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

Filing 243

ORDER granting 213 Plaintiff's Motion for Summary Judgment Against Relief Defendants Werner H. Beiersdoerfer and Interveston Wines, LLC and ORDERS the Relief Defendants to comply with the Disgorgement Order as detailed. Signed by Judge Thomas W. Thrash, Jr on 5/7/12. (rsh)

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

CIVIL ACTION FILE
NO. 3:09-CV-75-TWT

ELDON A. GRESHAM
doing business as
The Gresham Company
also known as
Eldon A. Gresham, Jr., et al.,
Defendants.

ORDER

This is an action to disgorge Ponzi scheme investment returns from relief
defendants. It is before the Court on the Plaintiff’s Motion for Summary Judgment
Against Relief Defendants Werner H. Beiersdoerfer and Interveston Wines, LLC
[Doc. 213]. For the reasons set forth below, the Court GRANTS the Plaintiff’s
Motion for Summary Judgment and ORDERS the Relief Defendants to comply with
the Disgorgement Order detailed below.
I. Background
Between 2004 and 2009, Eldon Gresham, Jr. (“Gresham”) traded off-exchange

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foreign currency (“forex”) on behalf of over 100 customers. Gresham convinced
customers to invest money with him by representing that his forex trading program
would generate large returns with very little risk. He told customers that they could
withdraw their funds at any time. (Henry Aff. ¶ 5; Beiersdoerfer Dep. at 131.) In
exchange for the investments, Gresham provided promissory notes and investment
agreements guaranteeing a certain percentage of his profits. Although Gresham
acquired over $15.9 million in customer funds, he traded only a small percentage of
that total.
Customers invested $15,900,245.97 with Gresham to trade forex. Of that
amount, Gresham lost $40,788.21. (Turley Aff. ¶¶ 13 & 17.) He sent $13,149,003.46
to customers in “returns.” (Id. ¶ 24.) Gresham misappropriated the remaining
$2,710,454.30, including spending or withdrawing $2,537,817.95 in customer money.
(Id. ¶¶ 15 & 27.) When customers asked to withdraw their investment, Gresham used
other customer funds to pay them. (Id. ¶ 27.)
On July 2, 2009, the Plaintiff, U.S. Commodity Futures Trading Commission
(“CFTC”) filed suit against Gresham, and Relief Defendants Werner Beiersdoerfer,
Interveston Wines, LLC, and Kirk M. Gresham [Doc. 1]. On March 30, 2011, the
Court entered a Consent Order of Disgorgement and Other Ancillary Relief Against
Relief Defendant Kirk M. Gresham disposing of the claims against Kirk Gresham [See

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Doc. 167]. On September 8, 2011, this Court granted the Plaintiff’s Summary
Judgment Motion against Gresham, enjoining Gresham from a myriad of tradingrelated activity and ordering him to pay a civil fine of $8,131,362.90 [Doc. 199]. The
Plaintiff filed this Motion for Summary Judgment against Relief Defendants Werner
H. Beiersdoerfer, Elaine Beiersdoerfer, and Interveston Wines, LLC on November 3,
2011 [Doc. 213]. Relief Defendant Elaine Beiersdoerfer was dismissed on December
16, 2011 [Doc. 221].1 Werner Beiersdoerfer invested $950,100 with Gresham for
forex trading and received $6,461,456.02 from Gresham in purported investment
“returns,” for a net profit of $5,511,356.02. (Turley Aff. ¶ 10; Beiersdoerfer Dep. at
93-95.) Interveston Wines, LLC invested $150,000 with Gresham and received
$199,516.50, for a net profit of $49,516.50. (Turley Aff. ¶ 11.) In the conclusion of
its Brief in Support of its Summary Judgment Motion, the Plaintiff seeks
$5,158,634.95 in disgorgement from Werner Beiersdoerfer and $49,516.50 in
disgorgement from Interveston Wines, LLC. (Pl.’s Br. in Supp. of Mot. for Summ.
J., at 12.) The Plaintiff wants these moneys distributed to all Gresham customers who
lost money as a result of Gresham’s scheme on a pro rata basis.

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The Plaintiff states that Elaine Beiersdoerfer invested via her husband, and
profited primarily by constructing a house in her name. (Pl.’s Br. in Supp. of Pl.’s
Mot. for Summ. J., at 2 n.2.) This house has since been transferred to Werner
Beiersdoerfer. (Pl’s Br. in Supp. of Mot. to Dismiss Elaine Beiersdoerfer, at 3.)
Werner Beiersdoerfer cannot dispose of the house [Doc. 221].
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II. Motion for Summary Judgment Standard
Summary judgment is appropriate only when the pleadings, depositions, and
affidavits submitted by the parties show that no genuine issue of material fact exists
and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).
The court should view the evidence and any inferences that may be drawn in the light
most favorable to the nonmovant. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59
(1970). The party seeking summary judgment must first identify grounds that show
the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S.
317, 323-24 (1986). The burden then shifts to the nonmovant, who must go beyond
the pleadings and present affirmative evidence to show that a genuine issue of material
fact does exist. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986).
III. Discussion
In an enforcement proceeding brought by the CFTC, the Court’s jurisdiction
under 7 U.S.C.A. §13-a-1 includes equitable remedies such as restitution and
disgorgement. Commodity Futures Trading Comm’n v. Wilshire Inv. Mgmt. Corp.,
531 F.3d 1339, 1344 (11th Cir. 2008). One such equitable remedy is the ordering of
disgorgement from a relief defendant. Commodity Futures Trading Comm’n v.
Kimberlynn Creek Ranch, Inc., 276 F.3d 187, 191-92 (4th Cir. 2002); SEC v. George,
426 F.3d 786, 798 (6th Cir. 2005). The Relief Defendants argue that the CFTC is not

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entitled to disgorge all of the profits they derived from Gresham’s Ponzi scheme. The
Court addresses each of the Relief Defendants’ arguments in turn.
A.

CFTC Jurisdiction

The Relief Defendants argue that the CFTC does not have the authority to bring
this action as to many of Gresham’s transactions. (Def.’s Br. in Opp’n to Pl.’s Mot.
for Summ. J., at 9-13.) Specifically, the Relief Defendants argue that 7 U.S.C.A. §
2(f) restrains the Plaintiff so that it can only seek disgorgement against investors who
received investment accounts as opposed to promissory notes. The Court already
determined that the CFTC has jurisdiction over Gresham’s forex trades, including the
promissory notes given by Gresham in exchange for client funds pursuant to 7
U.S.C.A. § 2(c)(2)(C), and 7 U.S.C.A. § 6b(a)(2) [Doc. 199, at 5-7]. The Court does
not accept the Relief Defendants’ argument that 7 U.S.C.A. § 2(f) limits the Plaintiff’s
jurisdiction in this case.
7 U.S.C.A. § 2(f) restricts the CFTC’s jurisdiction over a “hybrid instrument
that is predominantly a security.” 7 U.S.C.A. § 2(f)(2) is inapplicable to the case at
bar, as promissory notes are not “hybrid instruments.” A “[h]ybrid instrument means
an equity or debt security or depository instrument as defined in § 34.3(a)(1) with one
or more commodity-dependent components that have payment features similar to
commodity futures or commodity option contracts or combinations thereof.” 17

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C.F.R. § 34.2(a). The Relief Defendants’ promissory notes have no “commoditydependent component.” “A commodity-dependent component means a component
of a hybrid instrument, the payment of which results from indexing to, or calculation
by reference to, the price of a commodity.” 17 C.F.R. § 34.2(d). The Relief
Defendants do not even argue that there is a commodity-dependent component to the
promissory notes. The Relief Defendants do argue that the promissory notes are a
“security,” but this does not meet the definition of a “hybrid instrument that is
predominantly a security,” which is necessary to trigger 7 U.S.C.A. § 2(f)(2). The
CFTC can have jurisdiction over fraud in connection with securities. Simply because
the SEC may also have jurisdiction does not mean that the CFTC cannot have
concurrent jurisdiction. See, e.g., SEC v. Unique Fin’l Concepts, 196 F.3d 1195, 1202
(11th Cir. 1999).
B.

Possession of Funds Is Not Required for Disgorgement

The Relief Defendants argue that the CFTC can only disgorge those assets or
funds that were in their possession at the time they learned of the fraud. (Defs.’ Br.
in Opp’n to Pl.’s Mot. for Summ. J., at 2-6). The Court disagrees. Federal courts
order equitable relief against a relief defendant where the individual or entity: (1)
receives ill-gotten funds; and (2) does not have a legitimate claim to the funds. [Doc.
73, at 5]; George, 426 F.3d at 798; Kimberlynn Creek Ranch, 276 F.3d at 192. “An

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individual may be a proper relief defendant even if she does not possess the actual illgotten gains if she previously received benefits that were derived from another
person’s unlawful conduct.” SEC v. Aragon Capital Advisors, No. 07-CV-919, 2011
WL 3278907, at *18 (S.D.N.Y. July 26, 2011); see also George, 426 F.3d at 791. The
cases cited by the Relief Defendants do not support the conclusion that relief
defendants must possess the ill-gotten gains.
Moreover, the CFTC is not required to trace the specific funds in the Relief
Defendants’ bank accounts to Gresham’s fraud. The Relief Defendants’ frozen
accounts are less than their ill-gotten gains. In such a situation, the CFTC “is not
required to trace specific funds to their ultimate recipients...because the balance in the
account after the distributions was less than the amount of illicit profits, the
distributions must necessarily have contained funds subject to disgorgement.” SEC
v. Rosenthal, 426 Fed. Appx. 1, 1-2 (2d Cir. 2011); see also SEC v. Lauer, 445 F.
Supp. 2d 1362, 1370 (S.D. Fla. 2006).
C.

The Relief Defendants Are Not Legitimately Entitled to Any Profits
Derived From Investment in Gresham’s Ponzi Scheme

The Relief Defendants argue that they are legitimately entitled to assets derived
from Gresham’s Ponzi scheme. (Defs.’ Br. in Opp’n to Pl.’s Mot. for Summ. J, at 6.)
“When claims are brought against Ponzi scheme investors, the general rule is that to
the extent innocent investors have received payments in excess of the amounts of
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principal that they originally invested, those payments are avoidable as fraudulent
transfers.” SEC v. Forte, No. 09-63, 2010 WL 939042, at *5 (E.D. Pa. Mar. 17, 2010)
(internal quotations omitted). If the CFTC can show that the funds the Relief
Defendants received came from the investments of others, rather than profits on their
investment, the Relief Defendants have no legitimate claim to the funds [Doc. 73].
However, if a relief defendant has a legitimate claim to the payments, then the court
should not grant disgorgement. See, e.g., Commodity Futures Trading Comm’n v.
Walsh, 658 F.3d 194, 197 (2d Cir. 2011); SEC v. Sun Capital, Inc., No. 2:09-CV-229,
2009 WL 1362634, at *2 (M.D. Fla. May 13, 2009).
The CFTC has shown that the Relief Defendants’ returns came from the
investments of others. The Relief Defendants were investors in Gresham’s Ponzi
scheme, through which Gresham did very little actual trading. The Relief Defendants
have not produced any evidence demonstrating that they are legitimately entitled to
the Ponzi scheme profits. They were investors, not creditors of the Ponzi scheme, and
thus do not have a legitimate ownership interest in the Ponzi scheme assets. (W.
Beiersdoerfer Dep. at 9-10, 277-78); Compare Janvey v. Adams, 588 F.3d 831 (5th
Cir. 2009) (debtor-creditor relationship existed) with Aragon Capital Advisors, 2011
WL 3278907, at *20, and SEC v. Illarramendi, No. 3:11-CV-78, 2011 WL 2457734,
at *5 (D. Conn. June 16, 2011) (no debtor-creditor relationship existed; relief

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defendants were investors in the Ponzi scheme). Other cases cited by the Relief
Defendants are inapposite. The Relief Defendants did not receive the ill-gotten gains
in a divorce settlement, Walsh, 618 F.3d at 196, and did not perform any services for
Gresham. Commodity Futures Trading Comm’n v. Hanover Trading, 34 F. Supp. 2d
203, 207 (S.D.N.Y. 1999); (W. Beiersdoerfer Dep. at 277-78.)
D.

The CFTC Does Not Have to Sue All Possible Relief Defendants

The Relief Defendants argue that the CFTC should have to bring claims against
all investors who were “winners” in the Gresham Ponzi scheme, or bring claims
against none of them. (Defs.’ Br. in Opp’n to Pl.’s Mot. for Summ. J., at 8-9.) The
Court disagrees [see Doc. 73, at 7 n.3].
E.

Oral Argument

The Court denies the Relief Defendants’ request for oral argument.
F.

Disgorgement Order

The Monitor, the National Futures Association, shall collect disgorgement
payments from Werner Beiersdoerfer and Interveston Wines, LLC, place those
payments in an interest-bearing account, and make distributions to the Gresham
customers in the same manner as set forth in the Kirk Gresham Consent Order.
Because the Monitor is not being specially compensated for these services, and these
services are outside the normal duties of the Monitor, the Monitor shall not be liable

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for any action or inaction arising from its appointment as Monitor, other than actions
involving fraud.
Any acceptance by the CFTC and/or Monitor of partial payment of the
disgorgement obligation shall not be deemed a waiver of Werner Beiersdoerfer’s
and/or Interveston Wines, LLC’s requirements to make further payments pursuant to
this Order or a waiver of the CFTC’s right to seek to compel payment of any
remaining balance.
Werner Beiersdoerfer shall pay disgorgement in the amount of $5,158,634.95,
plus post-judgment interest, to the Gresham customers identified in Attachment A to
the Kirk Gresham Consent Order. Interveston Wines, LLC shall pay disgorgement
in the amount of $49,516.50, plus post-judgment interest, to the Gresham customers
identified in Attachment A to the Kirk Gresham Consent Order. All of Werner
Beiersdoerfer’s and Interveston Wines, LLC’s disgorgement obligations are
immediately due and owing.
Werner Beiersdoerfer’s initial disgorgement payment shall consist of all money
in the frozen accounts referenced in the first table below. Because the total amount
of funds in these accounts is less than $5,158,634.95, Werner Beiersdoerfer shall pay
the shortfall to the Monitor within ten days of being notified of such shortfall. If
Werner Beiersdoerfer fails to pay in full the shortfall within ten days of being notified

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of such shortfall by the Monitor, then post-judgment interest shall accrue on this
shortfall beginning as of the date of this Order’s entry and shall be determined by
using the Treasury Bill rate prevailing on the date of this Order’s entry, pursuant to
28 U.S.C. § 1961(a).
Interveston Wines, LLC’s initial disgorgement payment shall consist of all
money in the frozen accounts referenced in the second table below. Because the total
amount of funds in these accounts is less than $49,516.50, Interveston Wines, LLC
shall pay the shortfall to the Monitor within ten days of being notified of such
shortfall. If Interveston Wines, LLC fails to pay in full the shortfall within ten days
of being notified of such shortfall by the Monitor, then post-judgment interest shall
accrue on this shortfall beginning as of the date of this Order’s entry and shall be
determined by using the Treasury Bill rate prevailing on the date of this Order’s entry,
pursuant to 28 U.S.C. § 1961(a).
Upon issuance of this Order, the CFTC shall promptly provide each of the
financial institutions identified in the first table below with a copy of this Order.
Within thirty days of receiving a copy of this Order, each of the financial institutions
identified in the first table are specifically directed to liquidate and release all funds
in any account identified below, whether the account is held singly or jointly, or in
any other capacity, and to convey by wire transfer to an account designated by the

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Monitor, all funds in these accounts, less any nominal amounts required to cover the
financial institutions’ administrative or wire transfer fees. At no time during the
liquidation, release and/or wire transfer of these funds pursuant to this Order shall
Werner Beiersdoerfer be afforded any access to, or be provided with, any funds from
these accounts. Werner Beiersdoerfer and all banks and financial institutions listed
in this Order shall cooperate fully and expeditiously with the CFTC and the Monitor
in the liquidation, release, and wire transfer of these funds. The accounts to be
liquidated, released, and transferred are:
Name

Financial
Institution

Account Number

Approx. Balance
(as of September
2011)

Werner
Beiersdoerfer

Regions Bank

xxxxx59

$24,110.94

Werner
Beiersdoerfer
Construction
Account

Central State
Bank

xxxxx59

$10,909.64

Werner
Beiersdoerfer

Central State
Bank

xxxxxx25

$6,226.04

Werner
Central State
xxxxxx41
$291.39
Beiersdoerfer
Bank
Construction
Account
Werner Beiersdoerfer’s retirement account at Morgan Keegan, ending in 74 in
the approximate amount of $4,151.99 is hereby released.

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Upon issuance of this Order, the CFTC shall promptly provide each of the
financial institutions identified in the second table below with a copy of this Order.
Within thirty days of receiving a copy of this Order, each of the financial institutions
identified in the second table are specifically directed to liquidate and release all funds
in any account identified below, whether the account is held singly or jointly, or in
any other capacity, and to convey by wire transfer to an account designated by the
Monitor, all funds in these accounts, less any nominal amounts required to cover the
financial institutions’ administrative or wire transfer fees. At no time during the
liquidation, release and/or wire transfer of these funds pursuant to this Order shall
Werner Beiersdoerfer or Interveston Wines, LLC be afforded any access to, or be
provided with, any funds from these accounts. Interveston Wines, LLC and all banks
and financial institutions listed in this Order shall cooperate fully and expeditiously
with the CFTC and the Monitor in the liquidation, release, and wire transfer of these
funds. The accounts to be liquidated, released, and transferred are:

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Name

Financial
Institution

Account Number

Approx. Balance
(as of September
2011)

Interveston
Wines, LLC

Central State
Bank

xxxxx49

$3,902.62

Werner Beiersdoerfer and/or Interveston Wines, LLC shall make any
subsequent disgorgement payments in the name “Gresham Settlement Fund” and shall
send such payments by electronic funds transfer, or by U.S. postal money order,
certified check, bank cashier’s, or bank money order, to Office of Administration,
National Futures Association, 300 Riverside Plaza, Suite 1800, Chicago, Illinois
60606, under cover letter that identifies himself and the name and docket number of
this proceeding.

Werner Beiersdoerfer and Interveston Wines, LLC shall

simultaneously transmit copies of the cover letter and the form of payment to (a) the
Director, Division of Enforcement, Commodity Futures Trading Commission, 1155
21st Street, N.W., Washington, D.C. 20581; (2) the Chief Office of Cooperative
Enforcement, Division of Enforcement, Commodity Futures Trading Commission at
the same address; and (3) Charles Marvine, Chief Trial Attorney, Division of
Enforcement, Commodity Futures Trading Commission, 4900 Main Street, Suite 500,
Kansas City, MO 64112.

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IV. Conclusion
For the reasons set forth above, the Court GRANTS the Plaintiff’s Motion for
Summary Judgment Against Relief Defendants Werner H. Beiersdoerfer and
Interveston Wines, LLC [Doc. 213], and ORDERS the Relief Defendants to comply
with the Disgorgement Order detailed above.
SO ORDERED, this 7 day of May, 2012.

/s/Thomas W. Thrash
THOMAS W. THRASH, JR.
United States District Judge

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