U.S. Commodity Futures Trading Commission v. Giddens et al

Filing 73

OPINION and ORDER granting Defendants Louis J. Giddens, Jr. and Anthony W. Dutton's 42 Motion for More Definite Statement. Plaintiff U.S. Commodity Futures Trading Commission is ordered to file, on or before March 16, 2012, an amended complai nt alleging fraud against Defendants Giddens and Dutton as detailed in this Order. The CFTC also is required to file a redlined copy of the Amended Complaint clearly identifying the amendments made. Movant Freeman L. Walker's 53 Motion to Intervene is GRANTED. Signed by Judge William S. Duffey, Jr. on 02/24/2012. (dfb)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
U.S. COMMODITY FUTURES
TRADING COMMISSION,
Plaintiff,
v.

1:11-cv-2038-WSD

LOUIS J. GIDDENS, JR.,
ANTHONY W. DUTTON, and
MICHAEL GOMEZ,
Defendant.

OPINION AND ORDER
This matter is before the Court on Defendants Louis J. Giddens, Jr. and
Anthony W. Dutton’s Motion for a More Definite Statement [42] and on Freeman
L. Walker’s Motion to Intervene as a Plaintiff [53].
I.

BACKGROUND
Plaintiff United States Commodity Futures Trading Commission (“CFTC”)

claims that Defendants Giddens and Dutton made fraudulent misrepresentations to
investors in connection with commodity investment pools that Giddens and Dutton
formed for the purpose of investing in off-exchange foreign currency (“forex”)

transactions. The CFTC further claims that Defendants Dutton and Michael
Gomez misappropriated investor funds from the commodity pools.
Giddens and Dutton separately formed and were the principals of Currency
Management Group L.L.C. (“Currency Management”) and Pinnacle Capital
Partners L.L.C. (“Pinnacle Capital”), respectively. (Compl. ¶¶ 15-16). Both
companies were dissolved in late December 2010. (Id.). Currency Management
received at least $600,000 in funds from outside investors, while Pinnacle Capital
received at least $800,000. (Id. ¶ 1). Currency Management and Pinnacle Capital
transferred their participants’ funds to Pinnacle Trade Group, L.L.C. (“Pinnacle
Trade”), an entity created and controlled by Giddens and Dutton for the purpose of
conducting the forex transactions. (Id. ¶¶ 1, 17). Pinnacle Trade used some of the
pool participants’ funds to conduct forex transactions. It also transferred about
$800,000 of its pool participants’ funds to Elyon L.L.C. (“Elyon”), an entity
controlled by Defendant Michael Gomez, for the purpose of Elyon conducting
forex transactions on Pinnacle Trade’s behalf.
The CFTC alleges that Giddens and Dutton solicited pool participants to
invest in Currency Management and Pinnacle Capital by falsely stating that “in
return for their investment in the pool, the pool participants would receive,
depending on how much they invested, a guaranteed five or ten percent monthly

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return on their investment.” (Compl. ¶ 23-24). The CFTC further alleges that
when investors sent funds to either Currency Management or Pinnacle Capital,
Giddens and Duttons would issue promissory notes to the pool participant on
behalf of their respective companies. (Id. ¶ 25). The promissory notes stated that
the company that executed the note promised to pay the pool participant their
principal investment along with interest on any unpaid principal at the rate of either
five or ten percent (5 or 10%) per month. (Id.). The notes further promised to pay
the principal balance on the note within 30 days of the participant’s written
demand. (Id.).
The CFTC describes one alleged transaction involving Currency
Management, which Giddens controlled. In late March 2010, a pool participant
invested $10,000 in Currency Management after Giddens promised the participant
that the investment would receive a guaranteed ten percent (10%) monthly return
by conducting forex transactions. (Compl. ¶ 26). On or about March 25, 2010, the
investor wired the funds to Currency Management’s account. (Id.). On March 25,
2010, Giddens sent a promissory note executed by Currency Management to the
participant. (Id.). The note stated that Currency Management promised to pay the
participant his $10,000 principal investment plus an interest rate of ten percent
(10%) per month. (Id.). The note promised to pay the interest on the 25th day of

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each month, beginning in April 2010, and stated that the principal balance would
be returned within thirty (30) days of a written demand by the pool participant.
(Id.).
Between February and September 2010, Currency Management and
Pinnacle Capital issued monthly account statements to pool participants that were
available on the companies’ websites. (Compl. ¶¶ 29, 31). The CFTC alleges that
between approximately June and September 2010, these account statements falsely
overstated the performance and profitability of the pool participants’ investments.
(Id. ¶¶ 30, 32). One account statement issued by Currency Management to a pool
participant stated that the pool participant’s initial investment on April 14, 2010, of
$15,000 had earned ten percent (10%) interest, compounded monthly, each month
until October 24, 2010. (Id. ¶ 30). Another account statement issued by Pinnacle
Management stated that the participant’s initial investment on April 2, 2010, of
$150,000 had also earned a return of ten percent (10%), compounded monthly,
each month until October 24, 2010. (Id. ¶ 32). The CFTC alleges these account
statements were false because Pinnacle Trade and Elyon, the entities that
conducted the forex transactions using the participants’ funds, suffered significant
losses on their forex transactions each month from June to October 2010. (Id.
¶ 34). By October 2010, the two accounts allegedly had lost over $800,000. (Id.).

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In their Motion for a More Definite Statement, Defendants Giddens and
Dutton assert additional details about their respective commodity pools, and they
argue that, in light of those facts, they cannot meaningfully answer the CFTC’s
complaint. Defendant Giddens states that Currency Management had 28 investors
and notes that the CFTC has only alleged a single transaction involving one
investor who wired funds to Currency Management on approximately March 25,
2010. Giddens contends that 13 of the other investors are close friends and
relatives who will likely state that they understood that the returns on the forex
transactions were not guaranteed. He further states that he only solicited one other
investor, his soon-to-be ex-brother-in-law Kevin Beauregard, who in turn solicited
the other 11 pool participants who invested in Currency Management. Giddens
argues that he did not make false statements to his 13 close friends and relatives,
and did not make any statements to the 11 participants that Kevin Beauregard
solicited. Based on these assertions of fact, Giddens argues he cannot answer the
CFTC’s allegations that he made false statements to solicit pool participants,
because he does not know the content of the alleged misrepresentations or when
and where the misrepresentations occurred.
Defendant Dutton contends that Pinnacle Management had ten investors and
that the CFTC has not alleged a single false statement made by Dutton to those

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participants. He states that eight participants are close friends or relatives who will
likely testify that they understood the risks of their investment with Pinnacle
Capital. He also asserts that he never spoke to the other two investors. In light of
these facts, Dutton claims he cannot answer the CFTC’s allegations that he made
fraudulent misrepresentations in connection with soliciting investors without a
better understanding of the content of the alleged misrepresentations and when and
where the specific misrepresentations occurred.
II.

DISCUSSION
A.

Legal Standard On A Motion For A More Definite Statement

Federal Rule of Civil of Procedure 12(e) provides: “A party may move for a
more definite statement of a pleading to which a responsive pleading is allowed but
which is so vague or ambiguous that the party cannot reasonably prepare a
response.” The purpose of Rule 12(e) is to allow defendants to remedy inadequate
complaints to which they cannot reasonably be expected to respond. See McQueen
v. Woodstream Corp., 244 F.R.D. 26, 34 (D.D.C. 2007). This is consistent with
the notice pleading standard of Rule 8(a), which only requires a plaintiff to allege
sufficient facts to place the defendant on notice of the plaintiff’s grounds for relief.
See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). If a complaint
satisfies the notice requirements of Rule 8(a), then the allegations should also be

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sufficient for a defendant to answer the allegations. See United States v. Ga.
Power Co., 301 F. Supp. 538, 543-44 (N.D. Ga. 1969). For this reason, courts
disfavor motions for a more definite statement and generally deny them when they
only seek information that is readily available through discovery. McQueen, 244
F.R.D. at 35; Ga. Power, 301 F. Supp. at 544.
Giddens and Dutton contend that they cannot answer the CFTC’s complaint
because it fails to satisfy Federal Rule of Civil Procedure 9(b), which requires a
party alleging fraud to “state with particularity the circumstances constituting
fraud.” It is possible for a pleading to fail to allege fraud with particularity yet still
provide sufficient detail for a party to answer the allegations. See 5C Charles Alan
Wright et al., Federal Practice and Procedure § 1376 (3d ed. 2004) (noting courts’
varying approaches “[w]hen a claim based on fraud or mistake is sufficiently
definite that the pleader can prepare a responsive pleading but not sufficiently
particularized to satisfy the requirements of Rule 9(b)”). The better course in such
a situation is to file a motion to dismiss the complaint for failure to state a claim.
But some courts have granted motions for a more definite statement when faced
with complaints that fail to allege the circumstances of fraud with particularity, at
least where the request for a more definite statement accompanies a motion to
dismiss. See, e.g., GTAS Asset Solutions, LLC v. African Methodist Episcopal

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Church, Inc., No. 1:11-cv-1148-RWS, 2012 WL 95429, at *2 (N.D. Ga. Jan. 12,
2012) (granting motion for more definite statement where defendant filed motion
to dismiss or alternatively for a more definite statement, where complaint failed to
plead fraud with particularity but plaintiff was entitled to opportunity to amend
complaint). The Court will evaluate the CFTC’s allegations against the
particularity requirements of Rule 9(b).
B.

The Requirement to Plead Fraud With Particularity

Federal Rule of Civil Procedure 9(b) requires that “[i]n alleging fraud or
mistake, a party must state with particularity the circumstances constituting fraud
or mistake. Malice, intent, knowledge, and other conditions of a person’s mind
may be alleged generally.” To satisfy Rule 9(b), a complaint claiming fraud must
set forth “(1) precisely what statements were made in what documents or oral
representations or what omissions were made, and (2) the time and place of each
such statement and the person responsible for making (or, in the case of omissions,
not making) same, and (3) the content of such statements and the manner in which
they misled the plaintiff, and (4) what the defendants obtained as a consequence of
the fraud.” Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1371
(11th Cir.1997) (internal quotation marks omitted).

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The particularity requirement “serves an important purpose in fraud actions
by alerting defendants to the precise misconduct with which they are charged and
protecting defendants against spurious charges of immoral and fraudulent
behavior.” Ziemba v. Cascade Int’l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001)
(internal quotation marks omitted). “The application of Rule 9(b), however, must
not abrogate the concept of notice pleading.” Id. (internal quotation marks
omitted). Rather, “Rule 9(b) must be read in conjunction with Rule 8(a) of the
Federal Rules of Civil Procedure, which requires a plaintiff to plead only a short,
plain statement of the grounds upon which he is entitled to relief.” Brooks, 116
F.3d at 1371 (internal quotation marks omitted). “Allegations of date, time or
place satisfy the Rule 9(b) requirement that the circumstances of the alleged fraud
must be pleaded with particularity, but alternative means are also available to
satisfy the rule.” Durham v. Bus. Mgmt. Assocs., 847 F.2d 1505, 1512 (11th Cir.
1988); see also United States ex rel. Grubbs v. Kannaganti, 565 F.3d 180, 188 (5th
Cir. 2009) (“Rule 9(b)’s ultimate meaning is context-specific, and thus there is no
single construction of Rule 9(b) that applies in all contexts.” (internal quotation
marks and citation omitted)).
The particularity requirement may be relaxed for allegations of “prolonged
multi-act schemes.” Clausen, 290 F.3d at 1314 n.25. The relaxed standard permits

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a plaintiff to plead the overall nature of the fraud and then to allege with
particularity one or more illustrative instances of the fraud. See id. Even under the
relaxed requirement, however, a plaintiff is still required to allege at least some
particular examples of fraudulent conduct to lay a foundation for the rest of the
allegations of fraud. See id.; Medalie v. FSC Sec. Corp., 87 F.Supp.2d 1295,
1306-07 (S.D. Fla. 2000) (Rule 9(b) is relaxed “if the alleged fraud occurred over
an extended period of time and the acts were numerous,” but this “does not negate
the plaintiff’s duty to adequately plead the contents of the alleged fraudulent
misrepresentations and the places where the activity was to have occurred”); cf.
United States ex rel. Hebert v. Dizney, 295 F. App’x 717, 723 (5th Cir. 2008)
(while Rule 9(b) does not require qui tam plaintiff alleging long-running scheme to
list every false claim with particularity, “the allegedly great extent and complexity
of a fraudulent scheme does not excuse a failure to plead at least one false claim
with the requisite specificity”);.
C.

The CFTC’s Allegations Of Fraud

The CFTC alleges that between approximately January 2010 and October
2010, Defendants Giddens and Dutton committed a series of frauds in conjunction
with their operations of their respective commodity pools. (Compl. ¶ 1). The
Complaint describes the overall nature of the frauds, which involved setting up

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commodity pools, soliciting investments in the pools, and using the commodity
pool participants’ funds for forex transactions. The CFTC alleges that Giddens and
Dutton’s engaged in three categories of fraudulent conduct. First, Giddens and
Dutton allegedly solicited investors by falsely stating that investments in their
commodity pools were guaranteed to yield monthly returns of five to ten percent
(5-10%) from conducting forex transactions. (Id. ¶¶ 23-24). Second, Giddens and
Dutton allegedly issued promissory notes to pool participants that falsely promised
to pay the participant five to ten (5-10%) percent of the principal investment each
month. (Id. ¶ 25). Finally, each month between June and October 2010, Giddens
and Dutton allegedly issued account statements to participants that falsely stated
that the forex transactions were yielding returns of five to ten percent (5-10%) per
month. (Id. ¶¶ 29-35).
Defendants Giddens and Dutton contend in their Motion for a More Definite
Statement that they are unable to respond to these allegations because they had 28
and ten investors, respectively, and the Complaint does not specify the particular
circumstances of each allegedly fraudulent statement made to each investor. This
argues for too strict an interpretation of Rule 9(b), which allows plaintiffs in cases
such as this, involving allegations of prolonged fraudulent activity, to plead the
circumstances of fraud by indicating particular, representative instances of

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fraudulent conduct. See Clausen, 290 F.3d at 1314 n.25. Giddens and Dutton’s
request that the CFTC plead its evidence regarding every allegedly false statement
to every investor pertains to evidence that may be exchanged during discovery and
that is not necessary in order to answer the allegations of fraud.
The question instead is whether the CFTC has alleged with particularity the
circumstances of one or more specific fraudulent statements by Giddens and
Dutton that would illustrate and support the CFTC’s more general allegations of
fraud. The CFTC generally alleges that Giddens and Dutton engaged in three
different categories of fraudulent conduct during the course of operating their
commodity pools. Under the facts of this case, the CFTC is required, at a
minimum, to allege the particular circumstances of at least one fraudulent
statement or activity per defendant, representative of each of the three categories of
fraudulent activity identified by the CFTC. Defendants simply are entitled to know
how the CFTC claims Defendants defrauded investors in each of these three
classes of alleged fraud.
For the allegations that Defendants Giddens and Dutton made fraudulent
statements to solicit pool participants, the Court concludes that the CFTC’s
allegations lack sufficient particularity. For Defendant Dutton, the Complaint
alleges generally that he “misrepresented to pool participants that in return for their

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investment in the pool, the pool participants would receive, depending on how
much they invested, a guaranteed five or ten percent (5 or 10%) monthly return on
their investment.” (Compl. ¶ 24). This is plainly insufficient under Rule 9(b).
Other than the general allegation that the scheme occurred between January and
October 2010, there is no indication of the time these statements occurred, where
they occurred, in what manner the statements were transmitted, or to whom they
were made. The allegations also do not indicate, except at a high level of
generality, the substance of the allegedly false statements. There has been no
showing that this information is uniquely within the possession of the defendants
or that the CFTC lacks the ability to obtain this information. The CFTC is required
to plead with particularity the circumstances of at least one of the alleged
fraudulent misrepresentations made by Dutton in connection with his solicitation
of pool investors.
The Complaint similarly alleges that Defendant Giddens “misrepresented . . .
[that] pool participants would receive, depending on how much they invested, a
guaranteed five or ten percent monthly return on their investment.” (Compl. ¶ 23).
The Complaint further alleges that “in late March 2010,” Giddens “promised [a
particular] pool participant that he would receive a guaranteed ten percent monthly
return on his investment from trading forex.” (Id. ¶ 26). While this further

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allegation provides more detail for Giddens’s alleged fraud than for Dutton’s, it is
still insufficient. The Complaint alleges that a promise was made “in late March
2010,” but on the whole the allegation fails to allege the content of the allegedly
false statement or to whom the statement was made. The CFTC clearly has in
mind a particular instance of alleged fraud but it did not describe the circumstances
of the fraud. The CFTC is therefore required to plead with particularity the
circumstances of at least one of the alleged fraudulent misrepresentations made by
Giddens in connection with his solicitation of pool investors
The CFTC also alleges that Giddens and Dutton issued promissory notes
that fraudulently promised returns on participants’ investments of five to ten
percent (5-10%) each month. For Defendant Dutton, that is the extent of the
CFTC’s allegations regarding this category of fraudulent statement. The
Complaint does not specifically allege that any particular promissory note was
issued to any particular investor on any particular date. The Court concludes that
the CFTC has not adequately alleged the circumstances of these allegedly
fraudulent statements made by Dutton to Pinnacle Capital investors.
For Defendant Giddens, however, the Complaint alleges that a specific false
promissory note was issued by Giddens to a particular investor on March 25, 2010.
The specific investor is not named, but he is described with sufficient detail. The

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allegation refers to a particular investor who wired $10,000 to Currency
Management’s Wachovia bank account on or about March 25, 2010. The Court
therefore concludes that the CFTC has sufficiently alleged against Defendant
Giddens the circumstances of this category of fraud.
The final aspect of Defendants Giddens and Dutton’s allegedly fraudulent
conduct involved generating monthly accounting statements that falsely overstated
the performance and profitability of participants’ investments. For both Giddens
and Dutton, the Complaint alleges particular investors who made particular
investments on particular dates, and who received account statements on the
twenty-fourth of each month between May 2010 and October 25, 2010. The false
statements were delivered to the investors using the websites for Currency
Management and Pinnacle Capital. (Compl. ¶¶ 30, 32). The account statements
allegedly misrepresented that those particular participants’ investments had yielded
returns of ten percent (10%), compounded each month. The statements were false
because the investments did not earn the stated returns and instead suffered
significant losses each month from June to October 2010. (Id. ¶¶ 33-35). The
Court concludes that these details with respect to those two particular investors are
sufficient to sustain the CFTC’s allegations that Defendants Giddens and Duttons
committed fraud by issuing false account statements to pool participants.

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In summary, the Court determines that the CFTC is required to provide a
more particular statement of their claims by providing a representative example of
the fraudulent of conduct of Defendants Giddens and Dutton as follows:
1. Defendants Giddens and Dutton’s alleged fraudulent misrepresentation to
solicit pool participants, and
2. Defendant Dutton’s alleged fraudulent promises of returns in notes issued
to investors.
D.

Movant Walker’s Motion to Intervene

Movant Walker seeks to intervene in this matter to seek the return of
approximately $80,000 that he invested with Defendant Gomez. The Federal
Rules of Civil Procedure provide:
(a) Intervention of Right. On timely motion, the court must permit
anyone to intervene who:
...
(2) claims an interest relating to the property or transaction that
is the subject of the action, and is so situated that disposing
of the action may as a practical matter impair or impede the
movant’s ability to protect its interest, unless existing parties
adequately represent that interest.
Fed. R. Civ. P. 24(a)(2). To intervene as a matter of right under Rule 24(a)(2), a
movant must show that “(1) his application to intervene is timely; (2) he has an
interest relating to the property or transaction which is the subject of the action; (3)
he is so situated that disposition of the action, as a practical matter, may impede or
16

impair his ability to protect that interest; and (4) his interest is represented
inadequately by the existing parties to the suit.” Fox v. Tyson Foods, Inc., 519
F.3d 1298, 1302-03 (11th Cir. 2008).
Walker’s motion to intervene is timely, as he filed his Motion to Intervene
soon after learning that Defendant Gomez’s funds had been frozen and before
substantial progress occurred in this case. He also has an interest in the property
that is the subject of this action. He has identified $80,000 in funds that he
transferred to Defendant Gomez for the purpose of conducting forex transactions.
Those funds have been frozen as a result of this lawsuit, and are potentially subject
at least partially to the CFTC’s claims for restitution. (See Compl. at 27). The
CFTC seeks to return to the victims of Giddens and Dutton’s alleged fraud the
funds invested with Defendant Gomez, which could have the practical effect of
preventing Walker from obtaining the return of some or most of the specific funds
in which he claims an interest. Finally, the CFTC cannot represent Walker’s
interest in this litigation because they have adverse views of how to account for
Walker’s investment, the extent to which Walker’s funds commingled with the
funds from Pinnacle Trade, and the scope of the relief to which Walker should be
entitled. (See CFTC’s Resp. Mot. Intervene).

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None of the parties object to Walker intervening in this action as a Plaintiff.
In light of Walker’s significant interest in some of the funds that are the subject of
the CFTC’s claims against the defendants, it is appropriate to permit Walker to
intervene in this action to assert his claimed interests in the funds invested by
Gomez. The Motion to Intervene is therefore granted.
III.

CONCLUSION
For the foregoing reasons,
IT IS HEREBY ORDERED that Defendants Louis J. Giddens, Jr. and

Anthony W. Dutton’s Motion for a More Definite Statement [42] is GRANTED.
Plaintiff U.S. Commodity Futures Trading Commission is ordered to file, on or
before March 16, 2012, an amended complaint alleging fraud against Defendants
Giddens and Dutton as detailed in this Order. The CFTC also is required to file a
redlined copy of the Amended Complaint clearly identifying the amendments
made.
IT IS FURTHER ORDERED that Movant Freeman L. Walker’s Motion to
Intervene as a Plaintiff [53] is GRANTED.

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SO ORDERED this 24th day of February, 2012.
_________________________________________

WILLIAM S. DUFFEY, JR.
UNITED STATES DISTRICT JUDGE

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