What makes the courts' decisions so hard to accept is that close analogies to interpositioning abound, and yet go unnoticed by the courts.
Similarly, interpositioning could be made to look like a classical form of insider trading by shifting the focus to the seller of the asset, whose lack of knowledge about an impending purchase by an acquirer leads her to sell her asset to the insider and lose the ability to sell her asset later at a higher price.
Lastly, one should consider the similarities between trading ahead, which is fraud, (306) and interpositioning. (307) Trading ahead is to buy a security knowing that one's customer is going to buy it--that is, guaranteeing oneself an asset whose price is set to rise (if the broker buys it before the customer's order is executed).
(313) There the court, perhaps, came quite close to finding the flaw in the government's case: "[Rule 10b-5] liability is premised upon a duty to disclose arising from a relationship of trust and confidence between parties to a transaction." (314) The government's argument boiled down to this, since specialists owed a duty to get their customers the best price, they breached this duty by interpositioning, and the failure to disclose this breach was a fraud.
(334) That interpositioning is similar to a violation of the duty of loyalty is clear from the analogous nature of interpositioning to both trading ahead and insider trading.
Interpositioning is a somewhat complicated procedure, and when combined with a poorly-researched--or perhaps not meticulously-researched--set of arguments, it is quite possible that the wrong legal result may occur: a court might incorrectly decide that specialists are not fiduciaries, do not owe a fiduciary duty, and therefore cannot deceive without making an affirmative representation that is contrary to fact, and thus a court would then find no fraud in the actions of a specialist who interpositions.
It may be that the interpositioning criminal cases are decided and that the civil case will settle before any court has a chance to correct its views, but what this analysis of the interpositioning prosecutions has shown is that the various forms of fraud in finance all share a common theme, be it interpositioning, insider trading, or trading ahead: using the trust that a principal (a customer or a large commercial enterprise) might give a professional (the specialist, or the trader), the professional receives a benefit that is really just the exploitation of an opportunity that should have been reserved for the principal.
(6.) For a detailed discussion of interpositioning, see infra Part I.B and especially infra notes 43-44 and accompanying text.
For my analysis of interpositioning as an economic phenomenon, see infra Part III.A.
30, 2004) (noting that one specialist firm made $38 million through interpositioning between 1999 and 2003); Aaron Lucchetti & Kara Scannel, Fifteen Indicted in NYSE Case--Elite Specialists Are Charged; Exchange Also Settles Civil Charge and Will Videotape Its Traders, WALL ST.
For the SEC's view on interpositioning as fraud, see infra notes 222-225 and accompanying text.
29, 2004), available at http://www.nyse.com/pdfs/04-051.pdf (ruling that interpositioning is a violation of NYSE Rule 104).