The opinion of the court was delivered by: Judge Joan B. Gottschall
MEMORANDUM OPINION & ORDER
The U.S. Commodity Futures Trading Commission ("CFTC") filed a six-count complaint against Grace Elizabeth Reisinger and ROF Consulting, LLC ("ROF"), alleging that Reisinger and ROF operated a commodity pool called NCCN, LLC ("the pool"). While operating the pool, Reisinger and ROF allegedly committed fraud by misrepresenting and omitting material facts in communications with actual and prospective pool participants, and violated the Commodity Exchange Act (the "Act") and CFTC Regulations. Reisinger now moves this court to dismiss this action pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6), arguing that the CFTC has failed to plead allegations of fraud with the particularity required by Rule 9(b). The court finds that the complaint alleges fraud with sufficient particularity and denies the motion.
A commodity pool is an "investment trust, syndicate or similar form of enterprise operated for the purpose of trading commodity interests." CFTC Regulation 4.10(d)(1), 17 C.F.R. § 4.10(d)(1) (2005). The Act requires commodity pool operators ("CPOs") to register with the CFTC unless they are exempt from registration under CFTC Regulation 4.13. A CPO claiming an exemption must file a notice of exemption with the National Futures Association ("NFA"). One requirement for an exemption is that each pool participant be a "qualified eligible person" ("QEP"), as defined in CFTC Regulation 4.7(a)(2).
The CFTC alleges that from at least February 28, 2005, to October 26, 2009, Reisinger handled the daily operations of ROF, which in turn controlled the pool. (Compl. ¶¶ 62-65, ECF No. 1.) Reisinger operated the pool from her residence in Nebraska. She solicited pool participants, sending prospective participants solicitation materials, and accepted $4 million in contributions to the pool. (Id. ¶¶ 1-2.)
According to the complaint, the materials sent to participants included the following material misrepresentations: "(1) that only QEPs would be allowed to participate in the NCCN pool; (2) that Reisinger was exempt from the requirement to register as the CPO of the NCCN pool; and (3) that the minimum required deposit in the NCCN pool was $5,000,000." (Id. ¶ 41.)
The statements made to pool participants were allegedly false because, as Reisinger admitted in sworn testimony before the CFTC, she did not know whether all of the participants were QEPs and accepted at least $2 million from participants whose QEP status was unknown. (Id. ¶ 2.) In addition, although the pool began trading on behalf of participants on or about May 18, 2005, Reisinger did not file a notice of exemption with the NFA until June 24, 2005, thus operating during the intervening period without registration or an exemption. (Id. ¶¶ 3, 54.) Moreover, no pool participant ever invested $5,000,000 or more. (Id. ¶¶ 2, 50.)
The complaint further alleges that Reisinger's communications with pool participants included additional material misrepresentations and omissions. When Reisinger filed a notice of exemption, she represented that she believed each participant in the pool was a QEP. On that basis, the NFA granted Reisinger's exemption from the requirement to register as a CPO. According to the CFTC, Reisinger knew her exemption was obtained under false pretenses but did not amend the notice of exemption, as required by CFTC Regulation 4.13(b)(4). (Id. ¶¶ 4, 55-56.) She failed to advise pool participants that the notice of exemption was invalid and that she had not amended her invalid notice of exemption as required. (Id. ¶ 53.) She also paid a "foreign introducing broker" referral fees that were not disclosed to pool participants. (Id. ¶ 59.) Reisinger issued periodic statements to pool participants that included these misstatements and omissions. (Id. ¶ 58.) Reisinger also failed to provide pool participants with written statements and annual reports in the format required by CFTC Regulations 4.13(a)(5)(i)(A) and (B). (Id. ¶¶ 57, 59.)
Based on this alleged fraud, the CFTC alleged six violations of the Act:*fn1
1. Fraud in Connection with On-Exchange Futures Contracts, in violation of § 4b(a)(2)(i) and (iii) of the Act, 7 U.S.C. § 6b(a)(2)(i) and (iii) (2006).
2. Fraud in Connection with On-Exchange Options Transactions, in violation of § 4c(b) of the Act and CFTC Regulations 33.10(a) and (c).
3. Fraud by a CPO, in violation of § 4o(1)(B) of the Act.
4. Acting as a CPO without Registration, in violation of § 4m(1) of the Act.
5. Failing to File an Exemption Notice Prior to Delivering Subscription Agreements and Failure to Amend an Invalid Notice of Exemption, in violation ...