The opinion of the court was delivered by: Judge Robert W. Gettleman
MEMORANDUM OPINION AND ORDER
Plaintiff U.S. Commodity Futures Trading Commission has brought a three count complaint against defendants New World Holdings, LLC, ("NWH"), Grace Reisinger and Steven Erdman seeking equitable relief and civil penalties for defendants' alleged violations of § 4g(a) of the Commodities Exchange Act (the "Act"), 7 U.S.C. § 6g(a), and Commission Regulations 1.31 and 1.35, 17 C.F.R. §§ 1.31, 1.35. Specifically, Count I charges NWH with failing to keep full, complete and systematic records of all transactions dealing in commodities futures, commodities options and cash commodities in violation of § 4g(a) and Regulation 1.35. Count I also charges Reisinger and Erdman with aiding and abetting that alleged violation. Count II charges NWH with failing to keep required books and records in violation of § 4g(a) and Regulation 1.31. Again, Count II charges Reisinger and Erdman with aiding and abetting liability. Finally, Count III charges Erdman and NWH with violating Regulation 166.3, by not supervising Reisinger and allowing her to violate § 4g(a), and charges NWH for failing to supervise Erdman. The parties have filed cross-motions for summary judgment. Because material facts remain in dispute, both motions are denied.
NWH is an introducing broker ("IB"), meaning it is engaged for compensation or profit in soliciting or accepting orders for the purchase or sale of commodities. Erdman is a principal of NWH and one of its associated persons ("AP"). Reisinger was the branch manager of NWH's Grand Island, Nebraska branch office, a one-broker office located in her home, and an AP of NWH. During the relevant period Cadent Financial Services, LLC ("Cadent") was a registered futures commission merchant ("FCM"), and acted as a full service broker that held money and trades for NWH customers.
In early October 2006 NWH, through Reisinger and Erdman, introduced an account to Cadent in the name of the Idylic Solutions Pty. Ltd. ("Idylic"), an Australian corporation. In addition to the Idylic account, NWH also introduced Unifund Ltd., 888 Management Inc., Secured Bond Ltd., and Sagacity, Ltd. (together with Idylic the "Introduced Accounts"), to Cadent. The customers for the Introduced Accounts were all foreign corporations. Deposits into the Idylic and other Introduced Accounts exceeded $21 million. The trading in the accounts was profitable and distributions to the customers exceeded the amounts deposited. NWH used a form required by Candent to open the accounts. That form, titled "Exemption for Foreign Entities," which was completed by the customer for each account, provides:
The account is a proprietary account of the above-named entity and funds have not been solicited from third parties or other entities for deposit into this account. This company does not solicit funds for trading and will not do so in the future.
In the event that either of the above representations is no longer accurate, we will alert Cadent in writing immediately.
NWH maintained copies of the completed forms for the Introduced Accounts in the ordinary course of business. The form is not a CFTC form, but was designed and required by Cadent.
On or about August 20, 2007, Reisinger and Erdman received an email from Con Kotsoukas, a principal of the Idylic account, stating:
Hi, guys. I know I've thanked you both before, but I want to thank you again.
Should have seen the happy looks on some of our clients' faces when we told them that they will receive profit against his quarter, period, (that's three quarters in a row). It's days like this that make it all worth it and this fund will really really fly now. Thanks again and keep up the good work. Regards and God bless.
During the period in question, Erdman was an officer and managing principal of NWH and Reisinger's direct supervisor. He was solely responsible for hiring Reisinger and it was Erdman who allowed Reisinger to set up and operate NWH's Grand Island, Nebraska branch office out of her residence. Erdman was in actual control of NWH's day-to-day operations and the sole person within NWH responsible for supervising Reisinger. He did not visit the Grand Island branch office during the relevant period. Sometime prior to February 5, 2009, some emails relating to communications by Reisinger with some of NWH's actual or prospective clients were deleted by Reisinger in the ordinary course of business.
The parties have filed cross-motions for summary judgment. Summary judgment is appropriate when the moving party shows that no genuine issue of material fact exists and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The moving party bears the initial burden of asserting the absence of a genuine issue of material fact, Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986), and must support that assertion by citing to materials in the record. Fed. R. Civ. P. 56(c)(1)(A). Once the movant has met that burden, the nonmoving party can defeat summary judgment by "showing that the materials cited do not ...