Wednesday, November 25, 2015

‘Flash Crash’ Suit Fares No Better on Second Go-Around

By Mark S. Nelson, J.D.

An investor who claimed that Congress failed to oversee the SEC’s policing of stock markets cannot sue the government for losses he says he sustained in the May 2010 “Flash crash.” The Tucker Act deprived the court of jurisdiction over unilateral and implied-in-fact contract claims seeking to hold the government liable for its regulatory and sovereign acts related to securities markets (Grady v. U.S., November 23, 2015, Kaplan, E.).

The Flash Crash happened over five years ago and resulted in an estimated $200 million in investor losses after stop-loss orders produced unintended stock sales at below actual market prices. These sales were etched in traders’ memories when the Dow Jones Industrial Average fell almost 1,000 points in just 30 minutes. The plaintiff claimed that Congress failed to keep tabs on the SEC’s handling of regulatory and market evolutions which, if they had been properly regulated, could have averted the Flash Crash and the plaintiff’s claimed loss of $106,000.

Despite the Tucker Act’s jurisdiction-conferring qualities, it does little to create substantive claims. The court here reasoned that the government’s sovereign and regulatory functions created no contractual rights, nor did the plaintiff allege a meeting of the minds between himself and the government. Moreover, the court said there was no need to deal with the government’s collateral estoppel argument related to an earlier suit because the court had no jurisdiction over the latest claim.

Previously, the plaintiff had sued over the SEC’s failure to police the stock market, but lost in both the claims court and the Federal Circuit. The Supreme Court later declined to hear that case. Still, despite the similarities between the two suits, the judge dismissed this latest case without prejudice.

The case is No. 1:15-cv-746.