CBOE, Options Clearing Corp. sued by NY hedge fund

(Crain's) — Platinum Partners Value Arbitrage Fund LP, a New York hedge fund, is suing the Chicago Board Options Exchange and Options Clearing Corp. over an alleged $10-million loss from trading in India Fund Inc. options.

Platinum, whose chairman and chief investment officer is Mark Nordlicht, claims in the lawsuit that its losses derived from a faulty option strike-price adjustment and selective market dissemination of that information. Chicago-based CBOE Holdings Inc., parent of the exchange, and OCC declined to comment on the pending litigation.

“We're not the litigious type of people—it's just an unfortunate situation,” Mr. Nordlicht said in an interview. “There was clearly some insider trading that went on before the decision was publicly announced.”

The lawsuit, filed in Cook County Circuit Court, alleges that CBOE and the OCC erroneously reduced the strike price on the India Fund options by $3.78 and improperly disclosed that information to some market participants before a Dec. 20 public announcement. Market participants who got the information early sold the options to Platinum and others, the lawsuit says. Platinum also cites those sellers as John Doe defendants in the case.

Mr. Nordlicht said in the interview that his fund's losses are in the $10-million range. He hired law firm Dewey & LeBoeuf LLP to represent him in the case.

Mr. Nordlicht was co-founder and chairman of Optionable Inc., a commodity broker to Bank of Montreal when in 2007 the bank said it would post a $410-million pretax loss related to trading in natural gas contracts. Valhalla, N.Y.-based Optionable, which counted the Toronto-based bank as its biggest client, has since lost most of its market value as a publicly traded company.

A lawsuit that Bank of Montreal brought last year against Optionable, Mr. Nordlicht and others is pending in federal court in New York. The bank alleges that Optionable helped conceal losses by its former Bank of Montreal trader, David Lee. The Commodity Futures Trading Commission also has charges pending against Optionable and its former CEO, Kevin Cassidy, but not against Mr. Nordlicht.