## Facts

- Klein & Co. Futures, Inc. was a futures commission merchant (FCM) and a clearing member of the New York Clearing Corporation (NYCC) associated with NYBOT/NYFE markets.
- First West Trading, Inc., controlled by Norman Eisler, traded P-Tech derivative contracts through an account at Klein.
- Eisler, acting in an exchange leadership role, allegedly manipulated P-Tech settlement prices to conceal losses.
- The alleged manipulation distorted settlement prices used for margin calculations, causing Klein to underestimate First West’s margin obligations.
- NYBOT-related entities allegedly received complaints about irregular settlement prices but allegedly failed to respond, and allegedly did not halt trading when requested.
- When corrected prices produced margin calls that First West could not meet, Klein—because it guaranteed customer trades as an FCM/clearing member—covered the shortfall with its own capital.
- Klein alleged the resulting losses caused it to fall below required capital levels and collapse.
- Klein sued NYBOT/NYCC-related entities and individuals, and First West/Eisler, asserting federal claims under Commodity Exchange Act (CEA) § 22(a) and § 22(b) and related state-law claims.

## Issues

1. Whether an FCM/clearing member that guarantees customer trades, but does not trade for its own account, is a “purchaser or seller” with standing under CEA § 22(a), 7 U.S.C. § 25(a).
2. Whether such an intermediary is “a person who engaged in any transaction on or subject to the rules” of a board of trade with standing under CEA § 22(b), 7 U.S.C. § 25(b), to sue for a board’s alleged bad-faith failure to enforce rules.
3. Whether the district court properly declined supplemental jurisdiction over state-law claims after dismissing all federal claims.

## Decision

- The Second Circuit affirmed dismissal of the CEA claims for lack of statutory standing.
- The court held Klein was not a “purchaser or seller” within § 22(a) because it acted as an intermediary and guarantor rather than trading for its own account.
- The court held Klein did not qualify under § 22(b) as a person who “engaged in any transaction” on or subject to exchange rules, interpreting that phrase to cover direct market participants rather than intermediaries.
- The court affirmed dismissal of the state-law claims without prejudice because, after dismissal of all federal claims, declining supplemental jurisdiction was within the district court’s discretion.

## Legal Principles

- CEA § 22(a) provides an express private damages action only to persons who “purchase or sell” commodities; courts apply that limitation as a statutory-standing requirement.
- An FCM/clearing member’s execution, clearing, and guarantee of customer trades does not itself make the intermediary a statutory “purchaser or seller” when the intermediary does not trade for its own account.
- CEA § 22(b)’s authorization for suits against a board of trade by a person who “engaged in any transaction” on or subject to the board’s rules is interpreted to reach direct trading participants, not entities whose losses arise from downstream guarantee and margin obligations.
- When federal claims are dismissed at the pleading stage, a district court may decline supplemental jurisdiction over related state-law claims under 28 U.S.C. § 1367(c) and dismiss them without prejudice.

## Conclusion

The Second Circuit treated CEA § 22 as conferring private rights only on the limited classes specified in the statute and held that an FCM/clearing member suffering losses from guaranteeing customer trades is not a qualifying plaintiff under either § 22(a) or § 22(b), leaving state-law claims to be pursued separately after dismissal without prejudice.


Klein & Co. Futures, Inc. v. Bd. of Trade of the City of N.Y., 464 F.3d 255 (2d Cir. 2006)