Comex Clearing Association, Inc. v. Flo-Arb Partners

Volume Investors Corporation (Volume) was a member of the Commodities Exchange, Inc. (COMEX), a contract market. Volume was also a member of the Comex Clearing Association (CCA) (plaintiff), as well as a futures commission merchant (FCM) registered with the Commodity Futures Trading Commission (CFTC). Flo-Arb Partners (Flo-Arb) (defendant), also an FCM, used the CCA to clear its trades. In doing so, Flo-Arb acted as pure speculators, seeking to make a profit in the marketplace. Volume permitted some of its customers to hold large amounts of gold futures contracts that were not guaranteed by sufficient margin. When the price of gold changed dramatically, those customers were unable to meet margin demands, and in turn, Volume was unable to meet the margin demands of the CCA, resulting in Volume’s financial collapse. Flo-Arb was not among those customers of Volume who failed to meet margin requirements. A temporary receiver appointed by the federal district court undertook to liquidate Volume’s positions, and a receiver of Volume’s estate undertook windup of the estate, including payments to Volume’s customers. Flo-Arb brought a claim in federal district court against the CCA (which became the successor of Volume), and that claim became the main barrier to Volume’s windup. The district court was faced with the allocation of the loss among Volume’s victims.