The opinion of the court was delivered by: Blanche M. ManningUnited States District Judge
At the inception of this commodities fraud case in 2007, defendant Philip Baker, the head of multiple intertwined Lake Shore entities, attempted to explain the discrepancy between the amount of money in the Lake Shore pools and the claimed amount under management by asserting that an entity known as "FTG" held the missing funds. Today, the receiver's motion seeking to expand the receivership to include FTG Capital Canada, Ltd. is before the court. For the following reasons, the motion is denied without prejudice.
The court assumes familiarity with the orders entered in this 2007 commodities fraud case and thus will briefly highlight relevant facts. Robb Evans & Associates, LLC, is the temporary equity receiver for the Lake Shore Common Enterprise. Pursuant to an international letter rogatory issued by this court and an order issued by the Ontario Superior Court of Justice, the receiver conducted discovery in Canada. Among other things, the receiver deposed John Kurgan (FTG's sole officer) and David Tonken (FTG's accountant), interviewed Nicholas Eveleigh (an individual who withdrew money from FTG accounts whose name has come up in prior filings discussing other Lake Shore entities) by telephone, and submitted written interrogatories to Patricia Kurgan (John Kurgan's wife, and FTG's sole shareholder).
The receiver pursued written discovery in Canada. Among other things, the receiver sought documents from FTG, including "all records of any funds received from Hanford Investments Ltd., Lake Shore Asset Management Inc., Lake Shore Asset Management Ltd., Anglo International Associates Ltd., Man Financial n/k/a MF Global UK Ltd., Lehman Brothers International (Europe), or Fimat."
The receiver contends that the Canadian discovery established that FTG conducted transactions on behalf of the Lake Shore Group of Companies ("Lake Shore"). The receiver also asserts that FTG was a member of the group of entities forming the Lake Shore common enterprise, as defined in the amended receivership order, Dkt. 554. Additionally, the receiver states that Lake Shore entities sent funds to FTG and FTG operated as the predecessor to Lake Shore Asset Management, Ltd. ("LSAM"), which was a key part of the Lake Shore common enterprise.
In support, the receiver points to evidence indicating that while FTG's bank accounts were closed in July 2007, between 2002 and 2006, FTG transferred millions of dollars between itself and various Lake Shore entities and their officers, employees, legal agents, and other service providers. The receiver argues that this shows that during this time period, FTG shared common control with Lake Shore and functioned as Lake Shore's administrative arm.
The receiver further supports its version of events with a declaration from Philip Baker. In his declaration, Mr. Baker states that he formed FTG with Mr. Kurgan, that FTG was LSAM's predecessor, and that FTG was used to support Lake Shore's business activities. According to the receiver, Mr. Kurgan allowed Mr. Baker to siphon millions of dollars in investor funds from the Lake Shore accounts, via FTG, in the form of unearned commission fees and so-called loans.
The receiver thus concludes that FTG was LSAM's predecessor and operated as part of the Lake Shore common enterprise. The receiver suggests that FTG should be treated just like the other members of the Lake Shore common enterprise (all of whom are defendants in this action) and seeks to exercise control over FTG's assets to the extent necessary to recover customer funds, including money paid to FTG by defendants Hanford and Anglo, who are part of the Lake Shore common enterprise and thus are already subject to the receivership.*fn1
FTG denies that it is connected to any Lake Shore entities or misappropriated any Lake Shore investor funds. John Kurgan contends that he formed FTG to develop a guide to trading that would help him obtain business. He asserts that he made his wife FTG's sole shareholder and arranged to have all of the Kurgan family's assets held in her name because his profession of commodity trading is a volatile, high risk business. Based on the evidence presently before the court, however, FTG did not develop a trading guide or engage in any trading.
Mrs. Kurgan confirmed that she is FTG's sole shareholder, that her husband formed FTG, and that she did not actively manage the company, operate it as an ongoing business, or participate in its business affairs in any way. Mr. Kurgan had signatory authority over the FTG bank accounts but later authorized Nicholas Eveleigh to direct payments from the accounts. Mrs. Kurgan asserts that she was completely uninvolved with FTG.
Mrs. Kurgan also owns a company called 162663 Ontario, Ltd. This company owns the Kurgans' country house, which it purchased with funds from Zumer Investments, a Turks and Caicos company owned by Mr. Kurgan. According to the Kurgans, the money used by Zumer to purchase the house was paid to Mr. Kurgan as compensation for ...