United States District Court, N.D. Illinois, Eastern Division
U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff,
GRACE ELIZABETH REISINGER and ROF CONSULTING, LLC, Defendants.
MEMORANDUM OPINION & ORDER
JOAN B. GOTTSCHALL, District Judge.
The Commodity Futures Trading Commission (CFTC) filed a six-count complaint against Grace Reisinger and her firm, ROF Consulting, LLC. Counts I-III allege that Reisinger and ROF committed fraud by misrepresenting and omitting material facts in communications with investors. Counts IV-VI charge Reisinger with violations related to her actions as an alleged unregistered commodity pool operator (CPO). The court previously granted in part and denied in part Reisinger's motion for summary judgment. The court held that the CFTC was barred by the statute of limitations from seeking civil penalties for the violations in Counts I and II of the complaint, but could seek other forms of relief against Reisinger on those counts. The court also held that the CFTC could seek civil penalties for the violations contained in Counts III-VI.
The CFTC now moves for summary judgment on all counts. For the reasons explained below, the motion is denied.
Grace Reisinger is a resident of Grand Island, Nebraska. On May 2, 2003, four people, including Reisinger, organized ROF Consulting, LLC. The other members were Alan Matthews, Jim Green, and Nancy Dadey. Matthews was managing member, treasurer, and secretary of ROF.
On October 14, 2004, ROF and another company, Sun Coast Investments and Consulting, Inc., organized NCCN, LLC. The members of NCCN were ROF and Sun Coast, a corporation owned by Lynn Caswell. NCCN began soliciting funds from investors beginning in January 2005. As part of the solicitation, a "prospective client questionnaire" was distributed to prospective NCCN investors, including an attorney in California named Donald Caffray. The cover letter to the questionnaire stated in relevant part:
Dear Mr. Donald Caffray,
Greetings. It is our understanding that you have expressed an interest in placing funds for management with NCCN, LLC, which is open to Accredited Investors who are also Qualified Purchasers as defined by... the United States Investment Company Act. The minimum investment required per entity is $5, 000, 0000 USD....
If you would like to receive a confidential Client Services Agreement... please indicate such interest by:... [r]eturning this letter and an enlarged copy of... your driver's license and your passport to us in the enclosed self-addressed envelope....
Elizabeth (Lisa) Reisinger President, CEO.
(Pl.'s SOF Ex. 15 (Prospective Client Questionnaire), ECF No. 71-3.)
The parties dispute whether Reisinger drafted or sent the questionnaire. Although the questionnaire bears her name and signature, Reisinger has submitted a sworn declaration in which she states:
I did not draft the Prospective Client Questionnaire that was completed by Donald Caffray for the Donald Caffray Attorney Trust Account. The Prospective Client Questionnaire, and the cover sheet used to forward it, were prepared by Lynn Caswell or someone acting under his direction.... None of the Questionnaires [were] signed or distributed by me....
I did not send the Prospective Client Questionnaire or the cover sheet for the Prospective Client Questionnaire to Donald Caffray, and I did not sign the cover sheet for the Prospective Client Questionnaire that was sent to Donald Caffray. Based on my inspection of the cover sheet for the Prospective Client Questionnaire that Donald Caffray attached to his Declaration, I believe that it was faxed to him by Nancy Dadey, my deceased mother who was a member of ROF, and that Nancy stamped a stamp of my signature on the cover sheet before she sent it. I was not aware at the time she sent it that she had affixed my signature stamp or had sent it to Caffray.
(Def.'s Ex. A (Reisinger Decl.) ¶¶ 8, 10, ECF No. 83.) Caffray completed and returned the questionnaire, and he later invested his clients' funds in NCCN.
According to Reisinger, in the spring of 2005, Ty Andros, who was a principal of a commodity introducing broker and commodity trading advisor in Chicago, presented a commodity trading program to Reisinger, Matthews, Green, and Dadey (the members of ROF) and Caswell (the owner of Sun Coast). The program involved NCCN opening an account at Cadent Financial Services, LLC, a registered futures commission merchant. Cadent's general counsel, Cheryl Fitzpatrick-Smith (Fitzpatrick), also attended Andros's presentation. Fitzpatrick stated that the prior structure used for NCCN's bond trading program would not work for commodities, and she suggested that NCCN form an exempt commodity pool through an account at Cadent. The principals of ROF and NCCN agreed to this approach.
For NCCN to open an account at Cadent, Cadent required that Reisinger complete an "exemption from registration as a commodity pool operator (CPO)" form. Reisinger asked Fitzpatrick to assist her in completing the exemption claim. After Reisinger prepared the exemption claim, Fitzpatrick told her that the claim appeared to be acceptable. On May 5, 2005, Reisinger signed the exemption claim and provided a copy to Fitzpatrick. On that same day, Reisinger sent copies of the exemption claim to the National Futures Association (NFA), which administers the registration system for the CFTC. The exemption claim stated in relevant part:
The operator of this commodity pool is not required to register, and has not registered with the [CFTC]. Therefore, unlike a registered commodity pool operator[, ] this pool operator is not required by the CFTC to furnish a Disclosure Document, Periodical Account Statements[, ] and an Annual Report to participants in the pool.
Pool Name[:] NCCN LLC....
NCCN LLC is not registered as a CPO based upon Regulation 4.13(a)(4)[, ] which states that:
(i) Interest in the pool [is] exempt from registration under the Securities Act of 1933 and such interest [is] offered and sold without marketing to the public in the United States.
(ii) I reasonably believe, at the time of investment, Each Natural person participant is a "qualified eligible person" as that term is defined in 4.7(a)(2) and
(iii) Each Non-natural person participant is a "qualified eligible person, " as that term is defined in 4.7, or a[n] "accredited investor'" as the term is defined in 230.501(a)(i)-(3)(a)(7) and (a)(8)....
(Pl.'s SOF Ex. 4 (Exemption Claim), ECF No. 70-3.) Reisinger signed the claim exemption, and the title "CEO" appears next to her printed name. The claim exemption is dated May 5, 2005, and is stamped as being received on June 24, 2005.
CFTC regulations require that, to be eligible for an exemption from registration as a CPO, a CPO must "furnish in writing to each prospective participant in the pool... a statement that the person is exempt from registration with the [CFTC] and that therefore, unlike a registered commodity pool operator, it is not required to deliver a Disclosure Document and a certified annual report to participants in the pool." 17 C.F.R. § 4.13(a)(5)(i)(A). As noted above, one of NCCN's "participants" was a California attorney named Donald Caffray. Caffray used his attorney-client trust account to transmit funds from his clients, who were mainly foreign investors, to ROF. ROF then transferred the funds to NCCN.
In May 2006, Reisinger learned that Caffray was collecting funds from third parties and depositing them into the NCCN pool. At that time, Reisinger received a communication from State Management Limited stating that it was an investor with Caffray and wanted its funds returned. This information concerned Reisinger because she realized that the actual source of the funds might not be a qualified eligible person (QEP), which was contrary to representations contained in her exemption claim. After receiving the State Management Limited inquiry, Reisinger sought information from Matthews about the identity of participants sending funds through Caffray. She learned that at least three additional participants had contributed funds to the NCCN pool through Caffray. Reisinger had documentation supporting the QEP status of only one Caffray client.
Pool participants continued to make deposits into the NCCN account at Cadent until January 10, 2007. On that date, the last deposit into the account was made, in the amount of $301, 845. On May 9, 2007, Reisinger received an email regarding Michael and Sue Cassidy, an Australian couple. In August 2007 and October 2007, Reisinger had conversations with the Cassidys about the nature of their investment with Caffray. She stated that she believed based on the conversations that they were not "qualified eligible participants, and it gave [her] cause to finally shut down" the pool. (Pl.'s SOF Ex. 12 (Reisinger Dep. II) 758:1-759:13, ECF No. 55-13.) The pool was dissolved on October 26, 2009.
II. LEGAL STANDARD
Summary judgment is appropriate when the movant shows there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; Smith v. Hope Sch., 560 F.3d 694, 699 (7th Cir. 2009). "[A] factual dispute is genuine' only if a reasonable jury could find for either party." SMS Demag Aktiengesellschaft v. Material Scis. Corp., 565 F.3d 365, 368 (7th Cir. 2009). The court ruling on the motion construes all facts and makes all ...