United States District Court, N.D. Illinois, Eastern Division
PAULINA GUIROLA DE DAVID, CORPORACION DE FIANZAS, CONFIANZA S.A., CARLO MAURO-RHODIO GUZMAN, JESUS ALBERTO QUIROA MONTEPEQUE ASESORES REGIONALES, S.A., DE C V. CORPORACION DE INVERSIONES EN OPCIONES Y FUTUROS, S.A., ESBA S.A., JOSE MIGUEL GAITAN ALVAREZ, RICARDO RAMON MAZARIEGOS CATELLANOS AND MARIA VIRGINIA GAITAN DE MAZARIEGOS, JULIO ROBERTO PINEDA AVILA, FRANCISCO JAVIER PAZ PINEDA, JUAN FERNANDO PEREZ MARROQUIN, DIDIER PATRICK WURSTER, ALFREDO PRADANOS VALDIZAN, ALBA MARIA MARLENNE MEANY VALERIO DE HAGE AND NORMA LISSETTE HERNANDEZ SANCHEZ, SAMUEL ANTONIO CHARUCO SAGASTUME, CORPORACION INTEGRAL DE INVERSIONES, S.A., Plaintiffs,
ALARON TRADING CORPORATION d/b/a ALARON LATIN AMERICA, ALBERTO ALVAREZ, JOSE (
MEMORANDUM OPINION AND ORDER
ROBERT W. GETTLEMAN, District Judge.
Plaintiffs, eighteen Latin American corporations and individuals, sued defendants Alaron Trading Corporation ("ATC") d/b/a Alaron Latin America ("ALA") and three of ALA's managers and employees, Alberto Alvarez, Jose "Pepe" Ortega, and Alberto Tarafa, alleging thirteen counts in the Third Amended Complaint. Plaintiffs' claims include four counts under the Commodity Exchange Act ("CEA") and nine counts under state law. Defendants Alvarez, Ortega, and Tarafa ("defendants") have moved pursuant to Fed.R.Civ.P. 56 for summary judgment on all counts. For the reasons stated below, defendants' motion for summary judgment is granted in part and denied in part.
ATC is a Chicago-based futures commissions merchant ("FCM") founded by Joel Greenberg. In 2004, Greenberg reached out to Alvarez to discuss opening a new ATC office in Miami, Florida, that would focus on the Latin American market. Eventually, Alvarez and Ortega agreed with Greenberg to do so. They called the new office ALA. Under the agreement, Alvarez and Ortega each received one-quarter of the office's net profit. The parties dispute whether, under this agreement, ALA was a new partnership among ATC, Alvarez, and Ortega, or was simply a branch of ATC. Regardless, Alvarez worked for ALA as a branch manager and Ortega handled the office's accounting and financing. ALA hired Tarafa to serve as its Latin American sales representative.
In early 2004, Giron Galvez ("Giron"), partial owner of a Guatemalan registered broker-dealer called Mercados de Futuros ("MDF"), contacted Tarafa, seeking to become ATC's foreign introducing bank ("FIB"). In July 2004, Alvarez and Ortega met with Giron in Guatemala. During this meeting, Giron told them that MDF offered customers fixed rates of interest on their investments and guaranteed their principal. Although such guarantees would have violated United States law if a domestic company offered them, the three men reached a deal that avoided issues with United States law. During the next several years, Giron introduced over one hundred customers to ATC and ALA, including plaintiffs. ATC and ALA then acted as the clearing broker for these customers by executing trades, issuing account statements, and holding funds. In return, ATC and ALA collected significant clearing fees and commissions.
Over the years, defendants maintained a tight relationship with Giron and MDF. ALA sent its employees to train MDF's trading group in Guatemala and provided trading equipment and software to MDF. ALA and MDF hosted over half-a-dozen joint marketing events in Guatemala that allowed MDF to gain credibility through its association with an American broker. At these joint events, ALA employees, including Tarafa, extensively praised Giron. For example, they stated that ALA worked only with the best FIB traders and that Giron was just that, one of the best. At an MDF employee Christmas party, Tarafa gave Giron a plaque for his work as the top foreign introducing broker of the year. However, these accolades badly missed the mark. Giron was not a successful trader but, rather, a fraudster.
In 2008, MDF collapsed after it failed to return money invested by the Guatemalan Congress. The Guatemalan government arrested and convicted Giron after it was discovered that MDF had been churning customers' accounts to maximize commissions and other fees while incurring massive losses on the trades. MDF hid the losses on the commodity trading statements sent to customers. In reality, net liquidity reveals how an account is performing. But, according several deponents and declarants, including George de Marcilla ("de Marcilla") and Ernesto Belloso, Giron and MDF's salespeople told customers that the cash balance was the best indicator of performance. MDF then convinced customers that they were making money by selling deep in-the-money call options to boost cash balances. These "profits, " which were actually the customers' principal, were used to pay MDF's and ATC's commissions and fees. In the end, plaintiffs lost over twenty million dollars before the fraud was revealed.
Defendants have moved for summary judgment pursuant to Fed.R.Civ.P. 56. Summary judgment is appropriate where there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. Pro. 56. The movant bears the burden of establishing both elements. Becker v. Tenenbaum-Hill Associates, Inc., 914 F.2d 107, 110 (7th Cir. 1990). If the movant satisfies this burden, then the non-movant must set forth specific facts showing there is a genuine issue for trial. Nitz v. Craig, No. 08 C 334, 2013 WL 593851, at *2 (N.D. Ill. Feb. 12, 2013). The court "must view all the evidence in the record in the light most favorable to the non-moving party and resolve all factual disputes in favor of the non-moving party." Orton-Bell v. Indiana, 759 F.3d 768, 773 (7th Cir. 2014).
In their briefs, defendants have documented extensive evidence supporting their arguments and called into question much of the evidence supporting plaintiffs' Local Rule 56.1 Statement of Material Facts. At the summary judgment stage, however, a "court may not assess the credibility of witnesses, choose between competing inferences or balance the relative weight of conflicting evidence...." Orton-Bell, 759 F.3d at 773 (quoting Abdullahi, 423 F.3d at 769). Thus, to the extent plaintiffs have provided any contrary admissible evidence on each contested issue, summary judgment is precluded.
Counts I, II, and VII
Counts I, III, and VII of plaintiffs' third amended complaint allege various acts of fraud. Count I alleges a fraud claim under Section 4b of the CEA, 7 U.S.C. § 6b, Count II alleges a claim for fraud under Section 4c(b) of the CEA, 7 U.S.C. § 6c(b), through CFTC Regulation 17 C.F.R. § 32.9, and Count VII alleges a common law fraud claim. Both claims under the CEA are governed by the common law fraud standard. Hodgson v. Gilmartin, No. CIVA 06-1944, 2006 WL 2869532, at *9 (E.D. Pa. Oct. 5, 2006). "Under Illinois law, the elements of common law fraud are: (1) a false statement of material fact; (2) defendant's knowledge that the statement was false; (3) defendant's intent that the statement induce... plaintiff to act; (4) plaintiff's reliance upon the truth of the statement; and (5) plaintiff's damages resulting from reliance on the statement." Ohio Nat'l Life Assurance Co. v. Davis, 13 F.Supp.3d 876, 882 (N.D. Ill. 2014). As discussed below, defendants' argument that plaintiffs cannot satisfy each of the five elements is defeated by genuine issues of material fact that preclude summary judgment.
Plaintiffs have identified several false statements of material fact made by Tarafa at joint marketing events hosted by Giron, MDF, and ALA. At these events, Tarafa told attendees that ALA worked only with the best FIB traders and that ALA had confidence in Giron because he was one of the best. Tarafa even claimed that Giron was a profitable trader who rarely lost money. Then, at three MDF employee Christmas parties, Tarafa gave Giron three plaques for his work as the top foreign introducing broker of the year. Essentially, the award recognized Giron's role in generating business for ATC and ALA, and he displayed the awards in MDF's office. As revealed by the collapse of MDF, arrest of Giron, and discovery of his fraud, Tarafa's statements and awards were based on fraudulent conduct.
There is significant evidence that these statements and acts were material. For example, Arturo Martinez and Ernesto Belloso explained how endorsement by an American broker gave Giron and MDF credibility. This in turn allowed them to solicit customers who would not have listened without ALA's endorsement. For these reasons, in denying defendants' motion to dismiss, this court has found that Tarafa's alleged statements ...