The opinion of the court was delivered by: James E. Shadid Chief United States District Judge
Friday, 01 February, 2013 04:06:47 PM
Clerk, U.S. District Court, ILCD
This matter is now before the Court on Plaintiff, U.S. Commodity Futures Trading Commission's ("CFTC") Motion for Summary Judgment. The Motion is fully briefed. For the reasons set forth below, Plaintiff's Motion for Summary Judgment  is GRANTED.
Defendant Summit Trading & Capital, LLC, ("Summit") was an Illinois Limited Liability Company formed on January 12, 2007, with its last principal place of business listed as 2755 N.W. Champion Circle, Bend, Oregon, 97701. Defendants Brant and Melissa Rushton were the sole Managers of Summit. Although Melissa signed the incorporation documents as a manager, she has subsequently denied knowing that she was signing in that capacity at that time. Summit's January 15, 2007, Operating Agreement was signed by Brant and Melissa and provides that the business "shall be managed exclusively by the Managers" who are responsible for "all decisions relating to the management and control of the conduct of the business of the Company." Summit was involuntarily dissolved by the Secretary of State on July 9, 2010.
From June 2005 through November 2011, Brant solicited members of the general public to invest in one or more commodity pools to be operated by Summit in exchange for a pro rata share of the profits. While some solicitations were oral, Brant also disseminated written prospectuses claiming that one pool had earned a 86.98% net return since 2007 with positive gains in every quarter, another pool had earned profits between 46 and 92% since 2006 with an average of 11 profitable months per year, and yet another pool had earned a 181.5% net return since 2004 with no down quarters. At least one investor was also told by Brant that up to $50,000 of her first investment would be guaranteed by Summit against risk of loss. These representations were false.
Relying on these false representations, at least 16 investors provided Summit a total of at least $1,990,568 for investment in the pools. Rather than opening futures accounts in the names of the purported pools, Brant opened a single futures trading account in his and Melissa's names at Velocity Futures, LP, a registered domestic Futures Commission Merchant ("FCM") in December 2005. Neither Brant nor Melissa ever opened a futures trading account at any domestic FCM in the name of Summit or any of the purported pools during the relevant period. Between December 2005 and September 2011, 45 deposits were made into the Velocity account with funds that originated from bank accounts held in the names of Brant, Brant and Melissa, or Summit at three different banks. During this time, trading on the Velocity account resulted in cumulative net losses of approximately $403,545.00, and monthly profit never was higher than $2,275.74. During this same time, 275 withdrawals were initiated from the Velocity account ranging from $100 to $60,200, and the funds were transferred to bank accounts held in the name of Brant individually or Brant and Melissa jointly at four different banks.
Monthly statements were distributed to the investors. Almost all of these statements reported false profits purportedly earned in the investors' accounts as a result of the alleged trading and overstated the balance in each investor's account. Investors also received IRS 1099 forms showing annual profits purportedly earned by them when in fact, actual trading resulted in net losses.
In early 2010, Melissa became aware that Summit was not performing as well as she previously thought, that there were "problems with the accounts," that there "might have been mistakes made on the [account] statements" sent to investor Jonusas, and that Jonusas was having problems withdrawing his funds from Summit. Also in early 2010, Melissa had conversations with Brant about potential inaccuracies in account statements sent to investor Kagel. At about this time, Brant and Melissa undertook a lifestyle change by "cutting back to make sure we could get everything right and that we were doing everything correctly." This change included pawning personal property and the sale of one of their automobiles.
Between February 2010 and April 2011, Summit received an additional $373,000 from investors, including $200,000 from Melissa's friend, Diane van den Berg. Despite the concerns previously raised regarding Summit's performance and the investments of Jonusas and Kagel, Melissa never had a discussion with Brant about whether it was a good idea for her friend to invest with Summit.
In March 2011, Kagel attempted to redeem a portion of his account with Summit. After not receiving his funds for several weeks, he called Brant, who claimed that the payment had been sent. No payment was ever received. In late April 2011, Brant and Melissa had another discussion about inaccuracies in account statements sent to Kagel. On May 3, 2011, Kagel, Brant, and Melissa all participated in a phone call during which Kagel expressed concerns about his account with Summit. During this call, Brant told Kagel that only approximately $70,000 of all the investors' funds remained. When Kagel questioned them about the account statements that he had received, Brant admitted that Kagel's account was never worth the amount represented and that the account statements had contained false information. Knowing that Kagel had requested, but not received his funds from Summit, Melissa contacted her parents for money to help try to resolve the situation. Melissa had no conversations with any other investors.
On June 21, 2011, van den Berg sent an email to Melissa, expressing her frustration with the tardiness of profit checks and statements, as well as concerns about Brant's lack of response to her request to close her accounts with Summit. Melissa never responded to the email and did ...