed the bid or ask prices of an option after
plaintiffs had placed an order to buy or sell; failed to provide
notice to plaintiffs in a timely manner that purchases or sales
were completed; and adjusted the price of orders after providing
notice to plaintiffs that the orders had already been completed.

Plaintiffs allege that, collectively, these practices have placed


Plaintiffs Last Atlantis Capital LLC, Lola LLC, Lulu LLC,
Goodbuddy Society LLC, Friendly Trading LLC, and Speed Trading LLC
allege numerous violations of federal and state law by defendants,
as well as violations of rules promulgated by the Securities and
Exchange Commission (“SEC”). Defendants include the Chicago Board
Options Exchange, Inc., the American Stock Exchange LLC, the
Pacific Exchange, Inc., and the Philadelphia Exchange, Inc.
(collectively, the Exchange Defendants), as well as 35 securities
brokers and/or dealers (collectively, the Market Maker Defendants).
Specifically, plaintiffs allege that defendants violated § 1 of the
Sherman Act and § 4 of the Clayton Act (Count I); § 1 of the
Sherman Act and § 16 of the Clayton Act (Count II); § 10b of the
Exchange Act and SEC Rules 10b-5 and 11Acl-1 (Count III).
Plaintiffs also allege that defendants are in breach of contract
(Count V);! have engaged in common law fraud;* are in breach of
their fiduciary duties (Count VI}; are in violation of the Illinois
Consumer Fraud and Deceptive Practices Act, 815 Ill. Comp. Stat.
505/2 (Count VII); and have engaged in tortious interference with
the plaintiffs’ businesses (Count VIII).

The plaintiffs’ allegations concern activities related to the
trading of options. An option is a contract that provides its

owner the right to purchase or sell a fixed quantity of the

' The complaint does not include a Count IV.

? This count is unnumbered in the complaint.

2