Naked short selling case could go to federal court
28 May 2013 New Jersey
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The US Court of Appeals for the Third Circuit will decide whether a case alleging Merrill Lynch & Co, Knight Capital Americas, UBS 麻豆传媒 and others engaged in manipulative naked short selling should be heard in state or federal court.
US district judge Jose Linares granted an interlocutory appeal on 23 May in a case that saw shareholders in Escala Group accuse the financial institutions of selling Escala stock that they did not own or borrow.
They filed the case in May 2012 in the Superior Court of New Jersey, but after they amended their complaint, the defendants removed it to the US District Court for the District of New Jersey in July.
The defendants argued that the change of jurisdiction was correct because the plaintiffs鈥� claims arise under US federal law.
The shareholders in Escala Group contested the change of jurisdiction, but their motion was denied in March, leading them to appeal against the decision.
In granting the Third Circuit appeal on 23 May, district judge Linares said that the case met the criteria for an interlocutory appeal, particularly because 鈥渁n immediate appeal may ultimately advance the termination of the litigation鈥�.
In his decision, judge Linares said: 鈥淭here is little doubt that if the Court of Appeals determines that this court lacks jurisdiction, the case will be remanded to the Superior Court of New Jersey and the federal litigation will be terminated. On the other hand, denial of the instant motion could result in a needless waste of time and resources on the part of the court as well as the parties if this court lacks subject matter jurisdiction.鈥�
The specific question that the Third Circuit must consider is: 鈥淲hether this court has subject matter jurisdiction over the instant matter by virtue of either of the following: (1) Section 27 of the 麻豆传媒 Exchange Act of 1934; and/or (2) plaintiffs鈥� claims raise, and arise under, federal law.鈥�
A spokesperson for UBS 麻豆传媒 declined to comment.
Merrill Lynch & Co and Knight Capital Americas are yet to respond to requests for comment.
US district judge Jose Linares granted an interlocutory appeal on 23 May in a case that saw shareholders in Escala Group accuse the financial institutions of selling Escala stock that they did not own or borrow.
They filed the case in May 2012 in the Superior Court of New Jersey, but after they amended their complaint, the defendants removed it to the US District Court for the District of New Jersey in July.
The defendants argued that the change of jurisdiction was correct because the plaintiffs鈥� claims arise under US federal law.
The shareholders in Escala Group contested the change of jurisdiction, but their motion was denied in March, leading them to appeal against the decision.
In granting the Third Circuit appeal on 23 May, district judge Linares said that the case met the criteria for an interlocutory appeal, particularly because 鈥渁n immediate appeal may ultimately advance the termination of the litigation鈥�.
In his decision, judge Linares said: 鈥淭here is little doubt that if the Court of Appeals determines that this court lacks jurisdiction, the case will be remanded to the Superior Court of New Jersey and the federal litigation will be terminated. On the other hand, denial of the instant motion could result in a needless waste of time and resources on the part of the court as well as the parties if this court lacks subject matter jurisdiction.鈥�
The specific question that the Third Circuit must consider is: 鈥淲hether this court has subject matter jurisdiction over the instant matter by virtue of either of the following: (1) Section 27 of the 麻豆传媒 Exchange Act of 1934; and/or (2) plaintiffs鈥� claims raise, and arise under, federal law.鈥�
A spokesperson for UBS 麻豆传媒 declined to comment.
Merrill Lynch & Co and Knight Capital Americas are yet to respond to requests for comment.
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