US Commodity Futures Trading Commission v. OTC Investments LLC et al

Filing 31

ORDER OF PRELIMINARY INJUNCTION AND OTHER EQUITABLE RELIEF. Signed by District Judge Martin Reidinger on 6/6/15. (ejb)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:15-cv-00081-MR
(1)
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.
(2)

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 Defendant Barry C. Taylor (“Taylor”).1

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This Court has already issued a preliminary injunction against the other two
defendants in this case, OTC Investments LLC (“OTC”) and Forex Currency Trade
Advisors, LLC (“FCTA”) on May 26, 2015. [Doc. 28].

I.

PROCEDURAL BACKGROUND
The Court first addresses the procedural posture of this case with

regard to Defendant Taylor. 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 Defendant Taylor, because of the Notice of Hearing and
service of process. This Court has the authority to enter preliminary
injunctive relief against Taylor, 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).
The Court’s authority to provide injunctive relief is also unaffected
by Defendant Taylor’s filing of a petition for Chapter 7 bankruptcy on May
13, 2015. [See Doc. 20]. While the filing of a petition in bankruptcy court
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automatically stays most civil proceedings, see 11 U.S.C. § 362(a), it does
not stay government enforcement proceedings such as the instant case.
See 11 U.S.C. 362(b)(4) (providing exception from automatic stay for “an
action or proceeding by a governmental unit . . . to enforce such
governmental unit’s . . . police and regulatory power”). As the Fourth
Circuit has explained: “if the purpose of the law is to promote ‘public safety
and welfare,’ or to ‘effectuate public policy’ then the exception applies.”
Safety-Kleen, Inc. (Pinewood) v. Wyche, 274 F.3d 846, 865 (4th Cir. 2001)
(finding that deterring environmental misconduct and encouraging the
safe design and operation of hazardous waste facilities is a clear exercise
of the state’s regulatory power, and so the exception applies) (internal
quotation marks and citations omitted). The analysis of the Safety-Kleen
case applies with equal force to federal government actions. U.S. EEOC
v. CTI Global Solutions, Inc., 422 B.R. 49, 52 (D. Md. 2010) (“Although
Safety–Kleen, Inc., considered whether the exception applied to a state
government department, it applies with equal force to a federal
‘governmental unit.’”) (citing EEOC v. McLean Trucking Co., 834 F.2d
398, 401 (4th Cir. 1987)).

Here, the relief sought by the Plaintiff is

designed to end violations of the Act, to enjoin fraudulent conduct, and to
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deter future violations of the Act. Accordingly, the Court concludes that
the present action is squarely within the regulatory and police powers of
the Commission and therefore clearly qualifies for the governmental unit
exception to the automatic stay provision of the Bankruptcy Code. See
CFTC v. Co Petro Mktg. Group, 700 F.2d 1279, 1283 (9th Cir. 1983) (“the
district court retains jurisdiction to enforce an injunction obtained in an
action or proceeding by a governmental unit to enforce its police or
regulatory power”); CFTC v. Incomco, Inc., 649 F.2d 128, 133 (2d Cir.
1981) (“The commencement or continuation of actions brought by
governmental agencies to enforce regulatory or police powers is
specifically exempted from the automatic stay provisions.…”). The instant
matter is squarely within the regulatory or police powers of the
Commission, and so qualifies for the exception to the automatic stay
provision of the Bankruptcy Code.
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 Defendant Taylor, 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 Defendant Taylor, acting both individually and as an
agent for OTC and FCTA, has engaged, is engaging, and is
about to engage in certain unlawful conduct, including but not
limited to:

(1)

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];

(2)

misappropriating pool participants’ funds [Id. at ¶¶ 18-20];

(3)

failing to disclose material information to pool participants,
including but not limited to the fact that Defendant Taylor,
acting both individually and as an agent for OTC and FCTA,
was 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];
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(4)

acting as an illegally unregistered commodity pool operator
(“CPO”) [Id. at ¶¶ 8-9, 11, 13, 15-16, 32 and 34];

(5)

improperly commingling pool participants’ funds with personal
and other business-related funds [Id. at ¶¶ 18-20, 29 and 3840]; and

(6)

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
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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),
(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 Defendant Taylor’s violations of the
Act and Regulations will continue unless he is 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 Defendant Taylor’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 Defendant Taylor is preliminarily enjoined by
order of the Court, and unless the Court converts the terms of
the restraining order as to Defendant Taylor into a preliminary
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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 preliminary injunction as
part of the equitable relief granted herein, outweighs the
potential harm to Defendant Taylor 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,

Defendant

Taylor,

acting

both

individually and as an agent for OTC and FCTA, 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:
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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 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.

Defendant Taylor refers to Barry C. Taylor, and any person
insofar as he or she is acting in the capacity of an officer,
agent, servant, employee, or attorney of Defendant Taylor,
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 Defendant Taylor.

IV.

CONCLUSIONS OF LAW
Based on the foregoing, the Court HEREBY CONCLUDES:

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A.

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).

B.

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 of Fed. R. Civ. Proc. 65(a), to enter the order of
preliminary injunction and ancillary equitable relief requested
by the Commission against Defendant Taylor.

C.

Venue lies properly within this District pursuant to Section
6c(e) of the Act, 7 U.S.C. § 13a-1(e) (2012).

D.

Defendant Taylor should be preliminarily enjoined, as further
described below, to preserve the status quo, to prevent further
violations of the Act and Regulations, to order Defendant
Taylor 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
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I.

PRELIMINARY INJUNCTIVE RELIEF
IT IS HEREBY ORDERED that Defendant Taylor is 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, 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);

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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,
(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 Defendant Taylor is 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.

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§ 1.3(yy) (2014) for his own personal account or for any
account in which he has a direct or indirect interest;
C.

Having any commodity interests traded on his behalf;

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,
13

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 Statutory Restraining Order

previously entered herein shall continue in full force and effect against
Defendant Taylor. Defendant Taylor shall comply fully with all of the
requirements of the Restraining Order.
III.

CONTINUATION OF ASSET FREEZE
IT IS FURTHER ORDERED that Defendant Taylor is 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 Defendant Taylor’s assets held
outside the United States, except as otherwise ordered by the Court. This
Order shall apply to any of Defendant Taylor’s 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
15

of, or otherwise under the control of Defendant Taylor, or has held,
controlled, or maintained custody of any such account or asset of
Defendant Taylor 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 Defendant Taylor from withdrawing, removing, assigning,
transferring, pledging, encumbering, disbursing, dissipating, converting,
selling or otherwise disposing of Defendant Taylor’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
Defendant Taylor maintains an account to liquidate, or close out, any and
all open positions in Defendant Taylor’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 Defendant Taylor is restrained

from directly or indirectly destroying, mutilating, erasing, altering,
concealing or disposing of, in any manner, directly or indirectly, any

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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,

Defendant Taylor is hereby stayed from taking any action to establish or
enforce any claim, right or interest for, against, on behalf of, or in his
name, 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 Defendant Taylor, or any real and/or personal property claimed by
Defendant Taylor, or attempting to foreclose, forfeit, alter or terminate
Defendant Taylor’s interest(s) in real and/or 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,
17

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 Defendant
Taylor; 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 Defendant Taylor.
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
person that may have possession, custody, or control of any documents
or assets of Defendant Taylor, or that may be subject to any provision of
this Order.

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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: June 6, 2015

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