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U.S. Commodity Futures Trading Commission v. Cis Commodities LLC

United States District Court, D. Nevada

April 16, 2014

U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff,
v.
CIS COMMODITIES LLC, ALLEN NICHOLAS WARD, TRANS GLOBAL INVESTMENTS, LLC and CHARLES LEROY TIMBERLAKE, Defendants.

ORDER OF PERMANENT INJUNCTION, RESTITUTION, CIVIL MONETARY PENALTY AND OTHER EQUITABLE RELIEF AGAINST DEFENDANTS CIS COMMODITIES LLC AND ALLEN NICHOLAS WARD AS TO COUNTS I, II, V, AND VI OF THE COMPLAINT

GLORIA M. NAVARRO, Chief District Judge.

I. INTRODUCTION

On June 29, 2011, plaintiff U.S. Commodity Futures Trading Commission ("CFTC" or "Commission") filed a Complaint for Injunctive and Other Equitable Relief and for Civil Monetary Penalties under the Commodity Exchange Act ("Complaint") against defendants CIS Commodities LLC ("CIS"), Allen Nicholas Ward ("Ward"), Trans Global Investments, LLC ("Trans Global") and Charles Leroy Timberlake ("Timberlake") (collectively "defendants") seeking injunctive and other equitable relief for violations of the Commodity Exchange Act (the "Act"), 7 U.S.C. §§ 1 et seq., (2012) and the Commission Regulations ("Regulations") promulgated thereunder, 17 C.F.R. §§ 1.1 et seq. (2013).

On January 14, 2013, the Court entered a Consent Order for Permanent Injunction, Civil Monetary Penalty and Other Equitable Relief against Defendants Trans Global Investments, LLC and Charles Leroy Timberlake (the "Consent Order") (ECF No. 77), thereby resolving all claims against Trans Global and Timberlake. On May 8, 2013, this Court entered an Order (ECF No. 81) granting in part the Commission's Motion for Summary Judgment as to defendant Ward and granting its Motion for Default Judgment against CIS for its failure to plead or otherwise defend this action. On December 5, 2013, the Court entered an Order (ECF No. 92) clarifying its prior Order and instructing the CFTC to file a Motion for Entry of Judgment. The Commission filed the Motion for Entry of Judgment on December 19, 2013.

Now, the Court hereby grants the Commission's Motion for Entry of Judgment judgment as a matter of law in favor of the Commission and against Ward on Counts I, II, and V of the Complaint. The Court further enters the default judgment of CIS pursuant to Fed.R.Civ.P. 55(b) on Counts I, II and VI of the Complaint. Therefore, the Court directs the entry of the following Findings of Fact, Conclusions of Law, and Order of Permanent Injunction and Other Equitable Relief pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1 (2012), as set forth herein. THE COURT HEREBY FINDS:

II. FINDINGS OF FACTS

A. Jurisdiction and Venue

1. This Court has jurisdiction over the parties and subject matter of this action pursuant to Section 6c(a) of the Act, 7 U.S.C. § 13a-1(a) (2012), which authorizes the CFTC to seek injunctive relief in a district court whenever it appears to the CFTC that a person or entity has engaged, is engaging, or is about to engage in any act or practice that constitutes a violation of any provision of the Act or any rule, regulation, or order promulgated thereunder.

2. Venue properly lies with this Court pursuant to Section 6c(e) of the Act, 7 U.S.C. § 13a-1(e) (2012), because defendants CIS and Ward have transacted business in this District, and the acts and practices in violation of the Act have occurred or are occurring within this District.

B. The Parties

3. Plaintiff U.S. Commodity Futures Trading Commission is an independent federal regulatory agency that is charged by Congress with the responsibility for administering and enforcing the provisions of the Act, 7 U.S.C. §§ 1 et seq. (2012), and the Regulations promulgated thereunder, 17 C.F.R. §§ 1 et seq. (2013).

4. From October 2006 through October 2009, when its LLC status was revoked, defaulted defendant CIS Commodities LLC was a Nevada limited liability company with its main office located in Henderson, Nevada. CIS was registered with the Commission as an introducing broker ("IB") between January 3, 2007 and February 1, 2009, at which time CIS withdrew its IB registration.

5. Defendant Allen Nicholas Ward currently resides in Aspen, Colorado, and previously resided in Henderson, Nevada. Ward was, at all relevant times, the sole officer and manager of CIS. Ward was registered with the Commission as an associated person ("AP") of CIS from January 3, 2007 through January 2, 2009. Ward also acted as an AP of former defendant Trans Global, an unregistered commodity pool operator ("CPO"), which operated the "Trans Global pool".

C. Ward's Solicitation of CIS Customers and Misappropriation of Customer Funds

6. In May 2007, Ward solicited Conrad Gac ("Gac") to invest $25, 000 to trade commodity futures with CIS. In a solicitation email titled "Ben's money, " Ward represented that invested funds would be traded by Ben Rubin ("Rubin"), an experienced trader and non-party to this action, on the Chicago Mercantile Exchange (the "CME"). In that email and in contemporaneous verbal discussions, Ward represented that Rubin was already trading funds belonging to CIS and CIS customers, and that Gac would receive a 38% annual return on his investment and could liquidate at will. Contrary to these representations, neither CIS nor Ward had invested with Rubin and there was no agreement with Rubin for the investment of Gac's funds.

7. Based on the aforementioned representations, Gac gave Ward a $25, 000 check payable to CIS. Subsequently, Gac gave Ward an additional $20, 648 check made payable to "Allen Ward, " which Ward deposited in his personnel bank account. These funds were to be used to trade commodity futures. In fact, Ward did not deposit any of the funds he received from Gac into a commodity futures trading account, or otherwise invest or use those funds in commodity futures. Rather, the funds were used to pay for CIS's operating costs and Ward's personal and legal expenses. Ward, acting individually and on behalf of CIS, misappropriated a total of $40, 500 from Gac alone.

8. In October 2008, Ward solicited Janina Clark ("Clark"), who was at the time already a participant in the Trans Global pool, to invest $70, 000 to trade commodity futures with CIS. In a solicitation meeting, Ward represented that Clark's funds would be placed in a commodity futures trading account managed and controlled by CIS. Ward further represented that Clark would receive a guaranteed return on her investment.

9. On or around October 13, 2008, Clark gave Ward a check in the amount of $70, 000 made payable to "Allen Ward, " which Ward deposited into his personnel bank account. Clark invested the $70, 000 due to Ward's representations that those funds would be used by CIS to trade commodity futures. In fact, Clark's funds were not deposited into a commodity futures trading account or used to trade commodity futures in any way, but rather were used to pay for CIS's operating costs and Ward's personal and legal expenses. Ward, acting individually and on behalf of CIS, misappropriated a total of $70, 000 from Clark, exclusive of any contribution made by Clark to the Trans Global pool.

D. Ward's Misappropriation of Trans Global Pool Participant Funds

10. Ward also associated himself with the Trans Global pool and the pool's founder and president, Timberlake. At least five individuals other than Timberlake or Ward participated in the Trans Global pool: Clark, Tim Larson, Randy Michaels, Art Nepute, and Tim Shank (collectively the "Trans Global pool participants"). Collectively, the Trans Global pool participants contributed a total of $220, 000, exclusive of any contribution(s) by Ward or Timberlake. Approximately $155, 000 in Trans Global pool participant funds was used to trade various financial instruments including commodity futures through accounts introduced by CIS.

11. Timberlake gave at least $65, 000 of Trans Global pool participant funds to Ward to trade commodity futures. Ward did not deposit the Trans Global pool funds into a commodity futures trading account, or otherwise invest or use those funds in commodity futures. Rather, Ward misappropriated the Trans Global pool funds by using them for CIS's operating costs and legal expenses, and for personal uses such as automobile expenses, residential rent, meals and entertainment.

E. Ward's Issuance of False Statements to CIS Customers and a Trans Global Pool Participant

12. Ward communicated false and misleading reports and statements to CIS customers and one Trans Global pool participant falsely claiming profits to perpetuate the fraud.

13. Ward represented to Gac that his investment with CIS was earning a return and paid Gac $5, 148 in purported interest. On or around December 15, 2007, Ward falsely informed Gac in a written statement that his investment had earned $9, 500 in interest ($4, 352 of which remained unpaid), and induced Gac to make the additional $20, 648 investment discussed in paragraph 7, above.

14. Additionally, Ward willfully issued at least two false statements to Clark. Specifically, in an e-mail statement dated November 3, 2008, Ward falsely represented to Clark that her account balance as of October 31, 2008 was $219, 467 and that "150k is working in the commodity account, 50K is in cash, and the rest is in equities." This account summary included both Clark's $70, 000 investment with CIS and $100, 000 contribution to the Trans Global pool. On January 21, 2009, Ward represented to Clark, in a second statement sent via e-mail, that "[a]s of 12/31/08 you have between the two accounts $236, 328" including "redemption's [sic] of the notes which account[s] for $156, 000." This account summary also included Clark's investment with CIS and contribution to the Trans Global pool. Ward used instruments of interstate commerce in issuing the false statements to Clark regarding the valuation of her account.

III. CONCLUSIONS OF LAW

A. Ward and CIS Violated Section 4b(a)(2)(i), (iii) of the Act with Respect to Acts Before June 18, 2008, and Section 4b(a)(1)(A), (C) of the Act, as Amended, with Respect to Acts on or After June 18, 2008, through Misrepresentations and Misappropriation of CIS Customer Funds (Count I)

15. Prior to being amended by the CRA, Section 4b(a)(2)(i), (iii) of the Act, 7 U.S.C. § 6b(a)(2)(i), (iii) (2006), made it unlawful for any person to: (i) cheat or defraud or attempt to cheat or defraud; or (iii) willfully to deceive or attempt to deceive by any means whatsoever other persons, in or in connection with any order to make, or the making of, any contract of sale of any commodity for future delivery made, or to be made, for or on behalf of such other persons if such contract for future delivery is or may be used for (A) hedging any transaction in interstate commerce in such commodity, or the products or byproducts thereof, or (B) determining the price basis of any transaction in interstate commerce in such commodity, or (C) delivering any such commodity sold, shipped or received in interstate commerce for the fulfillment thereof, in connection with acts occurring before June 18, 2008. Similarly, Section 4b(a)(1)(A), (C) of the Act, 7 U.S.C. § 6b(a)(1)(A), (C), (Supp. II 2009) makes it unlawful for any person, in or in connection with any order to make, or the making of, any contract of sale of any commodity in interstate commerce or for future delivery that is made, or to be made, on or subject to the rules of a designated contract market, for or on behalf of any other person: (A) to cheat or defraud or attempt to cheat or defraud such other person; ...


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