Famous "Big Tobacco" Lawyer Launches Class Action Lawsuit Against HFT

Tyler Durden's picture

In 1994 a lawyer did what most thought was impossible: he took on big tobacco on behalf of the state of Mississippi and won a record $368.5 billion judgment paid out by the 13 biggest tobacco companies to cover the cost of treating illnesses related to smoking. 20 years later he is trying the impossible again, this time launching a class action lawsuit against High Frequency Traders, and specifically 13 stock exchanges and subsidiaries on behalf of Harold Lanier "individually, and on behalf of all others similarly situated". Ironically, the lawyer behind the lawsuit is also named Michael Lewis, no relation to the famous author whose book simplifying just how rigged the market has become as a result of HFT (and of course the Fed, but that is the topic of the forthcoming "Liberty 33 Boys").

And while most comparable lawsuits have been mocked because the HFT lobby (understandably) believes that no jury of non HFT peers can ever "grasp" the sophisticated predation and parasitism that is HFT, Lewis simplifies it: "This is a case about broken promises," the 40-page document begins. It is signed by eight different lawfirms, mostly from the south, which in recent years seem to have the most luck in explaining complex things to simple people. It is also just the first of many comparable lawsuits that will be filed in the coming weeks, now that the anti-HFT crusade has such a prominent participant as the many who extracted a a third of a trillion from big tobacco. Because if he smells blood, so will every one else.

From the lawsuit:

This case is about broken promises. Plaintiff Harold Lanier, and other Subscribers, (collectively “Subscribers”) entered into Contracts with the defendants, all of which are securities exchanges (“Exchange Defendants”), to receive electronic market data services offered by the Exchange Defendants. The Exchange Defendants promised to be fair by: (1) providing the market data service in a non-discriminatory manner; and (2) providing the Subscribers with “valid” data (i.e., the actual data that is accurate and not stale). The Exchange Defendants did not live up to either promise.

 

First, the Exchange Defendants failed to live up to their promise to provide Subscribers with the market data in a non-discriminatory manner. In an effort to increase their profits, the Exchange Defendants entered into lucrative side deals with certain customers to whom the Exchange Defendants sold advance access to the market data that Subscribers had contracted for through (1) direct feeds (“Private Feeds”) and (2) co-location services (“Preferred Data Customers”). As detailed in Section IV.C. of this Complaint, for a price, the Exchange Defendants provided access to the data to Preferred Data Customers through arrangements that guaranteed they would receive the data substantially in advance of the Subscribers.

 

Unbeknownst to Subscribers, these side deals resulted in Subscribers receiving data that was obsolete because the Preferred Data Customers had advance access to the data.

 

Second, the Exchange Defendants failed to live up to their promise to provide Subscribers with valid data. The validity of the data is what made the electronic data services offered by the Exchange Defendants valuable to the Subscribers. But by entering into the side deals with the Preferred Data Customers, the Exchange Defendants effectively provided to Preferred Data Customers the data that Subscribers had paid for, while giving Subscribers  data that was stale. In other words, as a result of the side deals, the Exchange Defendants deprived the Subscribers of the fundamental benefit of their Contracts, i.e., fair access to valid data. Plaintiff and the other Subscribers thereby suffered injury and damage as a result of the Exchange Defendants’ conduct.

 

* * *

 

This Complaint alleges ordinary state law claims, the crux of which revolve around the sale of stale data to Plaintiff. In other words, the gravamen of Plaintiff’s Complaint is that the services he purchased from the Exchange Defendants (specifically, the data provided through the exchanges) were not delivered as promised. This Complaint does not involve any claims regarding the purchase or sale of securities or investors’ losses, nor does Plaintiff seek  any relief related to the purchase or sale of any security.

And an interesting excerpt from the lawsuit framing the concept that is the crux of the issue: time.

The Significance of Time in the Financial World

 

Market data is purportedly made available to the Processor and Preferred Data Customers at the same time. However, the Exchange Defendants actually transmit the data to Preferred Data Customers before they send the same data to the Processor, such that the data arrives at the Processor well over a thousand microseconds later than the same data distributed over faster channels reaches the Preferred Data Customers. This does not even account for  the additional time required to subsequently transmit the data from the Processor to the Subscribers.

 

 

In human perception, those microseconds might appear unimportant, far less time than the blink of an eye. But in today’s financial markets, one thousand microseconds is a virtual eon. And given that it only takes the Preferred Data Customers a handful of microseconds to cancel orders and  execute trades, it is more than enough time for them to generate tremendous profits from the advance receipt of the market data.

 

The illustration below shows the flow of market data from the exchanges to both Subscribers (through the Processor) and to Preferred Data Customers. Through the use of high speed Private Feeds and co-location services, the Preferred Data Customers can receive the data in as little as one microsecond and can begin acting on the data immediately. Meanwhile, due to the (1) size of the connection of the feed between the Exchanges and the Processor, (2) the procedure involved in transmitting data between the Exchanges and the Processor, and (3) the co-location of Preferred Data Customers’ computer servers with the Exchanges’ servers, the data for Subscribers is still en route from the Exchanges to the Processor long after the Preferred Data Customers have received, and acted on, the information to their advantage. On average, the data is received by the Processor approximately 1,499 microseconds after the Preferred Data Customers receive it. The Processor then aggregates the data and only then is it disseminated to the Subscribers.

Much more in the full lawsuit below, which we urge HFTs to read because very soon they will have to explain to a jury of Joe Sixpacks just why what they do is "fair".

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PlusTic's picture

i hope this is the first of 100,000 such suits that bankrupt these criminals...fukk them!

kliguy38's picture

We are discussing the SAME criminal justice system that has existed for the past 10 years?????? hehehehehhee....I don't think you'll see any damage to the "game" from these "suits" hehehehhehee

TheFourthStooge-ing's picture

OT: Jen Psaki twitter fit, blames RT over rumor of her being fired. RT responds with #SavePsaki because they'd hate to see her leave.

http://rt.com/news/164112-jen-psaki-fired-rt/

AlaricBalth's picture

One of the co-counsels in the Mississippi tobacco suit, Paul Minor, was targeted by Karl Rove and the US Attorneys Office and ended up doing Fed Time.

"As a result of the tobacco lawsuits, some Republican politicians and tobacco industry lobbyists — such as now-Mississippi Governor Haley Barbour — appear to have become implacable foes of the trial lawyers who had frustrated them and their clients. Barbour returned to lobbying in 1997, after a four-year stint heading the Republican National Committee, and became one of the main lobbyists for Phillip Morris, which spent nearly $16 million that year in lobbying fees."

http://www.talkleft.com/story/2008/6/24/22288/5386/otherpolitics/Karl-Ro...

If you are going to fight Big Money, be prepared for an assault from TPTB from all fronts.

Marco's picture

They got to Minor because of politics, but they didn't need to manufacture evidence to do it ... just another scummy lawyer.

Guarantueeing home loans for a judge's girlfriend and then paying them off, just helping out a friend my ass.

CheapBastard's picture

More power to them. They go where gubmint regulators, AGs, SEC and the DOJ dare not tread.

max2205's picture

Go get them...I should get at least 50k out of this less 49k legal expense.

Love the legal system

WillyGroper's picture

Ever listen to Haley Barbour?

He's got an extra chromosome.

AllWorkedUp's picture

 Exactly. The tribe will find a tribe judge to make any suit against the tribal banksters simply go away.

We have no legal system when it comes to tribal banksters.

disabledvet's picture

There is a point where if we say these things this way long enough it becomes not only wonderful satire...but truly does rise to the level of. Perfect Parody.

"You phucking Jew." I mean what better line to start your stand up comedy routine. Point some hapless phuck out in the crowd (preferably someone of Asian descent since they're overachieving phucks too) and say..."yeah, you. You heard me! Asshole."

See if the crowd gets it.

"I admit it. I'm a phucking Jew. Two hundred years one of the women in my family became weak...and succumbed. Ever since then...

The International Jew's picture

You should not hate the jew for anything other than the Talmud.  They are knowing of devine, and following, devine geometry, teachings, and in some, ways, devine ways of life.  you should learn from them, and not be so arrogant, as to assume those who have gained control over you, as if you were fucking CHATTLE, were so stupid as you would like to pretend.  We learn from our enemies, before destroying them. Always.

11b40's picture

Maybe...but this is the most encouraging thing I have seen yet that might lead to some real action.  The lid needs to be blown off this thing, and a good country lawyer with a jury of solid country folk could be just the recipe for stirring up a shitstorm.  Michael Lewis has done it one time to Big Tobacco, and he will be the Home Town favorite with a Mississippi jury pool.  As the article explains, Lewis is taking a simple, straight-forward approach to the suit....it is cheating and theft.  You think ordinary Americans can't understand when sheating is going on?  When it gets boiled down and explained with simple homilies and real life examples, it becomes a matter of right vs wrong.

Another thing, too, is if this is fought out in a MS courtroom, it will be MUCH different than if in Manhattan.  Just send in a battery of high priced, slick lawyers in their $4,000 suits and see how it goes over.  I assure that there is a ton of hostility toward the Big Men from up North who look down on the South in general and MS espceially.

Plus, the other statement about lawyers everywhere sensing blood in the water may well be true.  100's of lawsuits in every state could be fantastic, and way too big for the media to ignore.  

Let's face it, there are many ways for lawyers to go after this with individual clients or class action suits.  Stocks, Bonds, Commodities of all sorts, Pension Funds, and on and on.  If the floogdgates open up, every trial will bring more discovery and ammo for the next one.

My secret prayer is that a ZHer or 2 could somehow be on this jury.

kchrisc's picture

The outcome has already been decided, this is just the theater for the sheeple.

When the final curtain falls, Goldman will own and control more.

"More, more."

Georgia_Boy's picture

Shame that it's necessary, because the government can't do its fucking job and make sound rules.

Spumoni's picture

Why aren't Schapiro and MJ White named in this suit? They are at least as culpable as the exchanges.

Terminus C's picture

The rules are there, we (the people) just don't enforce them.

tarsubil's picture

This is just lawyers asking for their cut in the action just like it was with the tobacco lawsuit.

Terminus C's picture

but, but... I thought they brought down the tobacco companies and no one smoked anymore and that rainbows and unicorns abound!

Wait, are you saying that lawsuits are NOT the answer?

icanhasbailout's picture

That's exactly it. Mega payday for the lawyers, nothing for those who suffered the actual injuries.

Too Big 2's picture

Justice will be done just as it has been done to the banks.....they will pay a small fine to settle and everyone will move on....Where is the DOJ, SEC, etc in all of this?  Oh, forgot, they are too busy going after tax havens, playing the race card, and paving the road to allow illegals access to the free good bags aka "entitlements" our country is so happy to give out... in exchange for votes....of course.

oklaboy's picture

so when does Corzine, Daimon, Blakenfeld et al do the perp walk?

Omen IV's picture

Fuck em hard, fuck em deep!

buzzsaw99's picture

the world needs billionaire lawyers too i guess. thanks bernanke.

Hulk's picture

I smoke HFT's, and I would rather fight than switch !!!

snodgrass's picture

The "tobacco" settlement was another scam cooked up by Clinton and his fellow travelers - lawyers. Lawyers and the govt got a big chunk of money, the tobacco companies were granted a monopoly because anyone entering the market after them had to pay into the settlement, and tobacco users ( addicts) got the bill. The idea that the settlement paid for the health bills of tobacco smokers was a lie. Smokers tend to die earlier and hence never use the social security benefits they have paid for. The only ones who benefitted were the lawyers.

Spumoni's picture

True, but look at all the fun Bush and Cheney had spending the only surplus our gov't has had in ages! They had us in recession 22 days after being sworn in - a new record!

Terminus C's picture

There was no surplus.

There were cooked books, but no surplus.  How does one have a surplus when one is trillions of dollars in debt?

Oh and Red team bad, blue team good = gtfo. Truth is, purple team bad

No one here buys your partisan shit, so fuck off.

greatbeard's picture

>> How does one have a surplus when one is trillions of dollars in debt?

If you don't understand the concept of how that could happen, you are either fairly ignorant, or don't want to understand due to your own red team/blue team allegiance. 

One can have a positive cash flow and be in debt.  Most functioning US household do just such a thing.

WAMO556's picture

You wasted your time. Your idea about having a savings while being in debt is the same concept of trying to put out a firestorm with a garden hose.

Methinks that you don't understand what it is you are talking about.

11b40's picture

He understands what he is talking about.  It is you that seems not to grasp the concept of an annual operating budget.  

If every year, your operating budget is negative, the cummulative debt keeps growing by the amount of the deficit, plus interest.  If your annual budget starts producing a surplus, you are obviously reversing the trend and can start reducing the cummulative debt, in theory.

Urban Redneck's picture

To argue that a "surplus" existed is analogous to arguing that refinancing a 30-year traditional fixed mortgage into a 5-year interest only NINJA ARM generates "income".

Positive cash flow through an accounting gimmick is one thing, but that thing is not a surplus.

11b40's picture

It is simply amazing how many ignorant drive-by yoyos we have attracted here.

You can offer up all the reasons or excuses you want to, but the FACTS are that Clinton  produced a surplus in the annual budgets for the last 3 years he was in office.  The last time that had happened was 1969, and 1960 before that.

Check out this and educate yourself.  

http://www.davemanuel.com/history-of-deficits-and-surpluses-in-the-unite...

Urban Redneck's picture

No.

Neither Clinton nor Gingrich balanced the budget.

Bob Rubin and Larry Summers (with the GreenZirp & FASB assist & reach-around) took a negative cash flow and turned it into a positive cash flow, whithout them the cash flow would have remained negative.

Thank a Bankster (and Fat Larry) for that "balanced" budget.

Trying to pass off correlation as causation by calling it a FACT is like HuffPo stupid...

11b40's picture

The annual budgets are attributed to the current President in office.  History records the income for the year vs. the out go.  It is either in surplus or it is not.

Pick any year under any President and argue how or why the numbers came out as they did, but the Clinton budgets were in surplus for 3 years in a row.  Those are facts, and argue all day about it if you want to, but the facts remain the same.  Math is a hard thing to argue against.

http://www.davemanuel.com/history-of-deficits-and-surpluses-in-the-unite...

Since 1940, there have been 12 years that the annual budget was in surplus, and 62 years of deficits.

Cliff Claven Cheers's picture

While I applaud Clinton for doing a better job with the budget than others, it is still a bit of a shell game.  What happens when you account for the use of Social Security funds, is it still technically a budget surplus?  I think Regan and Greenspan started the process of using those funds.  Borrowing from the SS fund is still borrowing.

Urban Redneck's picture

You really don't get it.

THAT ACCOUNTING GIMMICK IS WHY RATES WILL NEVER BE "ALLOWED" TO RISE.

And BTW idiots can attribute a budget to whomever their feeble minds choose. However, budgets are written, debated and approved by the legislature, not the executive branch, which can only sign or veto them.

Failed logic, failed math, failed civics... banking, finance and how the world actually works might be a bit much.

11b40's picture

You really should brush up on your critical reading skills.  The original argument had to do with the difference between an annual budget and a cummulative deficit.

Fly off on whatever tangent you want to try and drive home some other point, but all I have been doing is presting basic facts, while you want to talk about reasons.

Do you dispute the FACTS?

greatbeard's picture

>>  The original argument had to do with the difference between an annual budget and a cummulative deficit.

WTF?

Urban Redneck's picture

What you have presented are not facts. Furthermore, you should really brush up on your reading skills. A budget "surplus" is impossible in the US (as opposed to a cash flow positive condition WITHIN a single year). Being generous-- the term is a misnomer, more accurately-- it is a FRAUD.

During the years when the "surplus" supposedly existed, only the cash payments that occurred WITHIN the fiscal year, for the expenses occurred within the fiscal year are factored into government math. It is one thing to amortize an expense over multiple periods when the expense applies or occurs in multiple periods, but amortizing a non-recurring single period expense over periods is FRAUD (except in US public accounting).

But perhaps that's a bit esoteric and forward looking since it involves not only basic arithmetic, but also the fundamental precepts of accounting... But the fraud of public accounting is also demonstrable on a historical basis, where only common sense and pulse is required to observe the lunacy you defend as logical. Since you seem to be under the impression that there was EXCESS money in government coffers in the 1990's, there is a very direct implication that you believe all the bills that needed to be paid were in fact paid. You do realize TO THIS DAY (and therefore during the 1990's) that US has not finished paying for Martin Van Buren's salary and continues to accrue interest expense for this cost each and every year (not some pension, his SALARY for the work performed in the White House in 1837, 1838, 1839, 1840, and 1841, as well as the salary of lowliest knob polisher on the White House payroll each of those years, and each year subsequent), but setting aside Services, the same holds true for Assets, the US hasn't even finished paying off the USS Maine or the USS Arizona or countless other Assets which no sane person could argue have any useful life left. So when does the US need to finish paying for Martin's labor, and when can the US finally forget the Maine?

Public accounting is a FRAUD. Going back to what I originally posted - positive intra period cash flow is NOT a surplus (excess).

Blankenstein's picture

When they talk about the surplus (or deficit), it refers to the finances of the government for ONE fiscal year, not the cumulative "wealth" of the government.  The debt of the goverment increased greatly during WWII and has continued its upward path to its current amount of ~ $18 trillion.  It supposedly did not grow during a couple of years of Clinton's term due to those years having small surpulses.  But the claim of these supluses is disingenuous, because instead of borrowing money in the form of public debt, they borrowed money in the form of intragovernmental holdings (government borrowing from itself).  Intragovernmental holdings increased under Clinton, whereas public debt decreased.  Increases in Intragovernmental holdings and public debt both increase our national debt.

 

http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm

ebworthen's picture

True that.  I would point out that traders are addicts too (gambling).

ebworthen's picture

With smoking people have a choice; HFT not so much.

HFT is like forcing people to smoke even if they don't want to.

I'd bet this lawyer has an unfortunate boating accident while Bass fishing.

Sathington Willougby's picture

No one has the right to blindly dump a load on a market.  But go ahead if that's what you want.  It won't be pretty.

Sudden Debt's picture

Yeah, but these boys have Obama on their payroll so... don't count on it.
Pré 2000 America still had sense of trong ethics.

disabledvet's picture

"WAS IT OVER WHEN THE JEWS BOMBED PEARL HARBOR! NOTHING IS OVER UNTIL WE SAY IT IS!!"

(Excellent speech Mr President. Even better than the last Pearl Harbor one!)

Kina's picture

No chance.....Judges are now all bought and paid for in full by Bankster Oligarchs...along with NSA data to reveal how they wipe their arse.

Conax's picture

Bitch slapping tobacco lawyers and smokers around the room is much less dangerous than going after the squid's golden goose.

The 368 billion never made it down here to pay for smoker's medical bills, either.  States took it and spent it.

So who gets the settlement, if any? Cheated traders won't see a nickel, that's for sure.

11b40's picture

Oh, OK.  I see your point.  So, let's just all give up.  After all, it's so much easier to bitch and moan than to actually try to do something.

I am very happy that big tobacco got the screws put to them and there have been a lot of benefits.  I was reminded of one of them last night at dinner.  It was a lovely spring Carolina evening, so we opted to take a table outside.  About half way through my meal, smoke from an adjacent table drifted over and changed the air I breathed.  I had forgotten that it was OK to smoke in the outside dining area.  Before those tobacco settlements, people lit up everywhere, like it was their God-given right...even in elevators.  The % of the population now smoking is about half now, too, and most will agree this is a very good thing.

Conax's picture

I would like to see HFT reined in, no doubt.

I play in a garage band with a virulent anti-smoker.  We have to make sure no foul fumes waft his way, too.

During breaks we often have a fire out back, he stands there in the billowing smoke from the brush and trash burning without the slightest complaint or discomfort.

Burning limbs, cardboard and old scrap wood= no prob.

Tobacco smoke= Alarm bells and tantrums.

The point I was making was that the lawsuits were disengenuous. They only raised prices on smokers, and the funds were fed into the general fund for the FSA.

That's all.