Commodity Futures Trading Commission v. McDonnell et al

Filing 136

ORDER re: Defendant's 99 Motion for Reconsideration. Upon reconsideration, defendant's motion to dismiss is denied. So Ordered by Judge Jack B. Weinstein on 7/12/2018. (Lee, Tiffeny)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

COMMODITY FUTURES TRADING

COMMISSION,
ORDER

Plaintiff,
I8-CV-36I

against-

PATRICK K. MCDONNELL,
and CABBAGETECH,CORP. d/b/a COIN
DROP MARKETS,
Defendants.

Jack B. Weinstein,Senior United States District Judge:
Defendant's motion to reconsider the court's March 6, 2018 Memorandum and Order

("Order") denying defendant's motion to dismiss was heard on July 9, 2018. See ECF No. 99.
Defendant challenges the court's ruling that the Commodity Futures Trading Commission
("CFTC")'s broad statutory authority, Title 7 U.S.C. § 9(1), and regulatory authority, Title 17

C.F.R. § 180.1, extends to fraud in derivatives markets and underlying spot markets. See id
Upon reconsideration, defendant's motion to dismiss is denied; no valid basis for a
change in the Order has been offered. The court has considered all papers filed before and after

March 6,2018, including all supplemental materials to defendant's motion to reconsider (see
ECF Nos. 69, 75, 87, 89, 90, 116; July 9,2018 Hr'g Def. Ex. A), and finds that the Order should
not be modified.

Defendant's motion is procedurally deficient. The decision relied upon by the defendant.
Commodity Futures Trading Comm 'n v. Monex Credit Co.^ No. SACV 17-01868 JVS,2018 WL

2306863(C.D. Cal. May 1, 2018), is not binding authority that mandates reconsideration. Local
Civil Rule 6.3(memorandum accompanying notice of motion must set "forth concisely the

matters or controlling decisions which counsel believes the court has overlooked.")(emphasis
added); see also Shrader v. CSXTransp.,Inc., 70 F.3d 255, 257(2d Cir. 1995)("The standard
for granting such a motion is strict, and reconsideration will generally be denied unless the
moving party can point to controlling decisions or data that the court overlooked-matters, in
other words, that might reasonably be expected to alter the conclusion reached by the court.");
Nielsen v. New York City Dep't ofEduc.,No. 04-CV-2182(NGG),2007 WL 2743678, at *1
(E.D.N.Y. 2007)("The applicable standard is strict in order to dissuade repetitive arguments on
issues that have already been considered fully by the court."). Defendant's motion is also
untimely. See Local Civil Rule 6.3("A notice of motion for reconsideration or reargument of a

court order determining a motion shall be served within fourteen (14)days after the entry ofthe
court's determination of the original motion ...").

Notwithstanding these procedural defects, the court has given consideration to the
substance of defendant's motion for reconsideration. Defendant makes two primary arguments.

First, he argues that the "actual delivery exception" in Section 2(c)(2)(D) of the Act, 7
U.S.C. § 2(c)(2)(D), bars enforcement of the Commodities Exchange Act("Act") against the
defendants. The "actual delivery exception" applies to certain transactions entered into on a

leveraged, margined, or financed basis. Because CFTC's complaint never alleged any
transactions entered into on a leveraged, margined, or financed basis, this exception was—and

remains—irrelevant to the court's prior decision. Nonetheless,the "actual delivery exception"
does not bar enforcement of commodity fraud in violation of Section 6(c)(1) of the Act, Title 7
U.S.C. § 9(1). See Monex Credit Co., 2018 WL 2306863, at *7("By its plain language, § 6(c)(1)

applies broadly "to any swap, or a contract of sale of any commodity in interstate commerce....
Thus, it is not similarly limited to transactions regulated by the CEA.").
Second, defendant, relying on Monex, argues that the action should be dismissed because

it is absent any claims specifying "fraud-based manipulation." See Monex Credit Co., 2018 WL
2306863, at *10. The district court in Monex found that Title 7 U.S.C. § 9(1) only protects
against fraud where "a particular commodity transaction manipulates or potentially manipulates
the derivatives market." Id. at *8. Monex took note ofthis court's Order and distinguished it
based on non-substantive grounds. See id. at *10.
This court has fully considered Monex and reaches a different conclusion. The court

reaffirms its view that Title 7 U.S.C. § 9(1) gives the CFTC standing to exercise its enforcement
power over the fraudulent schemes alleged in the complaint. Commodity Futures Trading

Comm'n v. McDonnell, 287 F. Supp. 3d 213,229(E.D.N.Y. 2018)("Language in 7 U.S.C. §

9(1), and 17 C.F.R. § 180.1, establish the CFTC's regulatory authority over the manipulative
schemes, fraud, and misleading statements alleged in the complaint.").
This court also reaffirms its prior rulings with respect to subject-matter and personal
jurisdiction. See McDonnell, 287 F. Supp. 3d at 230,232.
On reconsideration, defendant's motion to dismiss is denied.

SO ORDERED.

ick B. Weinstein

Senior United States District Judge
Dated: July 12,2018
Brooklyn, New York