Tuesday, December 10, 2019

Discovery battle between CFTC and Chicagoland software developer heats up

By Brad Rosen, J.D.

In a recent filing, defendants Jitesh Thakkar and his firm, Edge Financial Technologies, Inc., renewed their motion for summary judgment which was initially filed in September 2019. At that time, the court ruled the motion was premature but indicated the defendants were free to raise it later in the proceeding. The renewed motion alternatively seeks relief in the event the CFTC claims that it needs additional discovery to respond to the defendants’ motion such that the agency should be required to provide a declaration or affidavit explaining what discovery is needed and for what purpose (CFTC v. Thakkar, December 4, 2019).

For its part, the CFTC filed its response and objection to the defendants’ renewed motion on the following day. The agency argues that the defendants prematurely filed their renewed motion for summary judgment in a transparent attempt to block the CFTC from pursuing legitimate and reasonable discovery. The Commission also took issue with what it describes as the defendants' "mischaracterization of the discovery record." Moreover, the CFTC now seeks to depose four former Edge Financial employees who, it claims, helped develop and test the software application program at issue in the case.

Thereafter, the defendants filed a reply to the Commission’s response in which they contend that the CFTC has all the information it needs to respond to the defendants’ motion for summary judgment. Moreover, they assert that the agency should not be permitted to delay a ruling on the defendants’ motion by seeking further document discovery.

Evidentiary record in the criminal proceeding serves as a basis for granting a summary judgment in the administrative matter. In the underlying motion for summary judgment, the defendants asserted that, based on the entire record compiled in the parallel criminal case as well as in the CFTC’s joint investigation with the DOJ, there is no evidence to support a factual dispute on the issue of their knowledge or intent. That criminal case resulted in a hung jury after a full trial in April 2019. With a 10-2 to vote in favor of Mr. Thakkar’s acquittal, the DOJ decided not to retry him. The defendants had argued that the undisputed material facts showed that they did not know that Navinder Sarao (referred to as "Trader A" in the complaint and the perpetrator of the 2010 "flash crash" in the E-mini S&P futures contract) planned to use the program for spoofing or for manipulative or deceptive practices, and did not intend to aid Sarao’s violations of the Commodity Exchange Act. Accordingly, the defendants asserted they were entitled to judgment as a matter of law.

Subsequent developments support granting the summary judgment. The renewed motion for summary judgment identified new developments that support moving forward with the motion at this time. These include:
  • At the CFTC’s insistence, Mr. Thakkar’s counsel agreed to obtain permission to produce for the CFTC the documents that Thakkar had received from the DOJ in the criminal case and which the DOJ would not provide to the CFTC. As a result, Thakkar, at his own expense, filed a motion in the criminal case to modify the protective order in that case so that he could provide the CFTC with all the documents the DOJ produced to him in discovery in the criminal matter.
  • Mr. Thakkar incurred significant expense to copy and produce to the CFTC more than 800,000 pages of documents that the DOJ produced to him in the criminal case.
  • The defendants responded to the CFTC’s interrogatories and document requests in this case, producing another 1,068 pages of documents in addition to the voluminous documents previously produced by the defendants to the CFTC in response to its voluntary request for documents in May 2015.
Less than two weeks after defendants’ production of discovery responses and documents, the CFTC sent defendants’ counsel notice of the CFTC’s intention to take depositions of four former Edge Financial employees. The CFTC offered no explanation as to why these depositions were necessary for the CFTC to respond to the defendants’ motion for summary judgment. Moreover, the defendants noted that they were unable to determine any reason why the CFTC would need these depositions to respond to the motion.

CFTC claims renewed summary judgment motion is premature. In its response, the CFTC stated that the defendants' renewed motion for summary judgment was filed prematurely. The agency also took issue with the defendants’ arguments and conduct with regard to its discovery obligation. Some of the CFTC’s points and objections include:

The defendants stated that "document discovery issues have been resolved," when that is not the case. The CFTC asserted that it requested for the defendants to meet and confer on two outstanding document discovery issues: (1) the accessibility of data reflecting defendants’ extensive testing of the software application; and (2) the existence of any instant message communications discussing the software application the defendants programmed and whether the defendants’ search and collection of relevant documents included instant message communications. The CFTC claims that defendants’ renewed motion should not relieve them of their duties to meet and confer.
The defendants are using the renewal motion to delay depositions properly obtained through Rule 45 subpoenas. The CFTC asserts that although it notified the defendants of these subpoenas weeks ago, the defendants have refused to discuss the CFTC’s proposed depositions in any way or confirm their availability on the CFTC’s requested dates. The CFTC also claimed that the defendants’ decision now to file the renewed motion should not be a basis for preventing any properly served deposition from going forward as scheduled.

The CFTC’s requested depositions of former Edge Financial employees who helped develop the program for Sarao are highly relevant and proportional to the needs of the case.

The CFTC should not be permitted to delay the summary judgment motion by seeking unnecessary depositions. In its reply to the CFTC’s responsive pleading, the defendants assert that if the CFTC had more closely reviewed the documents the defendants produced in this matter, it would be have realized that it already has all the documents it needs to respond to the defendants’ motion for summary judgment.Additionally, the defendants contend there is no need for taking the depositions of the four former Edge Financial employees as requested because the CFTC already has been provided with the testimony and statements of key witnesses in this case from transcripts of the criminal trial, transcripts of interviews with witnesses, as well as from the CFTC’s own notes from interviews with witnesses.

The next hearing date in this matter is scheduled for December 10, 2019. At that time and given the events over the past three months, Judge Andrea Wood will be better able to evaluate whether the CFTC is pursuing a fishing expedition with respect to its discovery, a potential concern she articulated at the last status hearing in this matter held in September.

The case is No. 1:18-cv-00619.