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Law360 (November 30, 2020, 2:09 PM EST ) A London-based firm that made more than $500 million in trading profits when U.S. oil prices went negative in April told an Illinois federal court it's not to blame for the historic demand slump, which it characterized as a byproduct of the coronavirus pandemic.
In a motion to dismiss a putative class action against it, Vega Capital London Ltd. told the court Friday the facts do not support the claim by Mish International Monetary Inc. that its traders' gains were ill-gotten.
The firm told the court the complaint "leaps to a conclusion" that the historic price drop was man-made and caused by price manipulation despite the presence of "far more plausible explanations provided by the global pandemic and its devastating effects on the economy and trading of crude oil."
"Conclusory allegations do not provide a plaintiff with unfettered immunity to ignore the elephant in the room," Vega told the court in its motion to dismiss, referring to the ongoing coronavirus pandemic.
Mish International, a coin dealer, asserted Commodity Exchange Act claims against Vega and its unnamed traders on behalf of investors who bought or sold the oil futures contracts at issue between April 20 and 21.
The suit, filed in August, claims at least a dozen traders at Vega worked together to aggressively sell light sweet crude oil futures contracts on the New York Mercantile Exchange on April 20, the same day the price of a U.S. futures contract for delivery of crude oil in May fell as low as -$40 a barrel.
But Vega says the allegations lack specificity regarding which individual traders perpetrated manipulative acts, as well as when and where they were purportedly committed. Coupled with failing to show how the alleged behavior affected the market and consequently injured Mish International, the suit fails to make a viable claim, Vega argued.
Vega urged the court to toss the suit and prevent the firm's traders from being used as a scapegoat "during a difficult time for everyone," saying while it is understandable a party would seek to pin the blame for trying economic times on a firm that profited amidst it all, the court must "prevent this kind of conclusory complaint from unfairly casting a cloud over Vega's reputation and its business."
On April 20, U.S. oil prices plunged into negative territory for the first time ever as the nation's oil storage capacity neared its limit thanks to a historic coronavirus-induced demand slump. The price of action on May 2020 WTI crude oil futures contracts declined approximately $55.90 per barrel from the previous trading day's settlement price and traded as low as -$40 per barrel, meaning that oil producers would have to pay someone to take oil off of their hands.
The lawsuit states the contract price fell more than $25 in just the last two minutes of trading that day and settled at $-37.63 per barrel, only to rebound more than $47 the following day, ultimately closing at $10.01 per barrel on April 21.
According to Mish International, the price movements can actually be explained by Vega traders' "concerted selling effort" to put downward pressure on oil futures contract prices.
The London firm's traders allegedly purchased a large volume of so-called "trading at settlement" contracts, which gave Vega the right to purchase May 2020 WTI crude oil futures contracts at a price that would be determined by the settlement price of the May 2020 contracts when trading closed at 2:30 p.m. on April 20.
That incentivized the traders to then engage in "highly uneconomic" selling of those contracts just before they settled on April 20, allowing Vega's traders to "reap supra-competitive profits on their large [trading at settlement] contracts that were to be determined by the May 2020 contract's settlement price," the lawsuit alleges.
Vega argued the complaint conveniently omits the circumstances leading up to April 20 that caused the historic price slump, which boils down to an oversupply of oil when demand for the product was low due to global "stay-at-home orders" and a lack of storage for the unused product.
"In doing so, Mish ignored the obvious explanation for the price volatility," Vega said.
Representatives for the parties didn't immediately respond to requests for comment Monday.
Mish International is represented by Marvin A. Miller and Andy Szot of Miller Law LLC and Christopher Lovell and Christopher M. McGrath of Lovell Stewart Halebian Jacobson LLP.
Vega is represented by Michael P. Kelly, Amy Graham Doehring, Joel S. Forman and Meghan K. Boland of Akerman LLP
The case is Mish International Monetary Inc. v. Vega Capital London Ltd. et al., case number 1:20-cv-04577, in the U.S. District Court for the Northern District of Illinois.
--Additional reporting by Keith Goldberg and Dean Seal. Editing by Philip Shea.
For a reprint of this article, please contact reprints@law360.com.
