Case 1:19-cv-00238-RA Document 49 Filed 05/15/20 Page 1 of 18
`USDC-SDNY
`DOCUMENT
`ELECTRONICALLY FILED
`DOC#:
`DATE FILED: 5-15-20
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`
`
`VINCENT WU, DYLAN ARANA, GRIFFIN
`BRANHAM, KEITH DEZMIN, PHIL MAY,
`DANIEL MCBRIDE, JEFF O’TOOLE,
`ADAM PATTACHIOLA, SEONG-YOUP
`SUH, JOHN TWIGG, THOMAS WEILAND
`and KELLY WILLIAMS SCHELL,
`
`
`Plaintiffs,
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`No. 19-CV-238 (RA)
`
`OPINION & ORDER
`
`
`
`v.
`BITFLOOR, INC. and ROMAN
`SHTYLMAN,
`
`
`Defendants.
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`
`
`
`
`
`RONNIE ABRAMS, United States District Judge:
`
`
`INTRODUCTION
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`Plaintiffs Vincent Wu, Dylan Arana, Griffin Branham, Keith Dezmin, Phil May, Daniel
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`McBride, Jeff O’Toole, Adam Pattachiola, Seong-Youp Suh, John Twigg, Thomas Weiland, and
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`Kelly Williams Schell brought this action against Defendants Bitfloor, Inc. and Roman
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`Shtylman, alleging that Defendants committed commodities fraud in violation of Section 6(c)(1)
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`of the Commodities Exchange Act (“CEA”), 7 U.S.C. § 9(1), and Regulation 180.1(a)
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`thereunder, 17 C.F.R. § 180.1(a), in addition to violating New York State law.
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`Plaintiffs, all customers of Bitfloor, allege that Defendants made false or misleading
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`statements and omissions regarding Bitfloor’s operations and that reliance on those statements
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`and omissions caused Plaintiffs to suffer economic losses.
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`

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`Case 1:19-cv-00238-RA Document 49 Filed 05/15/20 Page 2 of 18
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`Before the Court is Defendants’ motion to dismiss Plaintiffs’ First Amended Complaint
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`(“FAC”) pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). In light of the fact that
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`Plaintiff’s CEA claim is time-barred, the motion is granted.
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`FACTUAL BACKGROUND
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`Except where otherwise noted, the following facts are drawn from Plaintiffs’ FAC, the
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`documents attached thereto, and the documents incorporated by reference. See Faber v. Metro.
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`Life Ins. Co., No. 08 Civ. 10588 (HB), 2009 WL 3415369, at *1 n.1 (S.D.N.Y. Oct. 23, 2009)
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`(“In considering a motion to dismiss, the Court may consider documents attached as an exhibit to
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`the complaint or incorporated into the complaint by reference, [and] documents that are integral
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`to the plaintiff’s claims, even if not explicitly incorporated by reference . . . .”), aff’d, 648 F.3d
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`98 (2d Cir. 2011). These facts are assumed to be true for purposes of this motion. See Myun–Uk
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`Choi v. Tower Research Capital LLC, 890 F.3d 60, 65 (2d Cir. 2018).
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`I.
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`Parties
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`Bitfloor is a New York corporation with its principal place of business in New York.1
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`FAC, Dkt. 45, ¶ 13. Bitfloor was incorporated in 2011 as an online exchange platform where
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`customers could trade virtual currencies, including Bitcoin. Id. ¶¶ 18-19. Customers could buy
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`and sell Bitcoin through Bitfloor, but could also hold their Bitcoin (and other currencies,
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`including traditional fiat currencies) in digital “wallets” that functioned similarly to bank
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`accounts. Id. ¶¶ 20-21. Bitfloor charged customers fees for its services. Id. ¶ 21. Shtylman
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`owns, operates, and controls Bitfloor as its Chief Executive Officer. Id. ¶ 14.
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`1 The parties dispute whether Bitfloor still exists as a corporate entity. Compare FAC ¶ 32 (“Bitfloor stated it was
`no longer in business. However . . . Defendants renewed their ownership of ‘bitfloor.com’ with Namecheap.com . . .
`.”), with Defs.’ Mot. to Dismiss (“Defs.’ MTD”), Dkt. 22, at 1 (noting Bitfloor is “a now defunct corporation”), and
`Defs.’ Reply in Supp. of Mot. to Dismiss, Dkt. 31, at 3 (“The fact that someone later renewed ownership of the
`bitfloor.com domain name is wholly irrelevant to whether New York dissolved the company.”) (citation omitted).
`2
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`Case 1:19-cv-00238-RA Document 49 Filed 05/15/20 Page 3 of 18
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`Plaintiffs are residents of New York, other states, Canada, and the United Kingdom. Id.
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`¶¶ 1-12. Plaintiffs “bought, sold, and held bitcoin at Bitfloor from time to time.” Id. ¶ 21.
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`Plaintiffs allege that they presently “hold” various amounts of Bitcoin in their Bitfloor wallets
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`that they are “not able to access or sell.” Id. ¶¶ 1-12.
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`II.
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`Bitfloor’s Closure
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`By June 2012, Bitfloor had grown to become the fourth-largest Bitcoin exchange in the
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`world. Id. ¶ 33; FAC Ex. 1 (“Bitcoin Magazine Report”) at 1. However, on April 19, 2013,
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`Bitcoin Magazine reported on an announcement by Shtylman (the “2013 Shutdown
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`Announcement”) that Bitfloor would “cease all trading operations indefinitely.” Bitcoin
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`Magazine Report at 2.2 The 2013 Shutdown Announcement stated that Bitfloor’s closure was
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`due to the closure of its U.S. bank account by its banking partner, Capital One, which meant that
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`it could “no longer provide the same level of USD deposits and withdrawals as [it had] in the
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`past.” Id. Accordingly, the 2013 Shutdown Announcement stated that “[o]ver the next days”
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`Bitfloor would “be working with all clients to ensure that everyone receives their funds.” Id.
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`Plaintiffs allege that they did not receive any notice from Bitfloor concerning the 2013
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`Shutdown Announcement and that they are not aware of any other Bitfloor customer who
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`received such notice directly from Bitfloor. FAC ¶ 28. In addition, Plaintiffs allege that
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`“Defendants did not return the phone calls from the Plaintiffs,” although they do not plead any
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`facts regarding the dates of or circumstances surrounding those purported phone calls. Id. ¶ 31.
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`2 Although Plaintiffs dispute the facts alleged in the Shutdown Announcement and dispute receiving the Shutdown
`Announcement at the time it was made, FAC ¶ 28, they do not dispute that the Shutdown Announcement was
`printed in Bitcoin Magazine on or about April 19, 2013, id. ¶ 26. Moreover, Plaintiffs attach the Shutdown
`Announcement as an exhibit to the FAC, and “[a] complaint is also deemed to include any written instrument
`attached to it as an exhibit.” Sierra Club v. Con-Strux, LLC, 911 F.3d 85, 88 (2d Cir. 2018) (internal quotation
`marks and citations omitted). The Court therefore accepts as true that the Shutdown Announcement was published
`in Bitcoin Magazine on or about April 19, 2013.
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`3
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`Case 1:19-cv-00238-RA Document 49 Filed 05/15/20 Page 4 of 18
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`Plaintiffs further allege that Defendants “deliberately closed their site making it impossible for
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`Plaintiffs to contact Defendants and/or recover their property.” Id. ¶ 34.
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`III.
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`Shtylman’s Courtesy Letter to NYDFS
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`On January 10, 2018, Shtylman, through his prior counsel, submitted a letter to the New
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`York Department of Financial Services (“NYDFS”) in response to a consumer complaint made
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`to NYDFS regarding “Bitfloor.com.” FAC ¶ 32; FAC Ex. 2 (“Courtesy Letter”) at 1.3 The
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`Courtesy Letter stated:
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`• “Bitfloor.com is the former website of the former company, Bitfloor, Inc.,” which
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`“effectively ceased operations on April 21, 2013” after Capital One ended its services.
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`“Bitfloor made a public announcement of this fact on its website and in numerous emails
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`sent to Bitfloor customers.” Courtesy Letter at 1. “Bitfloor operated in wind-down mode
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`for some period of time thereafter, processing withdrawals of bitcoins and returning US
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`dollar deposits to previous Bitfloor customers that it was able to identify.” Id.
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`• Bitfloor “was dissolved in August 2016.” Id. A record of dissolution from the New York
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`State Department of State, Division of Corporations indicating that Bitfloor was
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`dissolved on August 31, 2016 was attached to the Courtesy Letter. Id. at 1, 3-4.
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`• “Notwithstanding Bitfloor’s best efforts, approximately $59,000 in US dollar deposits
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`was unable to be returned to Bitfloor customers. This money was on deposit with the
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`Internet Archive Federal Credit Union in 2016, until that bank closed operations and the
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`money in Bitfloor’s account there was forfeited to the US government.” Id. at 1.
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`• “Following this forfeiture, and the return of bitcoins to Bitfloor’s customers, Bitfloor was
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`dissolved,” and therefore “there is no longer a Bitfloor entity that has funds or bitcoins to
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`3 The complaint was made by a “Mr. Jeff O’Toole.” It appears that this is the same individual now before the Court
`as a plaintiff.
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`4
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`Case 1:19-cv-00238-RA Document 49 Filed 05/15/20 Page 5 of 18
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`redress [the] complaint. Moreover, Mr. Shtylman has no specific recollection of [the
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`complainant’s] account or his attempts to withdraw his bitcoins, which is not surprising
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`given the amount of time that has passed since the events alleged in [the] complaint.”
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`Id.4
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`PROCEDURAL HISTORY
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`Plaintiffs commenced this action by filing the initial complaint on January 11, 2019. Dkt.
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`4. Defendants moved to dismiss the initial complaint on April 16, 2019. Dkt. 22. After the
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`parties completed briefing on Defendants’ motion to dismiss, Dkts. 29-31, the Court granted
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`Plaintiffs leave to file an amended complaint and provided that the parties could file
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`supplemental briefing on Defendants’ pending motion to dismiss, Dkt. 41. Plaintiffs filed the
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`First Amended Complaint—the operative complaint in this action—on June 28, 2019. Dkt. 45.
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`The parties then submitted supplemental briefing on Defendants’ motion to dismiss. Dkts. 46-
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`48.
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`In the First Amended Complaint, Plaintiffs plead violations of the Commodities
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`Exchange Act and the regulations promulgated thereunder, as well as various New York State
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`statutory and common law claims including breach of contract, conversion, fraud, deceptive
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`business practices in violation of New York State’s General Business Statute § 349, breach of
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`fiduciary duty, loss of opportunity, negligent misrepresentation, unjust enrichment, and
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`bailment/constructive trust. See FAC ¶¶ 51-82.
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`4 Plaintiffs do not dispute the fact that Shtylman made the statements in the January 18, 2018 Courtesy Letter, FAC
`¶ 32, and attach the Courtesy Letter to the FAC, including the record of dissolution attached thereto, id. at Ex. 2.
`The existence of the Courtesy Letter and record of dissolution are therefore accepted as true for the same reason that
`the existence of the 2013 Shutdown Announcement is accepted as true. See supra note 2.
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`Case 1:19-cv-00238-RA Document 49 Filed 05/15/20 Page 6 of 18
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`LEGAL STANDARD
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`I.
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`Motions to Dismiss Under Federal Rule of Civil Procedure 12(b)(6)
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`To survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a
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`complaint must plead “enough facts to state a claim to relief that is plausible on its face.” Bell
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`Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the
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`plaintiff pleads factual content that allows the court to draw the reasonable inference that the
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`defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In
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`making this determination, the Court must “accept[] all factual allegations as true, but ‘giv[e] no
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`effect to legal conclusions couched as factual allegations.’” Stadnick v. Vivint Solar, Inc., 861
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`F.3d 31, 35 (2d Cir. 2017) (quoting Starr v. Sony BMG Music Entm’t, 592 F.3d 314, 321 (2d Cir.
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`2010)). Moreover, on a motion to dismiss, a court “may consider any written instrument
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`attached to the complaint, statements or documents incorporated into the complaint by reference,
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`legally required public disclosure documents filed with the SEC, and documents possessed by or
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`known to the plaintiff and upon which it relied in bringing the suit.” ATSI Commc’ns, Inc. v.
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`Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007).
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`II. Motions to Dismiss Under Federal Rule of Civil Procedure 9(b)
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`Federal Rule of Civil Procedure 9(b) has a heightened pleading standard, requiring that a
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`plaintiff alleging fraud “state with particularity the circumstances constituting” the alleged fraud.
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`Fed. R. Civ. P. 9(b). “The Second Circuit has not decided whether, as a general rule, CEA
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`claims are subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b).”
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`Dennis v. JPMorgan Chase & Co., 343 F. Supp. 3d 122, 176 n. 245 (S.D.N.Y. 2018); see also
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`Sullivan v. Barclays PLC, No. 13-cv-2811 (PKC), 2017 WL 685570, at *30 (S.D.N.Y. Feb. 21,
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`2017) (“Courts apply Rule 9(b)’s pleading requirements to the CEA on a case-by-case basis.”).
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`Courts in this district, however, have held that “[w]hether or not the heightened pleading
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`Case 1:19-cv-00238-RA Document 49 Filed 05/15/20 Page 7 of 18
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`standard of Rule 9(b) of the Federal Rules of Civil Procedure applies” to CEA claims “depends
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`on the conduct alleged.” Dennis, 343 F. Supp. 3d at 176. Where, as here, the plaintiffs’
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`“allegations suggest fraudulent conduct on defendants’ part,” the “CEA claims are subject to the
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`heightened pleading requirements of Rule 9(b).” Id. To satisfy the requirements of Rule 9(b),
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`“the plaintiff must ‘(1) specify the statements that the plaintiff contends were fraudulent, (2)
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`identify the speaker, (3) state where and when the statements were made, and (4) explain why the
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`statements were fraudulent.’” Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98, 108 (2d Cir.
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`2012) (quoting Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004)).
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`DISCUSSION
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`Plaintiffs allege that Defendants fraudulently misled Bitfloor’s customers about how the
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`exchange operated and ultimately closed and, in so doing, induced Plaintiffs to entrust their
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`money to Defendants in violation of the CEA and Regulation 180.1(a). FAC ¶¶ 29-50. These
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`alleged fraudulent acts include, inter alia, that “[Bitfloor] did not send its [2013 Shutdown
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`Announcement] to the Plaintiffs” and that “Defendants did not return the phone calls from the
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`Plaintiffs.” Id. ¶¶ 30-31. In addition, Plaintiffs allege that the Courtesy Letter “was false in that
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`it stated Defendants had ‘forfeited’ money to the US treasury although in fact the Treasury took
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`that money to hold for its true owners” and that Bitfloor was dissolved “by proclamation of the
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`state when in fact that happened because Defendants voluntarily failed to pay franchise taxes,”
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`which caused New York to declare Bitfloor “‘inactive’ (meaning dissolved).” Id. ¶ 32. Plaintiffs
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`further allege that Defendants made solicitations of Bitfloor customers to grow the business. Id.
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`¶ 33. In sum, Plaintiffs assert that “[b]y their statements Defendants intentionally lulled the
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`Plaintiffs into failing to apply to Defendants for a return of their property until the Defendants,
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`by their own admissions, deliberately closed their site making it impossible for Plaintiffs to
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`contact Defendants and/or recover their property.” Id. ¶ 34. They further assert that “Defendants
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`Case 1:19-cv-00238-RA Document 49 Filed 05/15/20 Page 8 of 18
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`continue to hold property which they know is not their property and have failed to escheat it to
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`the State of New York or any other jurisdiction in which the Plaintiffs reside as required by law.”
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`Id. ¶ 37.
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`For the reasons that follow, the Court finds that Plaintiffs’ Commodities Exchange Act
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`and Regulation 180.1(a) claim is time-barred under the applicable statute of limitations and
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`declines to exercise jurisdiction over Plaintiffs’ state law claims.
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`I.
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`Plaintiffs’ Commodities Exchange Act Claim is Time-Barred
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`The Commodities Exchange Act or CEA “is a remedial statute that serves the crucial
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`purpose of protecting the innocent individual investor—who may know little about the
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`intricacies and complexities of the commodities market—from being misled or deceived.”
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`Prime Int’l Trading, Ltd. v. BP P.L.C., 937 F.3d 94, 101 (2d Cir. 2019) (citation omitted).
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`“Section 6(c)(1) of the CEA makes it ‘unlawful for any person . . . to use or employ, . . . in
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`connection with any swap, or a contract of sale of any commodity, . . . any manipulative or
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`deceptive device.’” Id. (quoting 7 U.S.C. § 9(1)). Regulation 180.1(a), promulgated under the
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`CEA, provides that it is “unlawful for any person . . . in connection with any swap, or contract of
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`sale of any commodity,” to “[u]se or employ, or attempt to use or employ, any manipulative
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`device, scheme, or artifice to defraud,” 17 C.F.R. § 180.1(a)(1), “[m]ake, or attempt to make, any
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`untrue or misleading statement of a material fact or to omit to state a material fact necessary in
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`order to make the statements made not untrue or misleading,” id. § 180.1(a)(2), “[e]ngage, or
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`attempt to engage, in any act, practice, or course of business, which operates or would operate as
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`a fraud or deceit upon any person,” id. § 180.1(a)(3), or “[d]eliver or cause to be delivered . . . a
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`false or misleading or inaccurate report concerning . . . market information or conditions that
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`affect or tend to affect the price of any commodity in interstate commerce,” id. § 180.1(a)(4).
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`Case 1:19-cv-00238-RA Document 49 Filed 05/15/20 Page 9 of 18
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`CEA claims must be brought “not later than two years after the date the cause of action
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`arises.” 7 U.S.C. § 25(c). “Although the statute of limitations is ordinarily an affirmative
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`defense that must be raised in the answer, a statute of limitations defense may be decided on a
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`Rule 12(b)(6) motion if the defense appears on the face of the complaint.” Ellul v. Congregation
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`of Christian Bros., 774 F.3d 791, 798 n.12 (2d Cir. 2014) (citation omitted). “Dismissing claims
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`on statute of limitations grounds at the complaint stage ‘is appropriate only if a complaint clearly
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`shows the claim is out of time.’” Shak v. JPMorgan Chase & Co., 156 F. Supp. 3d 462, 474
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`(S.D.N.Y. 2016) (quoting Harris v. City of New York, 186 F.3d 243, 250 (2d Cir. 1999)). “A
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`complaint is also deemed to include any written instrument attached to it as an exhibit, materials
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`incorporated in it by reference, and documents that, although not incorporated by reference, are
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`‘integral’ to the complaint.” Sierra Club, 911 F.3d at 88 (internal quotation marks and citations
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`omitted). Plaintiffs, however, “need not allege a specific . . . date to survive a motion to dismiss
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`because Defendants, not Plaintiff[s], bear the burden of proof on the affirmative defense of the
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`statute of limitations.” Pearce v. Manhattan Ensemble Theater, Inc., 528 F. Supp. 2d 175, 182
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`(S.D.N.Y. 2007); see also Fargas v. Cincinnati Mach., LLC, 986 F. Supp. 2d 420, 427 (S.D.N.Y.
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`2013) (denying motion to dismiss on statute-of-limitations grounds where “the Complaint
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`contain[ed] no information as to the [relevant dates]” and the dates were not otherwise
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`referenced in properly considered documents).
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`Defendants argue that Plaintiffs’ claim is time-barred because Plaintiffs should have been
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`aware that they could not access their accounts once the Bitfloor site shut down in April 2013,
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`but Plaintiffs failed to bring their claim until January 11, 2019—nearly six years later. See
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`Defs.’ Mot. to Dismiss (“Defs.’ MTD”), Dkt. 22, at 2; Defs.’ Suppl. Reply, Dkt. 46, at 2-4.
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`Plaintiffs dispute that their CEA claim is time-barred, but do not specify when they believe their
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`CEA cause of action accrued, arguing instead that “the date when Plaintiffs knew of their injury
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`is a fact question awaiting further development as this action proceeds.” Pls.’ Opp. at 3-5.
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`As the parties appear to agree, the “discovery accrual rule” applies to Plaintiffs’ claim
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`under the CEA, which is otherwise silent on when a cause of action accrues. See Levy v. BASF
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`Metals Ltd., 917 F.3d 106, 108 (2d Cir. 2019), cert. denied, 140 S. Ct. 536 (2019). Under the
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`rule, “discovery of the injury, not discovery of the other elements of a claim . . . starts the clock”
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`for purposes of the statute of limitations. Id. at 108 (quoting Rotella v. Wood, 528 U.S. 549, 555
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`(2000)). Even when a plaintiff lacks “actual knowledge” of the injury, where “‘the
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`circumstances known to’ a plaintiff, ‘as alleged in the complaint, were such as to suggest to a
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`person of ordinary intelligence’ that she has been defrauded, ‘a duty of inquiry’ may arise that
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`commences the CEA’s two-year limitations period.” Id. at 109 (quoting Benfield v. Mocatta
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`Metals Corp., 26 F.3d 19, 22 (2d Cir. 1994)). In other words, “[a] plaintiff’s knowledge of the
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`injury may be imputed in situations where the plaintiff had a duty of inquiry.” Shak, 156 F.
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`Supp. 3d at 473-74 (S.D.N.Y. 2016) (citing In re LIBOR–Based Fin. Instruments Antitrust Litig.,
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`935 F. Supp. 2d 666, 697-98 (S.D.N.Y. 2013) [hereinafter LIBOR I], vacated and remanded on
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`other grounds sub nom. Gelboim v. Bank of Am. Corp., 823 F.3d 759 (2d Cir. 2016)). For the
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`reasons that follow, the Court holds that Plaintiffs had inquiry notice of their injury more than
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`two years before they filed their initial complaint on January 11, 2019, and that their CEA claim
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`is therefore time-barred.
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`A. Actual Knowledge
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`In Levy, the Second Circuit held that, on the basis of the allegations in the plaintiff’s
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`complaint, the plaintiff had “actual knowledge” of her injury when “prices started to fall for no
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`apparent reason” in “an extraordinary, unprecedented and unjustified sudden collapse” for which
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`there was “no explanation . . . other than market distortion due to manipulation.” Levy, 917 F.3d
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`at 109 (citations omitted). Unlike in Levy, however, it is unclear from the face of the FAC when
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`Plaintiffs acquired “actual knowledge” of their injury. Defendants argue that “Plaintiffs
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`specifically allege . . . in the FAC that the Bitfloor exchange site shut down at the latest in April
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`2013,” Defs.’ Suppl. Reply, Dkt. 46, at 4 (citing FAC ¶¶ 23, 26, Ex. 2), and that Plaintiffs “allege
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`that since at least April 2013 ‘the Defendants stopped communicating with Plaintiff[s],’” id.
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`(citing FAC ¶ 18). Yet Defendants mischaracterize the FAC. The FAC does not, in fact, allege
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`the specific dates when Defendants shut down the site, when Plaintiffs first realized they could
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`not access the site, or when Plaintiffs tried unsuccessfully to communicate with Defendants.
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`Instead, the FAC alleges that the website was active “until at least January 15, 2013” without
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`stating when or how Plaintiffs first discovered that the site was no longer active. FAC ¶ 23. The
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`FAC also asserts that “the Defendants stopped communicating with Plaintiff[s],” FAC ¶ 18, and
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`“[t]he Defendants did not return the phone calls from the Plaintiffs,” without stating when or to
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`what number such phone calls were placed, FAC ¶ 31. Although Plaintiffs attach to their FAC
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`the April 19, 2013 Bitcoin Magazine Report, which states that Bitfloor would “cease all trading
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`operations indefinitely,” Bitcoin Magazine Report at 2, Plaintiffs assert that they “did not receive
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`the notice from Bitfloor,” FAC ¶ 28. Accordingly, it is unclear when Plaintiffs first discovered
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`the 2013 Shutdown Announcement or otherwise first learned about the closure of Bitfloor, and
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`thus obtained “actual knowledge” of their injury. In any event, for the reasons that follow,
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`Plaintiffs were on inquiry notice more than two years prior to initiating this action.
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`B. Inquiry Notice
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`Even where a plaintiff lacks actual knowledge of an injury, the “plaintiff’s knowledge of
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`the injury may be imputed in situations where the plaintiff had a duty of inquiry; the date on
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`which such knowledge is imputed to the plaintiff turns on whether and how the plaintiff
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`discharged that duty.” Shak, 156 F. Supp. 3d at 473 (citing LIBOR I, 935 F. Supp. 2d at 698).
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`“Whether a plaintiff was placed on inquiry notice is analyzed under an objective standard. This
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`objective determination can be resolved as a matter of law.” Staehr, 547 F.3d at 427 (citations
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`omitted). A duty of inquiry arises when “‘the circumstances known to’ a plaintiff, ‘as alleged in
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`the complaint, were such as to suggest to a person of ordinary intelligence’ that she has been
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`defrauded.” Levy, 917 F.3d at 109 (quoting Benfield, 26 F.3d at 22). “If the plaintiff thereupon
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`proceeds to make no inquiry, knowledge of the injury is imputed at the time the duty arose, and
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`the limitations period begins at that point. If, however, the plaintiff makes an inquiry, the
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`limitations period starts to run from the date that a reasonably diligent inquiry should have
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`revealed the fraud.” Shak, 156 F. Supp. 3d at 474 (citing LIBOR I, 935 F. Supp. 2d at 698).
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`In commodities fraud cases, courts often conduct the inquiry notice analysis in the
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`context of market manipulation claims. Such determinations necessarily turn on whether a
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`plaintiff should have known that a given market was subject to fraud or was otherwise
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`artificial—not simply whether the plaintiff lost money. See, e.g., LIBOR I, 935 F. Supp. 2d at
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`705 (“[I]t is sufficient that plaintiffs knew that the LIBOR quotes defendants submitted did not
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`reflect their actual expected borrowing rates, and thus that the prices of plaintiffs’ Eurodollar
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`contracts, based on LIBOR, were artificial.”); In re London Silver Fixing, Ltd., Antitrust Litig.,
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`213 F. Supp. 3d 530, 573-74 (S.D.N.Y. 2016) (noting plaintiffs who alleged manipulation of a
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`benchmark for silver may have been on inquiry notice based on a CFTC Commissioner’s
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`statement “suggesting possible manipulation of various commodity benchmarks”). Said another
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`way, the relevant inquiry in market manipulation cases is not when a plaintiff sold a contract or
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`Case 1:19-cv-00238-RA Document 49 Filed 05/15/20 Page 13 of 18
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`commodity at a loss, but rather when a plaintiff should have discovered that some market
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`participant fraudulently distorted the relevant market, thereby causing the loss.
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`For example, in Shak, the plaintiff traders brought CEA claims based on the defendant’s
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`alleged manipulation of the long-dated silver futures market, which purportedly led plaintiffs to
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`liquidate their silver futures contracts in early 2011. Shak, 156 F. Supp. 3d at 469-72. The court
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`found these claims time-barred because the plaintiffs’ complaints “unavoidably suggest, if not
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`outright assert, that in early 2011, plaintiffs were well aware—and in any event easily could have
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`learned through publicly available data” who had allegedly defrauded them. Id. at 474.
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`Similarly, in Benfield, the Second Circuit held that the plaintiff had a duty to inquire when, after
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`paying $1,800 for a single call option on silver for which “he was given virtual assurances of
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`profit,” he lost his entire investment within four months. Benfield, 26 F.3d at 22-23. Such a
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`“loss within a matter of months in a highly recommended investment should have caused
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`eyebrows to raise” and “imposed upon [the plaintiff] a duty of inquiry” that would have
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`disclosed the defendant’s conduct. Id. at 23.
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`Unlike the CEA claims in those cases, Plaintiffs’ allegations against Bitfloor involve an
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`alleged injury that is based not on market distortion but on the relatively simple misappropriation
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`of assets that, according to Plaintiffs, are akin to bank deposits. See FAC ¶¶ 17, 20. It is
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`nonetheless appropriate for the framework from the market distortion CEA cases to guide the
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`analysis here.
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`With these standards in mind, the Court concludes that the facts alleged in the FAC and
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`the exhibits attached thereto would have suggested to a person of ordinary intelligence that she
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`had been defrauded as early as April 2013, when Bitcoin Magazine reported Shtylman’s
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`announcement that Bitfloor would “cease all trading operations indefinitely,” but no later than
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`Case 1:19-cv-00238-RA Document 49 Filed 05/15/20 Page 14 of 18
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`August 31, 2016, when publicly-available New York State Division of Corporations records
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`indicate that Bitfloor was dissolved. See FAC ¶¶ 26-27, Ex. 1, Ex. 2; cf. Behrens v. JPMorgan
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`Chase Bank N.A., No. 16-cv-5508 (VSB), 2019 WL 1437019, at *6 (S.D.N.Y. Mar. 31, 2019)
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`(finding that the CEA “limitations period[] began to run at the earliest in October 2008, and at
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`the latest on July 10, 2012”). Plaintiffs allege that they previously “bought, sold, and held
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`bitcoin at Bitfloor from time to time,” FAC ¶ 21, but are no longer “able to access or sell” the
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`Bitcoin in their Bitfloor wallets, FAC ¶¶ 1-12, despite Defendants’ prior assurances that Bitfloor
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`users could “access, transfer, and withdraw Bitcoin using Bitfloor at any time.” Id. ¶ 23. The
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`loss of such abilities, combined with the alleged lack of any communication from Defendants,
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`would surely “have caused eyebrows to raise” and suggested to customers of ordinary
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`intelligence that they had been defrauded. Benfield, 26 F.3d at 23; cf. Sewell v. Bernardin, 795
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`F.3d 337, 340-42 (2d Cir. 2015) (construing statute of limitations periods under the Computer
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`Fraud and Abuse Act and the Stored Communications Act to begin when plaintiff discovered she
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`could not access a particular AOL or Facebook account). Despite the fact that the 2013
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`Shutdown Announcement suggests that Plaintiffs lost access to their accounts in or around April
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`2013, Plaintiffs waited until January 11, 2019—over five and a half years later—to commence
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`this action.
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`Like Plaintiffs here, the plaintiff investor in Rodriguez Canet v. Morgan Stanley & Co.,
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`419 F. Supp. 2d 90 (D.P.R. 2006), argued that her fraud action was not time-barred because she
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`was unaware that changes to her investments had occurred years earlier.5 The Rodriguez Canet
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`5 Although Rodriguez Canet involved fraud claims under the Securities Exchange Act, it nonetheless informs the
`Court’s analysis with respect to this CEA claim. See In re Commodity Exch., Inc., 213 F. Supp. 3d 631, 672
`(S.D.N.Y. 2016) (“[T]he CFTC has stated that it is ‘guided, but not controlled, by the substantial body of judicial
`precedent applying the comparable language of SEC Rule 10b-5.’” (quoting In re Total Gas & Power N. Am., Inc.,
`CFTC No. 16-03, 2015 WL 8296610, at *8 (Dec. 7, 2015))).
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`Case 1:19-cv-00238-RA Document 49 Filed 05/15/20 Page 15 of 18
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`plaintiff claimed her financial advisor made an unauthorized investment on her behalf in 1999
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`that resulted in steep losses from December 2000 to August 2001. Id. at 92. She nonetheless
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`waited to file a fraud action until September 2004 and, in response to the defendants’ statute of
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`limitations defense that her monthly statements “constituted sufficient ‘storm warnings’ to
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`trigger her duty of ‘diligent inquiry,’” asserted that she never received the statements. Id. at
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`95. The court held that her fraud claim was time-barred, noting:
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`In effect, plaintiff is saying that she failed to examine the status of her account
`during the more than 15 years that she held it. It is elementary that any reasonable
`investor would take steps to periodically ascertain the status of his/her account.
`Plaintiff cannot merely sit back and hope for the best; she had at a minimum, a duty
`to keep abreast of how her investments were performing.
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`Id. The court found that the plaintiff’s failure to monitor her investments was in conflict with her
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`stated investment purposes, noting that “[t]he depleted condition of the account was patently
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`irreconcilable with plaintiff’s instructions for conservative management and for it to generate a
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`‘stable source of income.’” Id. at 96.
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`Plaintiffs here ask this Court to countenance a comparable lack of diligence. Plaintiffs
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`disclaim any awareness of the closure of their Bitfloor accounts in 2013, Pls.’ Opp. at 4, despite
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`the fact that “any reasonable investor would take steps to periodically ascertain the status of
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`his/her account.” Rodriguez Canet, 419 F. Supp. 2d at 95. Moreover, Plaintiffs’ allegation that
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`they “bought, sold, and held bitcoin at Bitfloor from time to time”—which implies that they
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`traded virtual currency with at least some regularity—is similarly irreconcilable with their
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`apparent failure to realize that Bitfloor had been shut down more than five years before they
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`initiated this action. FAC ¶ 21. Accordingl