US Commodity Futures Trading Commission v. OTC Investments LLC et al
Filing
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ORDER OF PRELIMINARY INJUNCTION AND OTHER EQUITABLE RELIEF. Signed by District Judge Martin Reidinger on 05/23/15. (emw)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:15-cv-00081-MR
U.S. COMMODITY FUTURES
TRADING COMMISSION,
Plaintiff,
vs.
ORDER OF PRELIMINARY
INJUNCTION AND OTHER
EQUITABLE RELIEF
OTC INVESTMENTS LLC,
FOREX CURRENCY TRADE
ADVISORS, LLC AND BARRY C.
TAYLOR,
Defendants.
THIS MATTER is before the Court on the Motion for Preliminary
Injunction [Doc. 17] and Memorandum in Support [Doc. 18] filed by the
Plaintiff U.S. Commodity Futures Trading Commission’s (“CFTC” or
“Commission”) against the two corporate entity Defendants in this case,
OTC Investments LLC (“OTC”) and Forex Currency Trade Advisors, LLC
(“FCTA”).1
This Court has deferred consideration of the CFTC’s Motion for Preliminary
Injunction against the individual Defendant Barry C. Taylor (“Taylor”), until May 29,
2015, and has in the interim continued in effect the terms of the Court’s Restraining
Order against Taylor entered on April 22, 2015, and extended on May 1, 2015 [Doc.
13] and May 15, 2015 [Doc. 22].
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I.
PROCEDURAL BACKGROUND
The Court first addresses the procedural posture of this case with
regard to the corporate entities, OTC and FCTA, and the Court’s authority
and jurisdiction to enter the preliminary injunctive and ancillary equitable
relief requested by the Commission.
OTC and FCTA were properly
served with a summons and the Commission’s Complaint, as well as the
Court’s Restraining Order [Doc. 11] and other papers filed by the CFTC
at the outset of this case. Accordingly, the Court has proper in personam
jurisdiction over OTC and FCTA. No lawyer, however, has entered an
appearance on behalf of either OTC or FCTA. It is well-established that
corporate entities and other non-human entities, such as limited liability
companies, can appear in federal court only through counsel. See, e.g.,
Rowland v. California Men’s Colony, Unit II Men’s Advisory Council, 506
U.S. 194, 201-02 (1993) (“It has been the law for the better part of two
centuries… that a corporation may appear in federal court only through
licensed counsel.”); Gilley v. Shoffner, 345 F. Supp. 2d 563, 566-67
(M.D.N.C. 2004) (holding that a limited liability company could not appear
in federal court pro se).
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Second, because this case is no longer in an ex parte posture, as
noted by the Court at the May 15, 2015 Show Cause Hearing on the
Motion for Preliminary Injunction, the Court, pursuant to the terms of
Sections 6c(a) and (c) of the Commodity Exchange Act (“the Act”), 7
U.S.C. § 13a-1(a), (c) (2012), can enter additional preliminary injunctive
relief against Defendants OTC and FCTA, because of the Notice of
Hearing and service of process. This Court has the authority to enter
preliminary injunctive relief against OTC and FCTA, including the entry of
such ancillary injunctive relief as the Court deems necessary “to remove
the danger of the violation of [the] Act or any such rule, regulation, or
order.” Section 6c(c) of the Act, 7 U.S.C. § 13a-1(c) (2012). The Court’s
authority to provide injunctive relief is no longer circumscribed by the
statutory limitations on ex parte relief imposed by the other terms of
Section 6c(a) and 6c(c) of the Act, 7 U.S.C. §§ 13a-1(a), (c) (2012).
II.
FINDINGS OF THE COURT
Having considered the pleadings, declarations, exhibits, and
memoranda filed and referenced by the CFTC in support of its motion for
entry of a preliminary injunction as to Defendants OTC and FCTA, THIS
COURT HEREBY FINDS:
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A.
It appears to the satisfaction of the Court that the Plaintiff has
presented a prima facie case, and further has shown by competent
evidence that there is a substantial likelihood that the Plaintiff will prevail
on the merits of this matter in showing that the Defendants OTC and
FCTA, acting through their agent Taylor, have engaged, are engaging,
and are about to engage in certain unlawful conduct, including but not
limited to:
(a)
making affirmative misrepresentations to pool participants
and/or prospective pool participants [see, e.g., Declaration of
Patricia Gomersall (“Gomersall Dec.”), Doc. 4 at ¶¶ 37-39];
(b)
misappropriating pool participants’ funds [Id. at ¶¶ 18-20];
(c)
failing to disclose material information to pool participants,
including but not limited to the fact that Defendants OTC and FCTA,
acting through their agent Taylor, were misappropriating a
significant portion of pool participants’ funds, and engaging in
generally unprofitable foreign currency (“forex”) trading that resulted
in growing net realized trading losses [Id. at ¶¶ 39-41];
(d)
acting as an illegally unregistered commodity pool operator
(“CPO”) [Id. at ¶¶ 8-9, 11, 13, 15-16, 32 and 34];
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(e)
improperly commingling pool participants’ funds with personal
and other business-related funds [Id. at ¶¶ 18-20, 29 and 38-40];
and
(e)
engaging in other acts, practices or a course of business that
defrauded pool participants or prospective pool participants,
operated as a fraud or deceit on pool participants, cheated or
defrauded or attempted to cheat or defraud other persons, or
willfully deceived or attempted to deceive other persons, or willfully
deceived or attempted to deceiver other persons in connection with
a pooled investment vehicle that is not an eligible contract
participant (“ECP”) as defined by Section 1a(11) of the Act, 7 U.S.C.
§ 1a(11) (2012), in connection with leveraged, margined or financed
forex transactions as described in Section 2(c)(2)(C) of the Act,
7 U.S.C. § 2(c)(2)(C)(i) (which are subject to the anti-fraud
provisions of Section 4b(a)(2)(A) and (C) of the Act, 7 U.S.C.
§ 6b(a)(2)(A), (C), pursuant to Sections 2(c)(2)(C)(ii)(I) and
2(c)(2)(C)(iv) of the Act, 7 U.S.C. § 2(c)(2)(C)(ii)(I), 2(c)(2)(C)(iv)),
in violation of Sections 2(c)(2)(C)(iii)(I)(cc), 4b(a)(2)(A), (C), and
4o(1)(A)-(B) of the Act, 7 U.S.C. §§ 2(c)(2)(C)(iii)(I)(cc), 6b(a)(2)(A),
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(C), and 6o(1)(A)-(B) (2012), and Commission Regulation
5.3(a)(2)(i) and (ii), 17 C.F.R. § 5.3(a)(2)(i) and (ii) (2014).
B.
It appears to the satisfaction of the Court that there is a
substantial likelihood that Defendants OTC’s and FCTA’s violations of the
Act and Regulations will continue unless they are restrained and enjoined
from committing further violations through the entry of an Order of
Preliminary Injunction.
C.
It appears to the satisfaction of the Court that there is a
substantial likelihood that the Defendants OTC’s and FCTA’s customers
may be cheated and defrauded and immediate and irreparable damage
will occur to the Court’s ability to grant effective final relief in the form of
monetary relief due to the dissipation of customer assets and destruction
of books and records unless the Defendants OTC and FCTA are
preliminarily enjoined by order of the Court, and unless the Court converts
the terms of the restraining order as to Defendants OTC and FCTA into a
preliminary injunction as part of the equitable relief granted herein.
Further, the Court finds that the balance of hardships tips in the Plaintiff’s
favor, as the potential harm to the public in not granting the preliminary
injunction, and further converting the terms of the restraining order into a
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preliminary injunction as part of the equitable relief granted herein,
outweighs the potential harm to Defendants OTC and FCTA in granting
the requested relief.
D.
It further appears to the satisfaction of the Court that there is
a substantial likelihood that absent the entry of this Order of Preliminary
Injunction, Defendants OTC and FCTA, whether acting through their
agent Taylor or otherwise, will dissipate or transfer assets, and destroy
business records.
III.
DEFINITIONS
For the purposes of this Order, the following definitions apply:
1.
The term “assets” means any legal or equitable interest in,
right to, or claim to, any real or personal property, whether individually or
jointly, directly or indirectly controlled, and wherever located, including,
but not limited to:
chattels, goods, instruments, equipment, fixtures,
general intangibles, effects, leaseholds, mail or other deliveries,
inventory, checks, notes, accounts (including, but not limited to, bank
accounts and accounts at other financial institutions), credits, receivables,
lines of credit, contracts (including spot, futures, options, or swaps
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contracts), insurance policies, and all cash, wherever located, whether
within or outside the United States.
2.
The term “document” is synonymous in meaning and equal in
scope to the broad usage of the term in Federal Rule of Civil Procedure
34(a).
3.
Defendants OTC and FCTA refers, respectively, to OTC
Investments LLC, and Forex Currency Trade Advisors, LLC, and any
person insofar as he or she is acting in the capacity of an officer, agent,
servant, employee, or attorney of Defendants OTC or FCTA, and any
person who receives actual notice of this Order by personal service or
otherwise insofar as he or she is acting in concert or participation with
either Defendant OTC or FCTA.
IV.
CONCLUSIONS OF LAW
Based on the foregoing, the Court HEREBY CONCLUDES:
E.
This Court has jurisdiction over the parties and over the
subject matter of this action pursuant to Section 6c of the Act, 7 U.S.C. §
13a-1 (2012) and Section 2(c)(2) of the Act, 7 U.S.C. § 2(c)(2) (2012).
F.
This Court is authorized by the terms of Sections 6(c)(a) and
6c(c) of the Act, 7 U.S.C. §§ 13a-1(a), (c) (2012), as well as by the terms
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of Fed. R. Civ. Proc. 65(a), to enter the order of preliminary injunction and
ancillary equitable relief requested by the Commission against
Defendants OTC and FCTA.
G.
Venue lies properly within this District pursuant to Section
6c(e) of the Act, 7 U.S.C. § 13a-1(e) (2012).
H.
Defendants OTC and FCTA should be preliminarily enjoined,
as further described below, to preserve the status quo, to prevent further
violations of the Act and Regulations, to order Defendants OTC and FCTA
to take such action as the Court deems necessary to remove the danger
of violation of the Act or Regulations, to protect public customers from
further loss and damage, and to enable the Commission to fulfill its
statutory duties.
RELIEF GRANTED
I.
PRELIMINARY INJUNCTIVE RELIEF
IT IS HEREBY ORDERED that Defendants OTC and FCTA are
hereby restrained, enjoined, and prohibited until further order of the
Court, from directly or indirectly:
A.
In connection with any order to make, or the making of, any
contract of sale of any commodity for future delivery, or swap,
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that is made, or to be made, for or on behalf of, or with, any
other person, other than on or subject to the rules of a
designated contract market,
(1)
cheating or defrauding or attempting to cheat or defraud
any person; or
(2)
willfully deceiving or attempting to deceive any person
by any means whatsoever in regard to any order or contract
or the disposition or execution of any such order or contract,
or in regard to any act of agency performed, with respect to
any such order or contract for or with any other person;
in violation of Section 4b(a)(2)(A) and (C) of the CEA, 7 U.S.C.
§ 6b(a)(2)(A), (C) (2012), and/or CFTC Regulation 5.2(b), 17
C.F.R. § 5.2(b) (2014);
B.
Acting as a commodity pool operator, as that term is defined
in Section 1a(11) of the CEA, 7 U.S.C. § 1a(11) (2012), or as
an associated person of a commodity pool operator, by use of
the mails or any means or instrumentality of interstate
commerce,
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(1)
employing any device, scheme, or artifice to defraud
any client or participant or prospective client or participant; or
(2)
engaging in any transaction, practice, or course of
business which operates as a fraud or deceit upon any client
or participant or prospective client or participant;
in violation of Section 4o(1) of the Act, 7 U.S.C. § 6o(1)
(2012).
IT IS FURTHER ORDERED that Defendants OTC and FCTA are
hereby restrained, enjoined, and prohibited until further order of the
Court, from directly or indirectly:
A.
Trading on or subject to the rules of any registered entity (as
that term is defined in Section 1a(40) of the Act, 7 U.S.C.
§ 1a(40) (2012));
B.
Entering into any transactions involving “commodity interests”
(as that term is defined in Regulation 1.3(yy), 17 C.F.R.
§ 1.3(yy) (2014) for their own personal account or for any
account in which they have a direct or indirect interest;
C.
Having any commodity interests traded on their behalf;
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D.
Controlling or directing the trading for or on behalf of any other
person or entity, whether by power of attorney or otherwise,
in any account involving commodity interests;
E.
Soliciting, receiving or accepting any funds from any person
for the purpose of purchasing or selling any commodity
interests;
F.
Applying for registration or claiming exemption from
registration with the Commission in any capacity, and
engaging in any activity requiring such registration or
exemption from registration with the Commission, except as
provided for in Regulation 4.14(a)(9), 17 C.F.R. § 4.14(a)(9)
(2014); and/or
G.
Acting as a principal (as that term is defined in Regulation
3.1(a), 17 C.F.R. § 3.1(a) (2014)), agent or any other officer
or employee of any person (as that term is defined in Section
1a(38) of the Act, 7 U.S.C. § 1a(38) (2012)), registered,
exempted from registration or required to be registered with
the Commission except as provided for in Regulation
4.14(a)(9), 17 C.F.R. § 4.14(a)(9) (2014).
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II.
CONTINUED FORCE AND EFFECT OF THE RESTRAINING
ORDER
IT IS FURTHER ORDERED that the Court’s April 22, 2015
Restraining Order [Doc. 11] shall continue in full force and effect against
Defendants OTC and FCTA. Defendants OTC and FCTA shall comply
fully with all of the requirements of the Restraining Order.
III.
CONTINUATION OF ASSET FREEZE
IT IS FURTHER ORDERED that Defendants OTC and FCTA are
restrained and enjoined from directly or indirectly transferring, selling,
alienating, liquidating, encumbering, pledging, leasing, loaning,
assigning,
concealing,
dissipating,
converting,
withdrawing,
or
otherwise disposing of any assets, wherever located, including
Defendants OTC’s and FTCA’s assets held outside the United States,
except as otherwise ordered by the Court. This Order shall apply to
any OTC or FCTA assets derived from or otherwise related to the
activities alleged in the CFTC’s complaint, regardless of when the asset
is obtained.
IT IS FURTHER ORDERED that any financial or brokerage
institution, business entity, or person that holds, controls, or maintains
custody of any account or asset titled in the name of, held for the benefit
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of, or otherwise under the control of Defendant OTC or FCTA, or has held,
controlled, or maintained custody of any such account or asset of
Defendant OTC or FCTA at any time since August 1, 2011, who receives
notice of this Order by personal service or otherwise, is hereby notified
that this Order prohibits Defendants OTC and FCTA from withdrawing,
removing, assigning, transferring, pledging, encumbering, disbursing,
dissipating, converting, selling or otherwise disposing of Defendants
OTC’s or FCTA’s assets, except as directed by further order of the Court;
provided, however, nothing in this Order shall limit the discretion of any
compliance official of any retail foreign exchange dealer or futures
commission merchant with which Defendants OTC or FCTA maintain an
account to liquidate, or close out, any and all open positions in Defendants
OTC’s or FCTA’s account, in a prompt and orderly fashion in order to
avoid losses due to the terms of the restraining order continued in effect
by this Order.
IV.
MAINTENANCE OF AND ACCESS TO BUSINESS RECORDS
IT IS FURTHER ORDERED that Defendants OTC and FCTA are
restrained from directly or indirectly destroying, mutilating, erasing,
altering, concealing or disposing of, in any manner, directly or indirectly,
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any documents that relate to the business practices or business or
personal finances of any Defendant.
V.
STAY OF ACTIONS
IT IS FURTHER ORDERED that except by leave of the Court,
Defendants OTC and FCTA are hereby stayed from taking any action to
establish or enforce any claim, right or interest for, against, on behalf of,
or in the name of Defendants OTC or FCTA, including but not limited to,
the following actions:
A.
Commencing, prosecuting, litigating or enforcing any suit,
except that actions may be filed to toll any applicable statute
of limitations;
B.
Accelerating the due date of any obligation or claimed
obligation, enforcing any lien upon, or taking or attempting to
take possession of, or retaining possession of, real and/or
personal property of Defendants OTC or FCTA, or any real
and/or personal property claimed by Defendants OTC or
FCTA, or attempting to foreclose, forfeit, alter or terminate
Defendants OTC’s or FCTA’s interest(s) in real and/or
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personal property, whether such acts are part of a judicial
proceeding or otherwise;
C.
Using self-help or executing or issuing, or causing the
execution or issuance of any court attachment, subpoena,
replevin, execution or other process for the purpose of
impounding or taking possession of or interfering with, or
creating or enforcing a lien upon any property, wherever
located, owned by or in the possession of Defendants OTC or
FCTA; and
D.
Doing any act or thing to interfere with the exclusive
jurisdiction of this Court over the real and/or personal property
and assets of Defendants OTC or FCTA.
The foregoing paragraph does not stay the commencement or
continuation of any action or proceeding by any governmental unit to
enforce such governmental unit’s police or regulatory power.
VI.
SERVICE OF ORDER
IT IS FURTHER ORDERED that copies of this Order may be served
by any means, including electronic mail, facsimile transmission and
United Parcel Service, upon any financial institution or other entity or
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person that may have possession, custody, or control of any documents
or assets of Defendants OTC or FCTA, or that may be subject to any
provision of this Order.
VII.
BOND NOT REQUIRED OF PLAINTIFF
IT IS FURTHER ORDERED that Plaintiff CFTC is an agency of the
United States, and therefore pursuant to Section 6c(b) of the Act, 7 U.S.C.
§ 13a-1(b) (2012), no bond is required prior to entry of this Order.
VIII. COURT MAINTAINS JURISDICTION
IT IS FURTHER ORDERED that this Order shall remain in effect
until further order of the Court, and the Court shall retain jurisdiction over
this action to ensure compliance with this Order and for all other purposes
related to this action.
IT IS SO ORDERED.
Signed: May 23, 2015
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