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Shroff v. Rosenthal Collins Group

August 25, 2009

CHANDERKUMAR V. SHROFF, PLAINTIFF / COUNTER-DEFENDANT,
v.
ROSENTHAL COLLINS GROUP, LLC AND MF GLOBAL INC., DEFENDANT / COUNTER-PLAINTIFFS.



The opinion of the court was delivered by: Judge James B. Zagel

MEMORANDUM OPINION AND ORDER

I. INTRODUCTION

Plaintiff, Chanderkumar Shroff, is a resident of Dubai and owner of a fabric business. Defendant MF Global Inc. ("MF Global") is a future commission merchant ("FCM").*fn1 Until July 2007, MF Global was known as Man Financial Inc. Around November 2005, Man Financial Inc. purchased certain assets from Refco, LLC ("Refco"), another FCM, and thereafter had a division called the "Man Financial, Refco Division." Defendant Rosenthal Collins Group, LLC ("RCG") is also a FCM.

Plaintiff seeks damages for extensive losses from trading in his accounts at Refco, Man Financial, and RCG. He alleges that Defendants, through their agent Niraj Goel, carried out a fraudulent commodity futures investment scheme that caused Plaintiff substantial damages.

Plaintiff has alleged numerous counts based on the Commodity Exchange Act*fn2 as well as various state claims.*fn3 Defendants have moved for summary judgment on all counts.

II. STATEMENT OF FACTS

A. History

In 2005, an acquaintance of Plaintiff, Kunhimon Ibrahim, introduced Plaintiff to Niraj Goel, the owner of Zentrum. Goel was in the business of using computerized software to trade in the futures market and providing courses about this type of electronic trading. Zentrum is a Foreign Correspondent or foreign broker that introduces customers to FCMs. A Foreign Correspondent is similar to an introducing broker,*fn4 but it is not required to register with the Commodity Futures Trading Commission ("Commission" or "CFTC").

During the second meeting between Plaintiff and Goel, Goel introduced Plaintiff to StrategyBot, a company that provides an automated, electronic trading platform. Goel indicated to Shroff that he did business with StrategyBot as well as various FCMs, including Man Financial Inc., Refco, and RCG. Goel also indicated that he was an agent for the various FCMs, whereby he introduced clients to the FCMs and aided clients in opening trading accounts with the FCMs. Goel showed Plaintiff the StrategyBot and Zentrum websites. Plaintiff contends both websites displayed RCG and Refco logos. From these interactions, and based on statements made by Goel, Plaintiff was led to believe that Goel "was the face of these [] FCMs" and that he would be putting his money into the FCMs through Goel.

Goel continued to make representations to Plaintiff, including that StrategyBot offered certain conservative software strategies where there was "literally no loss in the long term." Goel indicated that if Plaintiff was to invest his money with Zentrum there may be short term losses, but in the long term there would be profits of 60-80%. Goel stated that the "long term" was "six months to one year." Goel further represented that he would only receive compensation from trading profits, that all trades would be made by the conservative, automated StrategyBot system, and that Zentrum's other clients were doing very well. Plaintiff replied by indicating that he would consider investing $1 million, but that he could not afford to lose such an investment. In addition, Plaintiff claims to be computer illiterate and possess no trading knowledge or experience.

At a final meeting between Goel and Plaintiff, Plaintiff re-represented that he couldn't afford to lose the money. In response, Goel suggested Plaintiff grant Ibrahim a power of attorney. Under this setup, Plaintiff believed that StrategyBot software would do all the trading and Ibrahim would receive the account statements. This led Plaintiff to believe he would be "double assured" that his investment was safe. It was not disclosed to Plaintiff that Ibrahim and Goel had recently entered into a commission sharing agreement. Plaintiff agreed to invest $1 million dollars with Zentrum.

B. Documents

Plaintiff signed a large stack of papers, including account opening forms for four FCMs, an asset management agreement between Zentrum and Plaintiff, power of attorney forms, wire transfer instructions, and other bank forms. Plaintiff signed the forms without fully reading or completing the documents; customer information was filled in later, presumably by Goel, Ibrahim, or Goel's employee. Goel assured Plaintiff that this was a normal bank account opening procedure and the forms were normal bank account opening forms. Though Plaintiff admits that he signed the printed forms, Plaintiff disputes that he "agreed" to the terms of the above agreements. He alleges that the agreements are not enforceable against him because they were procured by fraud. Plaintiff further contends that because he is not computer literate, he did not fill out or sign any electronic account opening forms. Plaintiff states that if Goel had told him there was a risk of losing money, he would not have signed the forms. He also frequently relies on the fact that Goel represented the documents were normal bank account opening forms and that this was a normal procedure as a justification for signing the documents without completing them or reading them in full.

The completed account opening documents represented Plaintiff to be a high net worth individual with ten years of trading experience who understood the risks of futures trading. The RCG customer agreement bound Plaintiff to indemnify RCG for attorney's fees. However, this form is electronic and Plaintiff disputes that he filled in or signed any electronic account opening form. The Man Financial customer agreement stated that "if [Plaintiff's] account has been introduced to [Man Financial] by another broker, that broker is acting as [Plaintiff's] agent and [Plaintiff's] broker in this relationship is not an agent of or affiliated with [Man Financial]." In addition, the document contains language that indemnifies Man Financial in the case of litigation. Plaintiff does not dispute that he signed this agreement. Finally, the Refco electronic customer agreement also indemnified Refco, but being an electronic form, Plaintiff denies that he signed the document.

A Foreign Correspondent Agreement ("FCA") was signed between Zentrum and RCG. The FCA stated that Zentrum was not an agent and prohibited Zentrum from using RCG's name in literature or promotional material. Zentrum also had a Fully Disclosed Clearing Agreement with RCG. The agreement discussed sharing commissions on a per trade basis and assigned Zentrum a sales code. It also bound Zentrum to cooperate with respect to any customer complaints or litigation, and gave RCG the authority to require Zentrum to defend or settle any such claim or demand.

An FCA was also signed between Refco and Zentrum. The FCA stipulated that Refco would pay Zentrum a share of the per trade commission paid to Refco by clients Zentrum introduced. In addition, Zentrum was assigned a sales code and was obligated to cooperate with and furnish documents to Refco in the event of any customer complaints or litigation. The FCA expressly provided that it did not create an agency relationship between Zentrum and Refco. An agreement was also made whereby MF Global housed Zentrum's server at an MF Global facility.

In addition, the arrangement between Defendants and Zentrum required Zentrum to provide the FCM with executed customers' account agreements, risk disclosure statements, and other documents when a new account was opened. These documents were FCM specific (i.e. branded with FCM logos). Although RCG's agreement that states RCG would supply the forms, Defendants contend such forms were available online to the general public. After his account was opened, Plaintiff received account statements issued by Defendants and reflecting that the account had been introduced by Zentrum.

C. Plaintiff's Investment Is Lost In Three Months

Once trading began, Plaintiff conferred with Ibrahim about every two weeks. From these discussions, Plaintiff learned that there were losses in the account. He was not initially concerned because of representation made by Goel that there would be losses in the first six months. About three months after the accounts ...


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