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United States Commodity Futures Trading Commission v. Lake Shore Asset Management Limited

April 24, 2008

UNITED STATES COMMODITY FUTURES TRADING COMMISSION, PLAINTIFF,
v.
LAKE SHORE ASSET MANAGEMENT LIMITED, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Blanche M. Manning United States District Judge

MEMORANDUM AND ORDER

The CFTC's motion for default judgment and entry of a permanent injunction as to the following defendants is before the court: (1) Lake Shore Group of Companies Inc., Ltd.; (2) Lake Shore Alternative Financial Asset Account Limited a/k/a Lake Shore Alternative Financial Asset Ltd.; (3) Lake Shore Alternative Financial Asset Fund Limited; (4) Lake Shore Alternative Financial Asset Account I Limited; (5) Lake Shore Alternative Financial Asset Account II Limited; (6) Lake Shore Alternative Financial Asset Fund II Limited; (7) Lake Shore Alternative Financial Asset Account III Limited; (8) Lake Shore Alternative Financial Asset Fund III Limited; (9) Lake Shore Alternative Financial Asset Fund IV Limited, currently known as Geneva Corporation Funds World Limited and/or Genevacorp Funds World Ltd.; (10) Lake Shore Alternative Financial Asset Fund IV U.S., LLC; (11) Lake Shore Alternative Financial Asset Yen Fund I; (12) Lake Shore Alternative Financial Asset Yen Fund Limited Class II; (13) Lake Shore Alternative Financial Asset Yen Fund Limited Class III; and (14) Hanford Investments Ltd.*fn1 For the following reasons, the CFTC's motion is granted and the court enters a permanent injunction against these defendants as specified below.

I. Background

The court assumes familiarity with its prior decisions and will thus provide only a brief recap.

A. Procedural History

On June 26, 2007, the CFTC filed a one-count complaint directed at Lake Shore Asset Management Limited ("Lake Shore Limited"). The CFTC alleged that Lake Shore Limited was a registered commodity trading advisor ("CTA") and commodity pool operator ("CPO") and had improperly refused to make its books and records available for inspection or to provide information about its commodity pool participants and trading activity as required by the Commodity Exchange Act, as amended (the "Act").

On June 27, 2007, this court entered an ex parte statutory restraining order against Lake Shore Limited which, among other things, froze Lake Shore Limited's assets and granted the Commission immediate access to all of Lake Shore Limited's books and records. Lake Shore Limited appealed and the Seventh Circuit held that the time limits in Rule 65 applied to statutory injunctions entered under the Act. Commodity Futures Trading Com'n v. Lake Shore Asset Management Ltd., 496 F.3d 769 (7th Cir. 2007). It thus vacated the statutory restraining order because it lasted more than the twenty day period specified in Rule 65. Id.

The CFTC then amended its complaint to add Lake Shore Group of Companies Inc., Ltd. and Philip Baker, who controlled a wide variety of entities associated with Lake Shore Limited. The amended complaint repeated the allegations about the Lake Shore entities' failure to comply with the Act's recordkeeping requirements. It also alleged that Lake Shore Limited was part of a common enterprise, which included a long list of Lake Shore entities associated with Mr. Baker, and that Lake Shore Limited, Lake Shore Group, and Mr. Baker had violated the Act by defrauding pool participants in at least four commodity pools (Lake Shore Alternative Financial Asset Funds I, II, III, and IV).*fn2

Shortly after it filed its amended complaint, the CFTC filed a motion for a preliminary injunction. On August 28, 2007, after conducting a three-day hearing, this court entered an 86-page order granting the motion in part and denying it in part. The court found that Lake Shore Limited, the Lake Shore Group and Lake Shore Asset Management Inc. (Lake Shore Limited's predecessor company), and the other Lake Shore entities controlled by Philip Baker operated as a common enterprise and were essentially all the same, explaining that "this case is the poster child for the transaction of business through a maze of interrelated companies" because "all of the evidence presented to the court indicates that all of the Lake Shore companies . . . were under common control and did not operate at arms-length." Docket No. 118, at 46. Next, the court made extensive findings regarding Lake Shore Limited's control of pool assets (held in the name of Lake Shore Alternative Financial Asset Ltd., Lake Shore Alternative Financial Asset Account I Ltd., Lake Shore Alternative Financial Asset Account II Ltd., Lake Shore Alternative Financial Asset Account III Ltd., and Lake Shore Alternative Financial Asset Fund IV Limited, currently known as Geneva Corporation Funds World Limited and/or Genevacorp Funds World Ltd.). In addition, the court found that the CFTC had established a likelihood of success on its claim that Lake Shore Limited fraudulently solicited pool participants, provided false information to existing participants, and otherwise defrauded pool participants. The court also held that Lake Shore Limited was bound by the Act and was required to comply with, among other things, the Act's requirements regarding recordkeeping and production. Based on the entire record, the court then found that an asset freeze was necessary to protect customer funds.

Lake Shore Limited moved to stay the preliminary injunction order pending the disposition of its appeal from that order. On September 7, 2007, the Seventh Circuit denied Lake Shore Limited's motion for a stay pending appeal. On September 21, 2007, four of the Lake Shore pools and Hanford Investments (another Baker-controlled entity) filed a claim in the High Court in London seeking to compel the British futures commission merchants ("FCMs") to release the customer funds to them, despite the asset freeze in effect and the Seventh Circuit's denial of Lake Shore Limited's stay motion.

On October 4, 2007, this court entered a 42-page order that, among other things, detailed Lake Shore Limited's efforts to avoid complying with the Act, its discovery obligations, and the preliminary injunction order. See Docket No. 191. The court then appointed Robb Evans & Associates as receiver and entered an order outlining the duties and powers of the receiver. Since its appointment, the receiver has made numerous unsuccessful demands on various Lake Shore entities and the London FCMs requesting turnover of the frozen Lake Shore funds held by the London FCMs.

Moreover, the receiver has participated in bankruptcy proceedings relating to Sentinel (an Illinois FCM that was the cash manager and the sub-custodian for the Lake Shore funds), as Lake Shore is one of Sentinel's largest creditors. See In re Sentinel Management Group, No. 07-14987 (Bankr. N.D. Ill.). From October of 2007 to January of 2008, the court also entered numerous orders relating to Lake Shore Limited's failure to comply with the court's orders, found that Lake Shore Limited was in civil contempt of court, and referred this case to the United States Attorney for investigation and possible prosecution of criminal contempt charges against Lake Shore Limited and Mr. Baker personally. See Docket Nos. 191, 299, 322, 347, 363 & 402.

On December 28, 2007, the Seventh Circuit issued an opinion affirming the preliminary injunction as to Lake Shore Limited. Lake Shore Asset Management Limited v. Commodity Futures Trading Com'n , 511 F.3d 762 (7th Cir. 2007). The Seventh Circuit left the asset freeze in place and rejected Lake Shore Limited's claim that the CFTC was improperly trying to regulate acts outside the United States and control assets held in foreign countries that had been invested by individuals and entities outside the United States. The Seventh Circuit then found that the preliminary injunction bound all other members of the corporate group under Rule 65(d) to the extent that they were acting in concert with Lake Shore Limited.

It also held, however, that this court could not directly enjoin the entities that make up the Lake Shore common enterprise unless they were first named as defendants, served with process and given an opportunity to defend. Id. at 766-67 (entities comprising the Lake Shore common enterprise must be served with process and allowed to present evidence before they may be enjoined). In other words, the Lake Shore entities who had not been named as defendants had to have a chance to challenge the court's factual findings before the court could directly enjoin them.*fn3

Once the mandate issued, on January 16, 2008, this court amended the preliminary injunction order to only directly bind Lake Shore Limited. See Docket No. 390. The CFTC then amended its complaint to name all of the Lake Shore entities as defendants and Hanford and Anglo International (who had both received money from Lake Shore funds) as relief defendants. The CFTC's second amended complaint, filed on February 19, 2008, alleged that the newly added Lake Shore defendants were controlled by Mr. Baker and operated in concert with Lake Shore Limited, Lake Shore Inc., and Lake Shore Group as a common enterprise. The allegations in the second amended complaint are consistent with the extensive evidence about the Lake Shore pools that was presented at the previous preliminary injunction hearing.

II. Discussion

For the following reasons, the court finds that the newly added defendants were properly served and are in default. It also concludes that it may exercise personal jurisdiction over these defendants and that venue is proper in this district. Finally, it enters a default judgment and permanent injunction as specified below.

A. Service of Process

In January of 2008, the receiver arranged for personal service of certain orders entered in this case to ensure that the various Lake Shore entities holding receivership assets had notice of key decisions issued by this court and the Seventh Circuit. See Docket No. 534.*fn4 Service of these documents was effected by persons authorized under the law of the local jurisdictions to serve judicial documents, and in accordance with the laws of those jurisdictions.

Next, on February 19, 2008, the CFTC amended its complaint to add more Lake Shore entities. See Docket No. 431. The receiver and the CFTC coordinated efforts and each served a group of Lake Shore entities with the second amended complaint. In support of the CFTC's motion for a default judgment, the receiver submitted an affidavit regarding service of process from Emma Jane Sparshott, who is a solicitor of the Supreme Court of England and Wales and is admitted to practice as a solicitor in the East Caribbean Supreme Court in the Territory of the British Virgin Islands. This affidavit contains detailed information regarding personal service of the second amended complaint against certain Lake Shore entities located in London, the British Virgin Islands, the Turks & Caicos Islands, and the Isle of Man.*fn5 See Docket No. 534 at Ex. 3.

Ms. Sparshott's affidavit summarizes the laws governing service of process in each of these jurisdictions and confirms that service was effected by persons authorized under the law of the local jurisdictions to serve judicial documents, and in accordance with the laws of those jurisdictions.

The CFTC caused additional Lake Shore entities located in the British Virgin Islands to be personally served by persons authorized by British Virgin Islands law to serve judicial documents, and in accordance with the laws of that jurisdiction.*fn6 Finally, the CFTC caused the registered agent for Lake Shore Alternative Financial Asset Fund IV U.S., LLC, an Illinois limited liability company, to be personally served in Chicago. See Docket No. 502.

The time for all of these entities to answer or otherwise plead has passed. Only one defendant -- the elusive Mr. Baker -- has not been served as he has thwarted all attempts to locate him following his hasty departure from London last summer. For the purposes of this opinion, the court will refer to the defendants who have been served but who have failed to appear collectively as the "default defendants" (with the exception of Anglo, as the CFTC does not seek a default judgment as to this defendant).

B. The Hague Convention

Under Rule 4(f)(1), service of process upon entities in foreign countries may be effected "by any internationally agreed means reasonably calculated to give notice, such as those authorized by the Hague Convention." See Fed. R. Civ. P. 4(f)(1); Hague Convention on the Service Abroad of Judicial and Extra-judicial Documents in Civil or Commercial Matters, Nov. 15, 1965, 20 U.S.T. 361, T.I.A.S. No. 6638 (appended to Fed. R. Civ. P. 4) ("Hague Convention"). "[C]compliance with the [Hague] Convention is mandatory in all cases to which it applies." Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 705 (1988).

Both the United States and the United Kingdom are signatories to the Hague Convention. See International Controls Corp v. Vesco, 593 F.2d 166, 179 nn.14-15 (2nd Cir. 1979) (listing countries). Moreover, the Hague Convention extends throughout the United Kingdom to the Isle of Man (a self-governing Crown dependency of the United Kingdom), the British Virgin Islands, and the Turks & Caicos Islands (in the British West Indies). See id. The default defendants are foreign corporations located in London, the British Virgin Islands, the Turks & Caicos Islands, and the Isle of Man. Therefore, service on the default defendants is governed by the Hague Convention.

Articles 10(c) and 19 of the Hague Convention contain relevant provisions. Article 10 allows direct service on a foreign defendant through judicial officers, officials or other competent personsif the receiving country does not object.*fn7 In turn, Article 19 expressly permits service of process by any method of service allowed by the "internal law of the contracting State." Under Article 19, any method of service is effective if nothing in the foreign nation's law suggests that the method violates a deep-rooted policy of the nation involved.

The court finds that the CFTC and the receiver have established that service on the default defendants (other than Lake Shore Alternative Financial Asset Fund IV U.S., which was served in accordance with the federal rules) was proper under Articles 10(c) and 19 of the Hague Convention because it was effected pursuant to the laws of the various jurisdictions at issue and was done by persons authorized under the laws of those jurisdictions to serve process.*fn8 Service on Lake Shore Alternative Financial Asset Fund IV U.S., an Illinois limited liability company, is a far simpler proposition. The CFTC personally served this entity's registered agent, who is located in Chicago, with process in conformance with Fed. R. Civ. P 4(c). Accordingly, all of the default defendants were properly served.

C. Personal Jurisdiction & Venue

Under the Act, "[a]ny action under this section may be brought in the district wherein the defendant is found or is an inhabitant or transacts business or in the district where the act or practice occurred, is occurring, or is about to occur, and process in such cases may be served in any district in which the defendant is an inhabitant or wherever the defendant may be found." 7 U.S.C. § 13a-1(e). Under this statute, which authorizes nationwide and worldwide service, "due process requires only that each party have sufficient contacts with the United States as a whole rather than any particular state or other geographic area." U.S. v. De Ortiz, 910 F.2d 376, 382 (7th Cir. 1990); see also Waeltz v. Delta Pilots Retirement Plan, 301 F.3d 804, 808 n.3 (7th Cir. 2002) (where a federal statute provides for nationwide service of process, a district court may exercise personal jurisdiction over a foreign defendant if that defendant "has sufficient contacts with the United States as a whole"); C. Wright & A. Miller, 4 Federal Practice and Procedure: Civil 3d § 1081.1 (3d ed. 2002).

Here, the court has found, and the default defendants have not challenged, that the Lake Shore entities were all acting as a common enterprise, were under common control, and did not operate at arms-length. The court also found that the Lake Shore entities holding pool funds were controlled by Lake Shore Limited and Mr. Baker and were inextricably intertwined with Lake Shore Limited. These entities existed because Lake Shore Limited could not hold pool funds in its own name. In addition, Lake Shore Limited (and its predecessor, Lake Shore Inc.) controlled the Lake Shore entities holding pool funds and had offices in Chicago. The Lake Shore Group represented that it, too, had offices in Chicago. Lake Shore Limited/Lake Shore Group's management personnel, administrative/IT/operations staff, and execution staff were also located in Chicago.

Moreover, Lake Shore Limited's promotional materials prominently touted its status as a CFTC registrant and NFA member to induce individuals and entities to invest in the Lake Shore funds. These materials, as well as account statements from London FCMs Man Financial Limited (now known as MF Global), Lehman Brothers International Europe, and Fimat International Banque SA UK Branch, (now known as Newedge Group-UK Group), show that the Lake Shore funds traded at least in part on U.S. exchanges. Specifically, Lake Shore funds -- held in the name of certain default defendants*fn9 -- traded on U.S. exchanges, including the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange. In addition, Lake Shore's fact sheets and confidential explanatory memoranda identify the Bank of New York as the custodian for investor funds and Sentinel (an FCM in Illinois) as the sub-custodian, and a substantial amount of losses at Man, Fimat and Lehman (the only three trading accounts for the Lake Shore Alternative Financial Asset Funds) occurred as the result of trading on U.S. futures exchanges.

The receiver's filings detail the path of investor funds from their initial deposit into Lake Shore's operating accounts at Sentinel through the Bank of New York to Sentinel's trading account to the London FCMs. See Docket No. 334 (Receiver's Report from October 15, 2007, through November 30, 2007); see also Docket No. 490 (Receiver's Second Report of Significant Developments). Moreover, at the time that the CFTC's and the NFA's asset freezes went into effect on June 27, 2007, approximately $150 million of investor funds were frozen in the Sentinel accounts located in Illinois. Based on these facts, the court finds that the default defendants have sufficient national contacts to allow this court to exercise personal jurisdiction over them and that venue is proper in this district under 7 U.S.C. § 13a-1(e). The court thus turns to the CFTC's motion for entry of default judgment against the default defendants.

D. The CFTC's Motion for Default Judgment

1. Entry of Default

The court previously entered default against twelve entities.*fn10 At that time, the docket did not reflect returns of service for Lake Shore Alternative Financial Asset Fund IV U.S., LLC, or Lake Shore Alternative Financial Asset Yen Fund Limited Class III. These entities were served pursuant to the laws of the United States and the British Virgin Islands, respectively. See Docket Nos. 483 & 498. The time for these entities to answer or otherwise plead has passed, so the court enters default against them. See Fed. R. Civ. P. 55(a).

The court also notes that it previously entered default against Lake Shore Group based on service of the amended complaint on Lawrence Rosenberg in Chicago. See Docket No. 198. This Lake Shore entity has recently been served with the second amended complaint in the Isle of Man and the time to answer or otherwise plead has passed. See Docket No. 506. Thus, under either method of service, Lake Shore Group remains in default.

2. Default Judgment

Because the default defendants have not appeared, the CFTC was not required to serve its motion for a default judgment on the default defendants. See Fed. R. Civ. P. 55(b)(2); North Cent. Illinois Laborers' Dist. Council v. S.J. Groves & Sons Co., Inc., 842 F.2d 164, 168-69 (7th Cir. 1988) (if defendant takes no action, formal or informal, from the time the suit is filed until the time the default judgment is entered, it has not "appeared" so as to require service of the motion for default judgment); C. Wright, A. Miller & M. Kane, 10A Federal Practice and Procedure: Civil 3d § 2687 (1998) (a defaulting party who has failed to appear and has not manifested an intent to defend is not entitled to notice of an application for a default judgment).*fn11

With respect to liability, the Seventh Circuit previously noted that this court "evidently was confident that other members of the Lake Shore Group of Companies [i.e., entities other than Lake Shore Limited] are 'in active concert or participation with' Lake Shore Asset Management, and that may well be true. But so far none of these entities has been served with process and given an opportunity to present evidence. That is essential before any enforcement action may be taken against a non-litigant." Lake Shore Asset Management Limited v. Commodity Futures Trading Com'n, 511 F.3d at 767. At this point, these other Lake Shore entities have been added as defendants, been served with process in conformance with the Hague Convention, the laws of the relevant jurisdictions, and the Federal Rules, and been afforded an opportunity to defend. They have declined to do so and are currently in default.

"[I]n the case of a default, this circuit follows the rule that the well-pleaded allegations of the complaint relating to liability are taken as true." Merrill Lynch Mortg. Corp. v. Narayan, 908 F.2d 246, 253 (7th Cir. 1990) (internal quotations omitted). The 39-page second amended complaint contains extensive well-pleaded factual allegations regarding the liability of the default defendants under the Act. The court's preliminary injunction order contains even more details and factual findings.

In turn, the receiver's first report (Docket No. 334) analyzes Sentinel and Bank of New York records, trading reports from the three London FCMs, and documents from investors relating to the Lake Shore funds. The receiver's analysis showed, among other things, extensive comingling of pool assets, substantial trading losses, and a variety of potentially improper transfers that all related to assets held by certain of the default defendants. The court will assume familiarity with these documents and evidence, which the default defendants do not challenge due to their decision not to defend. The court also notes that the default defendants do not challenge any of the court's findings relating to the existence of the Lake Shore common enterprise.

The CFTC's motion for default judgment also summarizes a variety of interesting evidence obtained by conducting discovery directed at investors. The court must note that it has rarely seen deponents who were so pleased to have been deposed. See Docket No. 538 at Attachment 6.*fn12 This discovery provides further support for the court's findings of liability.

However, because the record already contains ample evidence supporting a finding of liability, the court will not summarize the new evidence at this point. Instead, it turns to the specific provisions of the Act cited by the CFTC.

The Act prohibits cheating and defrauding, attempting to cheat or defraud, or willfully deceiving or attempting to deceive other persons in connection with commodity futures trading for or on behalf of such persons. 7 U.S.C. § 6b(a)(2)(i)-(iii). For example, misappropriation of investor funds violates the Act. Commodity Futures Trading Com'n v. FxTrade Financial, LLC, 2:04cv2181-D/An, 2007 WL 4790811, at *4 (W.D. Tenn. Apr. 24, 2007) ("misappropriating investor funds violates Section 4b(a)(2)(i) and (iii)"); Commodity Futures Trading Com'n v. Noble Wealth Data Info. Servs., Inc., 90 F.Supp. 2d 676, 687 (D. Md. 2000) (defendants violated § 4b(a)(2)(i) and (iii) of the Act by diverting investor funds for operating expenses and personal use), aff'd in relevant part, vacated in part sub nom. Commodity Futures Trading Com'n v. Baragosh, 278 F.3d 319 (4th Cir. 2002); Commodity Futures Trading Com'n ex rel. Kelly v. Skorupskas, 605 F.Supp. 923, 932 (E.D. Mich. 1985) (misappropriation of customer funds which had been entrusted for trading purposes violates §§ 4b(a) and 4o(1)). Moreover, misrepresentations or omissions about experience, historical success, and profitability are material and may constitute fraud. See Commodity Futures Trading Com'n v. White Pine Trust Corp., No. 04CV2093 J(NLS), 2007 WL 1121249, at *9 (S.D. Cal. Apr. 11, 2007) ("Misrepresentations regarding the experience or profitability of a firm or account manager are material because historical success and experience would be considered extremely important factors to a reasonable investor when deciding to invest"); Commodity Futures Trading Com'n v. Valko, No. 06-60001-CIV, 2006 WL 2582970, at *4 n.1 (S.D. Fla. Aug. 16, 2006) (false reports of profitability with respect to commodity futures trading accounts constitute a violation of 7 U.S.C § 6b(a)(2)(ii)); Commodity Futures Trading Com'n v. Noble Wealth Data Info. Serv., Inc., 90 F.Supp. 2d at 686 (defendant's profit claims constituted false reports and fraud within the meaning of the Act); Commodity Futures Trading Com'n ex rel. Kelley v. Skorupskas, 605 F.Supp. at 932-33 (defendants violated § 4b(a) and § 4o(1)of the Act by issuing false monthly statements to customers). Extensive evidence, which is uncontroverted by the default defendants and detailed below, shows that the default defendants, operating as a common enterprise, defrauded investors and misappropriated investor funds.

Moreover, the Act prohibits CTAs and CPOs from defrauding any client or pool participant or prospective client or pool participant by use of the mails or any means or instrumentality of interstate commerce, 7 U.S.C. § 6o(1)(A), and from engaging in any transaction, practice or course of business that operates as a fraud or deceit upon any client or participant or prospective client or participant by use of the mails, 7 U.S.C. § 6o(1)(B). These sections apply to all CTAs and CPOs whether registered, required to be registered, or exempted from registration. See CFTC Regulation 4.15, 17 C.F.R. § 4.15; Commodity Futures Trading Com'n v. Equity Financial Group, LLC, No. 04-1512 (RBK), 2006 WL 3751911, at *6 (D. N.J. Dec. 18, 2006) ("actual registration as a CPO or an [associated person] with [the] CFTC is not required to fall within the ambit of this provision"), citing Commodity Futures Trading Com'n v. Savage, 611 F.2d 270, 282 (9th Cir. 1980).

Lake Shore Inc. acted as CPO for the Lake Shore funds until Lake Shore Limited took over in January of 2007 and acted as the CPO and the CTA for the Lake Shore funds. As detailed in this order, the preliminary injunction order, and the second amended complaint's well-pleaded factual allegations, Lake Shore Group, followed by Lake Shore Inc. and Lake Shore Limited, and acting in concert with the other Lake Shore entities, violated the Act by: (1) misappropriating pool participants' funds; (2) distributing or causing to be distributed false documents to prospective and actual pool participants and clients, (3) misrepresenting and failing to disclose material facts to prospective and actual pool participants and clients; (4) misrepresenting the profits and losses and balances of the funds received from pool participants; and (5) distributing or causing to be distributed documents containing false information on Lake Shore's website, all in violation of 7 U.S.C. §§ 6o(1)(A) & (B).

Finally, Lake Shore Limited's efforts to thwart efforts to conduct an audit of the Lake Shore common enterprise's records by refusing to produce the books and Lake Shore's server for inspection is well-documented. Lake Shore Limited has books and records relating to the Lake Shore funds and has steadfastly refused to comply with the Act's requirements. Instead, it has sent the records and Lake Shore's server to a variety of international locations (most recently Switzerland, where they are currently hidden under the aegis of Alexandre Schwab, a lawyer for Mr. Baker).

To sum up, the default defendants carried out business in the United States by, among other things, acting as part of a common enterprise headed by Lake Shore Inc. and then its successor, Lake Shore Limited, in Chicago, causing the Lake Shore Funds to be held by the Bank of New York as the custodian and by Sentinel, an FCM in Illinois, as the sub-custodian, and causing Lake Shore funds to be traded on U.S. exchanges. These actions took place over a significant period of time, as the Lake Shore Group and associated companies have been operating businesses since 1994. The court thus concludes that, for the reasons discussed above, it can properly exercise jurisdiction over the default defendants and that the default defendants are liable under the Act.

The CFTC's motion for a default judgment [#537] is, therefore, granted. This default judgment is against (1) Lake Shore Group of Companies Inc., Ltd.; (2) Lake Shore Alternative Financial Asset Account Limited a/k/a Lake Shore Alternative Financial Asset Ltd.; (3) Lake Shore Alternative Financial Asset Fund Limited; (4) Lake Shore Alternative Financial Asset Account I Limited; (5) Lake Shore Alternative Financial Asset Account II Limited; (6) Lake Shore Alternative Financial Asset Fund II Limited; (7) Lake Shore Alternative Financial Asset Account III Limited; (8) Lake Shore Alternative Financial Asset Fund III Limited; (9) Lake Shore Alternative Financial Asset Fund IV Limited, currently known as Geneva Corporation Funds World Limited and/or Genevacorp Funds World Ltd.; (10) Lake Shore Alternative Financial Asset Fund IV U.S., LLC; (11) Lake Shore Alternative Financial Asset Yen Fund I; (12) Lake Shore Alternative Financial Asset Yen Fund Limited Class II; (13) Lake Shore Alternative Financial Asset Yen Fund Limited Class III; and (14) Hanford Investments Ltd. Details of the judgment are discussed in the next section of this order.

E. The CFTC's Motion for a Permanent Injunction

Every order granting an injunction must "(A) state the reasons why it issued; (B) state its terms specifically; and (C) describe in reasonable detail -- and not by referring to the complaint or other document -- the act or acts restrained or required." Fed. R. Civ. P. 65(d)(A)-(C). The court has considered the CFTC's second amended complaint; declarations, exhibits, and evidence from the hearing on the preliminary injunction; the CFTC's brief in support of the motion for entry of default judgment against the default defendants and associated declarations, exhibits, and evidence; filings by the receiver, and the record. See C. Wright, A. Miller & M. Kane, 10A Federal Practice and Procedure: Civil 3d § 2688 ("[e]ven after default, however, it remains for the court to consider whether the unchallenged facts constitute a legitimate cause of action"). The court, accordingly, makes the following findings of fact and conclusions of law.

Background

1. The court has jurisdiction over this action pursuant to § 6c of the Act, 7 U.S.C. § 13a-1, which authorizes the CFTC to seek injunctive relief against any person whenever it shall appear to the CFTC that such person has engaged, is engaging, or is about to engage in any act or practice constituting a ...


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