Second Circuit Upholds Attorney Sanctions In Market Manipulation Suit Against Knight Capital and Hedge Funds

A recent increase in court-imposed sanctions on plaintiffs’ counsel signals how judges have become less tolerant of time-consuming and resource-draining lawsuits.  The hedge fund industry, and the counsel it employs, is not immune from such sanctions.  In ATSI Communications, Inc, v. The Shaar Fund, Ltd., three attorneys and their respective law firms attempted to use a post-judgment settlement as a bargaining chip to persuade a judge to drop mandatory sanctions issued against them under the Private Securities Litigation Reform Act of 1995 and Rule 11 of the Federal Rules of Civil Procedure for filing a baseless complaint.  On October 20, 2008, and then again on September 2, 2009, the United States Court of Appeals for the Second Circuit refused their request and affirmed the sanctions order.  We detail the background of the action and the court’s legal analysis.

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