CFTC v. Nikolai Battoo, et al
Filing
Filed opinion of the court by Judge Easterbrook. AFFIRMED. Frank H. Easterbrook, Circuit Judge; Kenneth F. Ripple, Circuit Judge and Michael J. Reagan, Chief District Court Judge.* (*Of the Southern District of Illinois, sitting by designation.) [6672564-1] [6672564] [14-3133]
<![CDATA[
Case: 14-3133
Document: 44
Filed: 06/23/2015
Pages: 6
In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-‐‑3133
COMMODITY FUTURES TRADING COMMISSION,
Plaintiff-‐‑Appellee,
v.
NIKOLAI S. BATTOO, et al.,
Defendants.
Appeal of:
HADLEY CHILTON and JOHN J. GREENWOOD, as Liquidators
of certain investment funds registered in the British Vir-‐‑
gin Islands
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 12 C 7127 — Edmond E. Chang, Judge.
____________________
ARGUED APRIL 21, 2015 — DECIDED JUNE 23, 2015
____________________
Before EASTERBROOK and RIPPLE, Circuit Judges, and
REAGAN, District Judge.*
* Of the Southern District of Illinois, sitting by designation.
Case: 14-3133
2
Document: 44
Filed: 06/23/2015
Pages: 6
No. 14-‐‑3133
EASTERBROOK, Circuit Judge. The Commodity Futures
Trading Commission and the Securities and Exchange
Commission have concluded that Nikolai Battoo committed
fraud. Battoo and his companies, all located outside the
United States, have defaulted in the two agencies’ suits, and
the district judge froze all assets they controlled pending a
final decision about who owns what. Given the defaults, that
preliminary injunction was issued without an adversarial
presentation. The district court appointed a Receiver to mar-‐‑
shal the remaining assets and try to determine ownership;
the Receiver has been recognized as the assets’ legitimate
controller in several other nations, including China (Hong
Kong), Guernsey, and the Bahamas.
Battoo defied the injunction and transferred control of
some investment vehicles, located in the British Virgin Is-‐‑
lands, to court-‐‑appointed Liquidators, who asked the district
judge to modify the injunction and allow them to distribute
assets immediately. (The assets in question are located in the
United States or England, where the funds had placed them,
and thus are effectively controlled by the Receiver while the
injunction lasts.) The Liquidators maintain that, because Bat-‐‑
too no longer calls the shots, the justification for freezing the
assets has lapsed. The district court assumed that even
though Battoo had arranged for the Liquidators’ appoint-‐‑
ment, they are now under judicial control. Still, it declined to
modify the injunction, ruling that the funds should remain
available so that an eventual master plan of distribution can
treat all investors equitably. The Liquidators contend that we
should order all of the assets that passed through the British
Virgin Islands funds surrendered to their control immediate-‐‑
ly for prompt distribution under whatever system British
Virgin Islands law specifies.
Case: 14-3133
No. 14-‐‑3133
Document: 44
Filed: 06/23/2015
Pages: 6
3
The CFTC alleges—and given the defaults we must as-‐‑
sume—that Battoo persuaded approximately 800 persons
throughout the world to invest about $340 million in his
funds. Some 250 of these persons resided in the United
States; they invested in commodity pools that Battoo styled
Private International Wealth Management. Battoo solicited
investments through materials distributed in this nation; the
Liquidators do not deny that this subjected Battoo to the re-‐‑
quirements of federal commodities and securities laws. This
is not necessarily a reason to disturb the distribution priori-‐‑
ties of other nations’ investors, but the CFTC believes, and
the district court provisionally found, that commingling of
assets makes it hard to know whose money ended up in
which vehicle.
According to the complaint, Battoo stole some of the in-‐‑
vestors’ money (fraud #1) and placed the rest in a web of
funds, all of which he controlled directly or indirectly. He
moved the money freely across funds, or from one portfolio
to another within any given fund, in a way that made tracing
of each investment difficult. In 2008 Phi R Master, one of the
funds, suffered significant losses, which Battoo hid from
both current investors and potential new investors (fraud
#2). Later in 2008 several funds sustained further losses
when it came to light that Bernard Madoff (with whom be-‐‑
tween 7% and 20% of each Battoo fund’s assets had been
placed) had been running a Ponzi scheme. Yet Battoo told
existing and potential new investors that “the current
Madoff situation will have practically no impact to [sic] its
portfolios” (fraud #3). In September 2009 Battoo provided
some investors with false verifications of their assets’ value
(fraud #4), and in late 2011 he suspended redemptions after
falsely telling investors that the collapse of commodity bro-‐‑
Case: 14-3133
4
Document: 44
Filed: 06/23/2015
Pages: 6
No. 14-‐‑3133
ker MF Global, Inc., prevented operations (fraud #5, since
Battoo’s funds did not depend on MF Global, whose failure
had no material effect on their status). Even without trans-‐‑
fers among the funds, this sequence shows the potential dif-‐‑
ficulty in sorting out who owns what, because investments
that preceded any given fraud would be affected differently
from investments made later. This is a simplified version of
the CFTC’s allegations; more detail is not necessary to un-‐‑
derstand the district court’s decision and the Liquidators’
appeal.
In denying the Liquidators’ motion, the district judge ob-‐‑
served that releasing the assets would lead to distribution, a
step that the judge thought premature because the Receiver
has yet to ascertain all investors’ interests in each particular
fund and propose a plan about how the losses will be shared
across the different groups of investors. The judge stated re-‐‑
peatedly that it remains to be determined who gets what—
and that the Liquidators, like any other interested party, will
be entitled to full judicial review (by the district judge and
the court of appeals) before the Receiver’s eventual proposal
is implemented.
The Liquidators’ appeal reflects a view that there is no
reason to keep funds frozen now that Battoo is no longer in
control. One could say the same, we suppose, for all funds
under the Receiver’s management, but no one would think
that this implies that the Receiver should distribute the
funds immediately. Who owns what, and how the frauds af-‐‑
fected each investment’s value, need to be worked out. The
Liquidators are confident that they know the answers to
those questions, at least for the British Virgin Islands funds,
Case: 14-3133
No. 14-‐‑3133
Document: 44
Filed: 06/23/2015
Pages: 6
5
but they have not demonstrated that the district judge is
obliged to share their optimism.
The Liquidators tell us that a court should grant a motion
to modify a preliminary injunction when the movant “has
demonstrated that changed circumstances make the contin-‐‑
uation of the injunction inequitable.” Winterland Concessions
Co. v. Trela, 735 F.2d 257, 260 (7th Cir. 1984). It is not clear to
us that this is the right standard. It parallels Fed. R. Civ. P.
60(b)(5), which says that a district judge may modify a
judgment when “applying it prospectively is no longer equi-‐‑
table”. See also, e.g., Rufo v. Inmates of Suffolk County Jail, 502
U.S. 367 (1992); Horne v. Flores, 557 U.S. 433 (2009). Yet Rule
60(b) as a whole governs requests to modify final decisions.
The district court has not made a final decision in this litiga-‐‑
tion. On the way to final decisions, district judges usually
may modify their tentative views. Certainly when crafting a
final injunction, a district judge is not stuck with the prelim-‐‑
inary order in the absence of a finding that it is “inequita-‐‑
ble”; the judge is not constrained at all by the preliminary
disposition when selecting the final remedy.
At the same time, the fact that a final injunction lies
ahead reduces the cost of sticking with the preliminary in-‐‑
junction. Preliminary relief will be superseded by the final
decision. Instead of devoting resources to refining an interim
order, a district judge is entitled to spend available time fig-‐‑
uring out whether permanent relief is justified and, if so,
what its terms should be. Fiddling with a preliminary in-‐‑
junction’s terms may do damage if it postpones the final de-‐‑
cision. We do not doubt, however, that a district judge has
discretion to revise a preliminary remedy if persuaded that
change had benefits for the parties and the public interest.
Case: 14-3133
6
Document: 44
Filed: 06/23/2015
Pages: 6
No. 14-‐‑3133
We need not decide whether the “no longer equitable”
standard applies to preliminary injunctions. The CFTC con-‐‑
tends that judges should look for “a change in ‘the totality of
the circumstances’ surrounding” the events, and as we’ve
just mentioned there are other possibilities too. No matter
the standard, we must ask whether the district court abused
its discretion by leaving the injunction as originally written.
See, e.g., Horne, 557 U.S. at 447.
We do not see any abuse here—in part for the reason the
district judge gave (that it is too soon to know whether the
Liquidators are right to think that some investment interests
can be disentangled reliably from those affected by Battoo’s
frauds against U.S. investors) and in part because there are
no apparent costs to waiting. The Liquidators have not ar-‐‑
gued that any investor suffers from delay. If the Receiver
were investing the funds poorly, then releasing them (or
reaching a final decision with dispatch) might be necessary
to prevent further injury to the investors. But the Liquidators
have not argued that any investor is suffering loss as a result
of the Receiver’s investment decisions. And if there is both a
potential for gain, and no potential for loss, from keeping the
assets in the Receiver’s hands for now, it cannot be an abuse
of discretion for the district court to do just that.
AFFIRMED
]]>
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?
