Page 13 - Litigation

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Litigation | MONDAY, JULY 17, 2017 | S13
meant to be a guessing game. If you don’t know, then you don’t know.
7. Be consistent.
Lawyers like to ask the same question again—and sometimes again—in a different way, hoping for a different result. But your client should be advised not to let this con- fuse him. The witness should simply stick to his original answer even if the questioning lawyer seems dissatisfied.
8. Stay calm and be polite.
Different lawyers have different styles— some will treat the witness like her new best friend. Tell your client: they are not. Other attorneys can be quite aggressive. Tell your client: don’t let this rattle you. The deposi- tion process can be frustrating but to be a good witness you must stay calm and steer clear of any urge to be rude. No good can come of that.
Your client may be nervous about some aspect of the case, but if he is not truthful, it may come back to bite him later. It is trite but certainly true: Honesty is the best policy.
9. Don’t be afraid to ask for a break if you need one.
This is not a marathon. Bathroom breaks, water breaks, or even breaks to talk to your lawyer are fine (except if a question is pend- ing). Ensure that your client knows this before the deposition begins. If your client has never been deposed or even attended a deposition, he may not realize how mentally exhausting it can be. If the witness forgets to ask for a break, do it for them.
10. Be truthful.
This is the holy grail of witness preparation tips. If you skip everything else I mentioned, don’t skip this. The witness must understand that this is sworn testimony and to be sure to give honest answers. Your client may be nervous about some aspect of the case, but if he is not truthful, it may come back to bite him later. It is trite but certainly true: Honesty is the best policy.
Spoofing
« Continued from page S8
security, at about the same time, in about the same quantity, and at about the same price” between parties who are colluding with one another. See Black’s Law Dictionary, 1124, 1339 (7th ed. 1999).
Does ‘Spoofing’ Meet ‘ATSI’ Standard For Open-Market Manipulation?
To bring a §10(b) and Rule 10b-5 action under ATSI, the SEC or a private plaintiff will have to identify the “something more” that sets it apart from other open-market trad- ing activity. In Nanopierce Technologies v. Southridge Capital Management, a court in the Southern District of New York found that the “something more” test could not be satisfied by “subjective intent to affect the price of a stock” alone. 2008 WL 250553, at *2 (S.D.N.Y. Jan. 29, 2008). This makes sense since ATSI appears to reject the SEC and D.C. Circuit test in favor of a more bright-line standard focusing on whether the open-market transac- tions are executed in a manner or in conjunc- tion with other behavior that makes them more closely resemble inherently deceptive transactions such as wash trades or matched orders.
A core characteristic of wash trades and matched orders is that they lack economic substance because they involve little or no market risk. So-called “spoofing” orders, on the other hand, can involve substantial mar- ket risk because they are executable at any
time prior to cancellation. Indeed, in the fast moving environment of modern day securi- ties markets, it is not uncommon for an order that has only been exposed to the market for one second or less to be filled. See The Speed of the Equity Markets, SEC Data High- light 2013-05 (Oct. 9, 2013). As a result, in the absence of additional factors that eliminate or at least drastically minimize execution risk, it can be argued that spoofing falls outside of the scope of §10(b) and Rule 10b-5 under ATSI. See, e.g., Cohen v. Stevanovich, 722 F. Supp. 2d 416, 424 (S.D.N.Y. 2010) (naked short
Until the ‘ATSI’ standard and its application to spoofing is clari- fied, the SEC and defendants will both face meaningful litigation risk in any spoofing enforcement action filed in the Second Circuit.
selling was not deemed manipulative because “both parties ... still bear the market risk of the transaction,” unlike wash trades or other similar transactions).
Unfortunately, other courts in the South- ern District of New York have muddied the analysis, suggesting that, even after ATSI, open-market transactions may constitute manipulative activity when coupled with “manipulative intent.” 127 F. Supp. 3d 60 (S.D.N.Y. 2015). For example, in In re Ama- ranth Natural Gas Commodities Litigation,
the court defined “something more” as “any- thing that distinguishes a transaction made for legitimate economic purposes from an attempted manipulation.” 587 F. Supp. 2d 513, 535 (S.D.N.Y. 2008). While Amaranth was a commodities manipulation case, the court looked to ATSI as analogous precedent because the case was brought under the gen- eral anti-manipulation provisions of the CEA. Continuing, the court added that, “[b]ecause every transaction signals that the buyer and seller have legitimate economic motives for the transaction, if either party lacks that motivation, the signal is inaccurate.” 587 F. Supp. 2d at 535. Similarly, in Sharette v. Credit Suisse International, the court opined that “something more” can encompass open-mar- ket transactions “coupled with manipulative intent.” 127 F. Supp. 3d at 82. The SEC will no doubt rely on these cases in future spoofing litigations, despite their circular reasoning and questionable adherence to ATSI.
Conclusion
Until the ATSI standard and its application to spoofing is clarified, the SEC and defen- dants will both face meaningful litigation risk in any spoofing enforcement action filed in the Second Circuit. This notwithstanding, spoof- ing has clearly become a high enforcement priority for the SEC and other regulators. As a result, investment firms and broker-dealers who condone this activity, or who fail to have policies reasonably designed to prevent it, do so at their own risk.
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