UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
________________________________________________
COMMODITY FUTURES TRADING COMMISSION,| 96 CIV. (14284)_
AND THE STATE OF FLORIDA, DEPARTMENT|
OF BANKING AND FINANCE,|
|
Plaintiffs,| COMPLAINT FOR
| INJUNCTIVE RELIEF,
v.| OTHER EQUITABLE
| RELIEF AND FOR CIVIL
JAMES V. DOWLER, JR., INDIVIDUALLY AND| MONETARY PENALTIES UNDER
d/b/a DOWLER & BEEKMAN, AND DOWLER | THE COMMODITY EXCHANGE
BEEKMAN TRADING COMPANY, LTD.,| ACT, AS AMENDED,
| 7 U.S.C. 1, ET SEQ.
Defendants. | AND UNDER SECTION 517.275,
| FLORIDA STATUTES
________________________________________________|
I.
INTRODUCTION
As more fully set forth below, defendants James V. Dowler, Jr. ("Dowler") and Dowler & Beekman Trading Company, Ltd. ("DBT") (hereinafter collectively referred to as the "Defendants") have engaged and are engaging in acts and practices which constitute violations of Sections 4b(a)(i)-(ii), 4k(2)-(3), 4m(1), 4o(1), and 9(a)(1) of the Commodity Exchange Act (the "Act"), as amended, 7 U.S.C. 6b(a)(i)-(ii), 6k(2)-(3), 6m(1), 6o(1), and 13(a)(1) (Supp. IV 1992), and Sections 4.20, 4.30, and 4.41 of the Commodity Futures Trading Commission's Regulations ("Regulations"), 17 C.F.R. 4.20, 4.30, and 4.41 (1996) and Section 517.275, Florida Statutes.
Accordingly, pursuant to Section 6c of the Act, 7 U.S.C. 13a-1 (Supp. IV 1992), and Section 517.275, Florida Statutes, plaintiffs Commodity Futures Trading Commission ("Commission") and the State of Florida, Department of Banking and Finance ("Department"), bring this action against the Defendants to enjoin such acts and practices, and to compel compliance with the provisions of the Act, the Commission's Regulations and the Florida Statutes. In addition, the Commission seeks civil monetary penalties, and the Department joins with the Commission in seeking an accounting, disgorgement, rescission, restitution, and such other equitable relief as this Court may deem necessary or appropriate.
II.
JURISDICTION AND VENUE
This Court has jurisdiction over this action pursuant to Section 6c of the Act, 7 U.S.C. 13a-1 (Supp. IV 1992), which provides that whenever it shall appear to the Commission that any person has engaged, is engaging, or is about to engage in any act or practice constituting a violation of any provision of the Act, or any rule, regulation, or order promulgated thereunder, the Commission may bring an action against such person to enjoin such practice and/or to enforce compliance with the Act.
Additional jurisdiction is conferred by Section 517.275, Florida Statutes, which provides that it is unlawful and a violation of the Florida Securities and Investor Protection Act for any person to engage in any act or practice in or from the State of Florida, which act or practice constitutes a violation of any provision of the Commodity Exchange Act, 7 U.S.C. 1 et seq., or the rules and regulations of the Commodity Futures Trading Commission. Pursuant to Section 517.03, Florida Statutes, the Department shall administer and provide for the enforcement of all the provisions of the Florida Securities and Investor Protection Act.
Venue properly lies in this District pursuant to Section 6c(e) of the Act, 7 U.S.C. 13a-1(e) (Supp. IV 1992), in that the Defendants are found in, inhabit, or transact business in this District, and acts and practices in violation of the Act have occurred, are occurring, or are about to occur within this District, among other places.
Unless restrained and enjoined by this Court, the Defendants are likely to and will continue to engage in the acts and practices alleged in this Complaint or in similar acts and practices, all as described more fully below.
III.
THE PARTIES
Plaintiff Commission is an independent federal regulatory agency which is charged with the responsibility for administering and enforcing the provisions of the Act, 7 U.S.C. 1 et seq. (Supp. IV 1992), and the Regulations promulgated thereunder, 17 C.F.R. 1.1 et seq. (1996).
Plaintiff Department is an independent state regulatory agency which is charged with the responsibility for administering and enforcing the provisions of the Florida Securities and Investor Protection Act, Section 517.03, Florida Statutes.
Defendant James V. Dowler, Jr., is an individual currently residing at 1650 Victoria Circle, Vero Beach, Florida 32967 and has been a resident of Vero Beach for at least ten years. Prior to moving to his present address in May 1996, Dowler lived in John's Island, another Vero Beach community. Dowler also does business under the name Dowler & Beekman ("D&B"). From at least 1987, Dowler, through DBT, D&B and other vehicles, has been involved in trading commodity futures. Dowler has not been registered with the Commission in any capacity since 1986. At all times material to this Complaint, Dowler transacted business in the Southern District of Florida.
Defendant Dowler & Beekman Trading Company, Ltd., is a Florida domestic limited partnership, currently on inactive status, which during the period from December 1992 through March 1996, maintained its principal office at 2940 Cardinal Drive, Vero Beach, Florida 32963 and, subsequently, at 505 Beachland Blvd., Suite 4-C, Vero Beach, Florida 32963. DBT was formed on July 9, 1987 "for the purpose of futures trading on recognized exchanges, acting as a Commodity Pool Operator and as a Commodity Trading Advisor." At all relevant times, Dowler individually, Dowler d/b/a D&B, or a third entity which Dowler also controlled, Dowler and Beekman, Inc., served as DBT's sole general partner. DBT has never been registered with the Commission in any capacity. At all times material to this Complaint, DBT transacted business in the Southern District of Florida.
IV.
STATUTORY AND REGULATORY BACKGROUND
A commodity trading advisor ("CTA") is a person who, for compensation or profit, engages in the business of advising others, either directly or through publications, writing, or electronic media, as to the advisability of trading in any contract of sale of a commodity for future delivery made or to be made on or subject to the rules of a contract market. Section 1a(5) of the Act, 7 U.S.C. 1a(5) (Supp. IV 1992).
A commodity pool is any investment trust, syndicate or similar form of enterprise operated for the purpose of trading commodity interests. 17 C.F.R. 4.10(d)(1) (1996).
A commodity pool operator ("CPO") is a person engaged in a business which is of the nature of an investment trust, syndicate, or similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others, funds, securities, or property, either directly or through capital contributions, the sale of stock or other forms of securities or otherwise, for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market - for the "commodity pool." See Section 1a(4) of the Act, 7 U.S.C. 1a(4) (Supp IV. 1992).
Any person who makes use of the mails or other means or instrumentality of interstate commerce in connection with his business as a CPO is required to be registered as such with the Commission unless that person qualifies for an exemption under the Act or the Regulations. Section 4m(1) of the Act, 7 U.S.C. 6m(1) (Supp. IV 1992), and Section 4.13 of the Regulations, 17 C.F.R. 4.13 (1996).
Pursuant to Section 4k(2)-(3) of the Act, 7 U.S.C. 6k(2)-(3) (Supp. IV 1992), it is unlawful for any person to be associated with a CTA or CPO, as a partner, officer, employee, consultant or agent (or any person occupying a similar status or performing similar functions), in any capacity that involves (i) the solicitation of funds, securities, or property for participation in a commodity pool (in the case of a CPO), or the solicitation of a client's or prospective client's discretionary account (in the case of a CTA), or (ii) the supervision of any persons so engaged, unless such person is registered with the Commission under the Act as an associated person ("AP") of such CTA or CPO and such registration shall not have expired, been suspended or revoked.
Pursuant to Section 4o(1) of the Act, 7 U.S.C 6o(1) (Supp. IV 1992), it is unlawful for a CPO, or CTA, or an AP of a CPO or CTA, by use of the mails or any means or instrumentality of interstate commerce, directly or indirectly, (A) to employ any device, scheme, or artifice to defraud any pool participant or prospective participant, or (B) to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any pool participant or prospective participant.
Pursuant to Section 4b(a)(i)-(ii) of the Act, 7 U.S.C. 6b(a)(i)-(ii) (Supp. IV 1992), it is unlawful for any person, 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 any other person, 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, to cheat or defraud or attempt to cheat or defraud such other person, to willfully make or cause to be made to such other person any false report or statement thereof.
Pursuant to Section 9(a) of the Act, it shall be a felony for: (1) any person registered or required to be registered under the Act, or any employee or agent thereof, to embezzle, steal, purloin, or with criminal intent convert to such person's use or the use of another, any money, securities, or property having a value in excess of $100, which was received by such person or any employee or agent thereof to margin, guarantee, or secure the trades or contracts or any customer or accruing to such customer as a result of such trades or contracts or which otherwise was received from any customer, client, or pool participant in connection with the business of such person.
Section 6c(a) of the Act, 7 U.S.C. 13a-1(a), authorizes the Commission to bring a civil action for relief whenever any person engages in any act or practice which constitutes a violation of any provision of the Act.
Pursuant to Section 4.20(a) of the Regulations, a CPO must operate its pool as an entity cognizable as a legal entity separate from that of the pool operator. All funds, securities, or other property received by a CPO from an existing or prospective pool participant for the purchase of an interest or as an assessment (whether voluntary or involuntary) on an interest in a pool that it operates or that it intends to operate must be received in the pool's name. No CPO may commingle the property of any pool that it operates or that it intends to operate with the property of any other person. 17 C.F.R. 4.20(a)-(c) (1996).
Pursuant to Section 4.30 of the Regulations, "no [CTA] may solicit, accept, or receive from an existing client funds, securities or other property in the trading advisor's name...." 17 C.F.R. 4.30 (1996).
Pursuant to Section 4.41(b) of the Regulations, no CPO or CTA may advertise in a manner which presents the hypothetical performance of a commodity trading account unless such advertisement is accompanied by a prescribed disclosure statement. 17 C.F.R. 4.41(b) (1996).
Pursuant to Section 517.275, Florida Statutes, it is unlawful and a violation of the Florida Securities and Investor Protection Act for any person to engage in any act or practice in or from the State of Florida, which act or practice constitutes a violation of any provision of the Commodity Exchange Act, 7 U.S.C. 1 et seq., or the rules and regulations of the Commodity Futures Trading Commission.
V.
FACTUAL BACKGROUND
Beginning in the early 1990s, Dowler approached a number of individuals from John's Island regarding the prospect of their opening managed accounts with DBT for the purpose of trading in commodity futures. Dowler told DBT's potential clients that he had substantial experience trading commodity futures, and that DBT would oversee their accounts and would receive an annual management fee at the end of each calendar year based solely on profits generated by the trading of their accounts. Dowler stated that he engaged almost exclusively in "day trades" to minimize risk of losses.
Beginning in 1995, Dowler, using the name D&B, also placed advertisements for D&B's commercial loan program in USA Today, Investor's Business Daily, and on a D&B homepage on the Internet. In materials provided to individuals who responded to these advertisements, D&B stated that it earned "additional income by managing several private trading accounts on a fee basis."
Between 1992 and 1994, Dowler succeeded in soliciting at least three John's Island residents to allow him to serve as their CTA by opening managed futures trading accounts with DBT. The actual agreements which DBT entered into with its clients: (1) gave DBT discretionary authority to trade commodity futures for each client's account; (2) designated DBT as each client's CTA; and (3) provided that DBT would set up a personal trading account in each client's name. DBT also represented that each client would receive timely, monthly reports as to account status and activity. Pursuant to these agreements, DBT was entitled to a fee of approximately 20% of the net profits at the end of each calendar year and agreed that no other charges would be made against the accounts for DBT's services.
DBT's Clients
The Holmen Account: On December 30, 1992, G. Robert Holmen ("Holmen") entered into an agreement with DBT to open a managed commodity futures trading account, and entrusted Dowler with $50,000. The Holmen account was established and funded by Holmen and his wife, Barbara, but was jointly owned with the Holmens' four children with a 20% ownership allotted to each of the children and 20% to Holmen and his wife.
The Hawkins Account: On March 15, 1994, Fred H. Hawkins ("Hawkins") opened his managed commodity futures trading account with DBT by giving Dowler a check for $50,000. In January 1995, after receiving false reports of consistently profitable trading for his "account," Hawkins gave Dowler an additional check for $8,382.83 to be credited to his DBT account.
The Stork Account: On April 18, 1994, H. Donald Stork ("Stork") opened his DBT managed commodity futures trading account by giving Dowler a check for $300,000.
By the end of January 1995, DBT had received $408,382.83 from the Holmens, Hawkins, and Stork.
Defendants' Misappropriation of Client Funds
Dowler initially placed some of the funds it received from clients into an account under the name of D&B at Griffin Trading Company ("Griffin"), a futures commission merchant ("FCM"). Dowler subsequently transferred this account to an account in DBT's name at First Commercial Financial Group, Inc. ("FCFG") and later to an account at Linnco Futures Group ("Linnco"), also under DBT's name. The customer funds were pooled in these accounts.
Of the $408,382.83 entrusted to Dowler, only $270,000 was actually transferred to FCM accounts held in the name of D&B or DBT. Of the remaining $138,000 of client monies, Dowler transferred $128,000 to other bank accounts he personally controlled and $10,000 to a private FCM account at FCFG held jointly by Dowler and his son, J. Kevin Dowler.
Dowler and DBT: (1) did not create individual client accounts at any of the FCMs with which Dowler and DBT did business; (2) did not create an entity cognizable as a legal entity separate from that of the pool operator; and (3) commingled customer funds with Dowler's personal funds.
From June 20, 1994 through the end of November 1994, Dowler's trading for the DBT account was profitable. Statements from Linnco show that the DBT account realized $302,189.42 in trading profits. During this period, however, Dowler and DBT misappropriated approximately $285,800 out of the DBT trading account. These funds were wired initially from DBT's FCM account to DBT's bank account. Thereafter, Dowler transferred most of these funds to another bank account which he held in the name of D&B. In some instances, Dowler transferred funds directly to Dowler's personal bank account, bypassing the D&B account.
Altogether, from January 1993 through March 1995, Dowler transferred over $400,000 of customer funds to non-DBT bank accounts which he personally controlled. Dowler then wrote checks disbursing these funds for various personal and business purposes, including such personal expenses as his mortgage payments, payments to his wife, doctor's bills, club dues and other expenses which DBT's customer agreements did not allow it to charge to its clients.
In an attempt to cover this misappropriation, Dowler began taking larger and larger risks with whatever equity remained in the trading account -- ultimately abandoning the "day trading" strategy Dowler had represented to DBT's clients in favor of taking unhedged short positions in U.S. T-Bonds. This course of conduct led to substantial trading losses. DBT's FCM account records show trading losses of $134,929.47 in December 1994 and $143,750.58 in February 1995.
By the end of February 1995, Dowler and DBT had lost or misappropriated whatever money DBT had held in trust for its clients. By the following month, DBT's bank account and DBT's FCM account were essentially valueless.
DBT's False Client Account Statements
During 1994 and 1995, Dowler sent monthly account statements to DBT's clients which indicated that DBT's trading on its clients' behalf had increased the equity in each of the client accounts. For example, a November 1995 account statement sent by Dowler showed that the Holmen account had an equity balance of $80,814.75, reflecting a profit of approximately $31,000. The December 1995 account statement sent to Hawkins showed that his account had an equity balance of $90,793.77, reflecting a profit of approximately $32,000. Similarly, the December 1995 account statement sent to Stork showed that his DBT account had earned a profit of approximately $167,000 after management fees. At the end of 1995, the aggregate account balance of these three accounts, as shown on the statements provided to DBT's clients, was approximately $635,000.
These statements falsely represented that Dowler had put all his clients' money into their respective trading accounts and also falsely represented substantial increases in the value of the accounts due to profitable trading.
The client statements: (1) did not report Dowler's failure to remit $128,000 of client monies to DBT's FCM trading account; (2) did not report Dowler's misappropriation of almost all the trading profits earned in DBT's FCM account; and (3) failed to report large trading losses suffered in December 1994 and February 1995. None of these misappropriations or losses of client funds was ever reflected in any of the account statements Dowler sent to DBT's clients.
Discovery of the Losses
In January 1996, Hawkins, who had received some indications of Dowler's personal financial difficulties, met with Dowler and confronted him as to the status of his DBT account. At this meeting Dowler admitted to Hawkins that he could not give him his money back because the money was "gone."
After admitting to Hawkins that the money was "gone," Dowler nonetheless met with Stork in late February 1996 and told him that the Stork DBT account was intact. Dowler promised Stork that he would shortly receive an audited accounting of his DBT account.
In March 1996, Dowler admitted that he had dissipated his clients' funds. On March 4, 1996, Dowler sent his clients nearly identical letters disclosing formally that their money was gone. In these letters, Dowler states that he had done a "terrible thing" and that "I failed you . . . . I can offer no excuses. The funds ran out." In sum, Dowler said: "If I was running at a deficit, it didn't matter because the trading would make up the difference and everyone would get paid as and when requested. That didn't happen."
To this date, DBT's clients have not received any of their money from Dowler or DBT.
Upon information and belief, the Defendants are presently soliciting clients to open commodity futures trading accounts.
VI.
VIOLATIONS OF THE COMMODITY EXCHANGE ACT
Count One
VIOLATIONS OF SECTION 4o OF THE ACT, 7 U.S.C 6o(1)
Fraud in Connection with a Commodity Pool
Paragraphs 1 through 45 are realleged and incorporated herein by reference.
From at least December 1992 through the present, DBT, acting as a CTA and a CPO, and Dowler, acting as an AP of a CTA and CPO, by use of the mails or other instrumentalities of interstate commerce, directly or indirectly, have employed devices, schemes or artifices to defraud clients, participants or prospective clients or participants, or engaged in transactions, practices, or courses of business which operate as a fraud or deceit upon clients, participants or prospective clients or participants, in violation of Section 4o of the Act, 7 U.S.C. 6o(1), in that they, among other things:
(a)misrepresented that all, or virtually all, funds received or accepted from clients would be used to purchase or sell commodity futures contracts on behalf of such clients;
(b)misrepresented the performance of DBT's trading activities on behalf of its their clients on an on-going basis;
(c)misrepresented that their clients had achieved significant profits by investing with DBT;
(d)misrepresented the disposition of client funds at all times pertaining to this action;
(e) misappropriated the funds of pool participants by using them to pay for personal and unrelated business expenses, in that:
(i)not all monies received were committed to commodity futures trading accounts; instead, the Defendants deposited only a portion of the monies with FCMs; the balance was immediately misappropriated for Dowler's personal and unrelated business expenses;
(ii)profits generated by trading using client funds were misappropriated from the FCM trading accounts as they accrued, then used to pay Dowler's personal and unrelated business expenses;
(iii)the funds generated by final liquidation of positions in FCM trading accounts were not paid to DBT's clients; rather they were misappropriated and sent to the Dowler's attorney, used to pay Dowler's personal and unrelated business expenses (e.g., Dowler's mortgage, medical bills, payments to Dowler's wife, office rent, and other business and personal expenses); and
(f)have failed to date to account for or return funds to customers.
Count Two
VIOLATIONS OF SECTION 4b(a)(i)-(ii) OF THE ACT,
7 U.S.C. 6b(a)(i)-(ii)
Fraud in the Connection with Orders to Make Commodity Futures Contracts
Paragraphs 1 through 47 are realleged and incorporated herein by reference.
From at least December 1992 through the present, DBT, acting as a CTA and a CPO, and Dowler acting as an AP of a CTA and a CPO, in or in connection with orders to make, or the making of, any contract of sale of any commodity in interstate commerce, made, or to be made, on or subject to the rules of any contract market, for or on behalf of any person: (i) cheated or defrauded or attempted to cheat or defraud other persons; or (ii) willfully made or caused to be made to other persons false reports or statements thereof, or willfully entered or caused to be entered for other persons false records thereof, all in violation of Sections 4b(a)(i)- (ii) of the Act, 7 U.S.C. 6b(a)(i)-(ii), in that they have made the same misrepresentations and misappropriations set forth in paragraph 47 above.
Count Three
VIOLATIONS OF SECTION 4m(1) OF THE ACT,
7 U.S.C. 6m(1)
Acting as an Unregistered Commodity Pool Operator
and as an Unregistered Commodity Trading Advisor
Paragraphs 1 through 49 are realleged and incorporated herein by reference.
From at least March 1995, DBT, while not registered with the Commission as a CTA, while not exempt from such registration, and while engaged in the business of advising others as to the advisability of trading in a commodity for future delivery on or subject to the rules of a contract market, held itself out generally to the public as a CTA, and made use of the mails or other means or instrumentality of interstate commerce in connection with its businesses as a CTA, in violation of Section 4m(1) of the Act, 7 U.S.C. 6m(1).
From at least April 1994, DBT, while not registered with the Commission as a CPO, and while not exempt from such registration under Section 4.13 of the Regulations, engaged in a business that is in the nature of an investment trust, syndicate, or other similar form of enterprise, and, in connection therewith, accepted funds for the purpose of trading in a commodity for future delivery on or subject to the rules of a contract market, made use of the mails or other means or instrumentality of interstate commerce in connection with its business as a CPO, in violation of Section 4m(1) of the Act, 7 U.S.C. 6m(1).
From at least December 1992 to the present, Dowler doing business as D&B and serving as the general partner of DBT, controlled DBT. Dowler did not act in good faith, or knowingly induced, directly or indirectly, the acts constituting the violations described in this Count. Therefore, pursuant to Section 13(b) of the Act, 7 U.S.C. 13c(b), Dowler is liable for such violations of Section 4m(1) of the Act as described in this Count, to the same extent as DBT.
COUNT FOUR
VIOLATIONS OF SECTIONS 4k(2) AND 4k(3) OF THE ACT,
7 U.S.C. 6k(2) AND 6k(3)
Dowler's Failure to Register as an Associated Person
of a Commodity Trading Advisor and a Commodity Pool Operator
Paragraphs 1 through 53 are realleged and incorporated herein by reference.
From at least March 1994 to the present, DBT has been engaged in a business that is in the nature of an investment trust, syndicate, or other similar form of enterprise, and, in connection therewith, accepted funds for the purpose of trading in a commodity for future delivery on or subject to the rules of a contract market. Accordingly, DBT has operated as a CPO. As the general partner and agent of DBT who solicited funds for the pool, Dowler had a concurrent obligation to register as an AP of a CPO. Dowler's failure to register as an AP of a CPO is a violation of Section 4k(2) of the Act, 7 U.S.C. 6k(2).
From at least December 1992 to the present, Dowler solicited funds for clients or prospective clients' accounts, engaged in the business of advising others as to the advisability of trading in any contract of sale of a commodity for future delivery on or subject to the rules of a contract market, and directly supervised all of the activities of the contemplated managed commodity futures trading accounts which DBT's clients opened. As a result of this conduct, Dowler was required to be registered as an AP of a CTA. Dowler's failure to register violated Section 4k(3) of the Act, 7 U.S.C. 6k(3).
Count Five
VIOLATIONS OF SECTION 9(a)(1) OF THE ACT,
7 U.S.C. 13(a)(1) (Supp. IV 1992)
Conversion and/or Embezzlement of Client Funds
Paragraphs 1 through 56 are realleged and incorporated herein by reference.
From at least April 1994 to the present, the Defendants, who were required to be registered under the Act, embezzled, stole, purloined, or with criminal intent converted to their use or to the use of another, money, securities, or property having value in excess of $100 which was received by the Defendants to margin, guarantee, or secure trades or contracts of clients or which was received from customers or pool participants in connection with the commodity futures trading business of the Defendants, in violation of Section 9(a)(1) of the Act, 7 U.S.C. 13(a)(1).
Count Six
VIOLATIONS OF SECTION 4.20 OF THE REGULATIONS,
17 C.F.R. 4.20
Commingling funds of pool operator and participants.
Paragraphs 1 through 58 are realleged and incorporated herein by reference.
From at least March 1994, DBT received and pooled checks payable to DBT from its clients. DBT then commingled those pooled funds with its own funds in DBT's bank account and the various FCM trading accounts carried in the name of DBT, in violation of Section 4.20 of the Commission's Regulations, 17 C.F.R. 4.20.
From at least December 1992 to the present, Dowler controlled DBT. Dowler did not act in good faith, or knowingly induced, directly or indirectly, the acts constituting the violations described in this Count. Therefore, pursuant to Section 13(b) of the Act, 7 U.S.C. 13c(b), Dowler is liable for such violations of Section 4.20 of the Commission's Regulations as described in this Count, to the same extent as DBT.
Count Seven
VIOLATIONS OF SECTIONS 4.30,
OF THE REGULATIONS, 17 C.F.R. 4.30 (1996)
Receiving Funds in the CTA's Name
Paragraphs 1 through 61 are realleged and incorporated herein by reference.
Section 4.30 of the Commission's Regulations, 17 C.F.R. 4.30 (1996), provides that no CTA may solicit, accept or receive from an existing or prospective client funds in the CTA's name. From at least December 1992, DBT solicited, received and accepted client checks made payable to either itself or D&B, and deposited these checks directly into its own or D&B's bank accounts, while acting as a CTA, in violation of Section 4.30 of the Commission's Regulations.
From at least December 1992 to the present, Dowler controlled DBT. Dowler did not act in good faith, or knowingly induced, directly or indirectly, the acts constituting the violations described in this Count. Therefore, pursuant to Section 13(b) of the Act, 7 U.S.C. 13c(b), Dowler is liable for such violations of Section 4.30 of the Regulations as described in this Count, to the same extent as DBT.
Count Eight
VIOLATIONS OF SECTION 4.41 OF THE
REGULATIONS, 17 C.F.R. 4.41
Advertising Violations by Commodity Trading Advisors,
Commodity Pool Operators and Principals Thereof
Paragraphs 1 through 64 are realleged and incorporated herein by reference.
Commission Regulation 4.41(b), 17 C.F.R. 4.41(b) (1996), expressly prohibits all CTAs, CPOs and principals thereof, whether or not they are registered or required to be registered under the Act, from advertising in a manner which presents the hypothetical performance of a commodity trading account unless the performance information is accompanied by a prescribed disclosure statement. Dowler provided solicitation materials to prospective clients which included a chart purporting to show the hypothetical performance of a D&B-managed commodity trading account without the disclosure statement required by Section 4.41(b). Accordingly, as a principal of DBT, Dowler violated Section 4.41(b) of the Commission's Regulations.
Count Nine
VIOLATIONS OF SECTION 517.275, FLORIDA STATUTES
ALLEGED BY THE FLORIDA STATE DEPARTMENT OF BANKING AND FINANCE
Paragraphs 1 through 66 are realleged and incorporated herein by reference.
The Florida State Department of Banking and Finance further alleges:
Florida law expressly prohibits the violation of any provision of the Commodity Exchange Act, 7 U.S.C. 1 et seq., or the rules and regulations of the Commodity Futures Trading Commission, Counts 1 through 8 herein delineate violations of both the Commodity Exchange Act and the rules and regulations of the Commodity Futures Trading Commission. As such, Defendants' actions constitute violations of Section 517.275, Florida Statutes.
VII.
RELIEF
WHEREFORE, plaintiffs respectfully requests that this Court, as authorized by Section 6c of the Act, 7 U.S.C. 13a-1, Section 517.191, Florida Statutes and pursuant to its own equitable powers:
A.Enter orders of preliminary and permanent injunction restraining and enjoining the Defendants and any of their affiliates, agents, servants, successors, assigns, attorneys, and persons in active concert or participation with them who receive actual notice of such order by personal service or otherwise, from directly or indirectly:
(1)By use of the mails or any means or instrumentality of interstate commerce, directly or indirectly employing any device, scheme, or artifice to defraud any participant or prospective participant, or engaging in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or participant or prospective client or participant, in violation of Section 4o(1) of the Act, 7 U.S.C. 6o(1) (Supp. IV 1992);
(2)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 any other person 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, cheating or defrauding or attempting to cheat or defraud such other persons, in violation of Section 4b(i) of the Act, 7 U.S.C. 6b(i) (Supp. IV 1992);
(3)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 any other person 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, willfully making or causing to be made to such other person any false report or statement thereof, in violation of Section 4b(a)(ii) of the Act, 7 U.S.C. 6b(a)(ii);
(4)Embezzling, stealing, purloining, or with criminal intent converting, to their use or to the use of another, any money, securities, or property having a value in excess of $100 which was received by them or any of their agents or employees, to margin, guarantee, or secure the trades or contracts of any customer or accruing to such customer as a result of such trades or contracts or which otherwise was received from any customer, client, or pool participant in connection with their business, in violation of Section 9(a)(1) of the Act, 7 U.S.C. 13(a)(1) (Supp. IV 1992);
(5)Soliciting funds, securities, or property for participation in a commodity pool, while not registered with and while not exempt from registration with the Commission, in violation of Section 4m(1) of the Act, 7 U.S.C. 6m(1) (Supp. IV 1992);
(6)Soliciting client's or prospective client's discretionary accounts, or funds, securities, or property for participation in a commodity pool, while not registered with and while not exempt from registration with the Commission, in violation of Sections 4k(2)-(3) of the Act, 7 U.S.C. 4k(2)-(3) (Supp. IV 1992);
(7)Commingling their own funds with those received from customers or clients for participation in a commodity pool in violation of Section 4.20 of the Commission's Regulations, 17 C.F.R 4.20;
(8)Receiving client funds in their own name in violation of Section 4.30 of the Commission's Regulations, 17 C.F.R. 4.30; and
(9)Advertising in a manner which presents the hypothetical performance of a commodity trading account unless such advertisement is accompanied by the prescribed disclosure statement which details the "inherent limitations" of such presentations required by Section 4.41(b) of the Commission's Regulations, 17 C.F.R. 4.41(b);
B.Enter an order prohibiting the Defendants and any of their affiliates, agents, servants, employees, successors, assigns, attorneys, and persons in active concert or participation with them, who receive actual notice of such order by personal service or otherwise, from directly or indirectly soliciting or accepting any new clients or new participants for commodity futures or commodity options trading or accepting any new deposits of funds from existing clients or acting in any capacity that requires registration with the Commission;
C.Enter an order directing that an accounting be made of all assets and liabilities of DBT and Dowler, whether in the name of Dowler, D&B, or DBT, or otherwise, together with all funds received and paid out by DBT and Dowler, in or in connection with all CTA and/or CPO activities, or commodity futures and options transactions, from the date of their receipt until the date of such accounting; together with an accounting of all salaries, commissions, fees, loans, and other disbursements of money and property of any kind from DBT and Dowler, in or in connection with any CTA and/or CPO activities, or commodity futures and options transactions from the date of the beginning of those operations and transactions to and including the date of such accounting, and that such accounting be accomplished under the supervision of such person as the Court may appoint or designate, or upon such terms and conditions as the Court may deem appropriate;
D.Enter an order directing the Defendants to disgorge to any officer appointed and designated by the Court all benefits received by the Defendants including, but not limited to, salaries, commissions, loans, fees and trading profits derived, directly or indirectly, from acts or practices which constitute violations of the Act, as described herein;
E.Enter an order of restitution directing the Defendants to make whole each and every client or participant whose funds were received or utilized by the Defendants in violation of the provisions of the Act, as described herein;
F.Enter an order rescinding all contracts entered into by the Defendants with any client or participant;
G.Enter an award of prejudgment interest on all monetary relief granted by the court;
H.Plaintiff Commission requests that the Court enter an order assessing against defendants a civil penalty not to exceed the higher of $100,000 or triple the monetary gain to each of them for each violation of the Act; and
I.Such other and further relief as this Court may deem necessary and appropriate;
___________________________
James Sanders (ID# A5500287)
Brett Little (ID# A5500288)
Attorneys for Plaintiff
Commodity Futures Trading Commission
One World Trade Center
Suite 3747
New York, NY 10048-0202
(212) 466-2027
(212) 466-3464 Facsimile
___________________________
Diane Leeds
Florida Bar # 232009
Attorney for Plaintiff
State of Florida
Department of Banking and Finance
111 S. Sapodilla Ave. Suite 211
W. Palm Beach, Florida 33401
Telephone (561) 837-5054
Facsimile (561) 837-5272
Dated:November 4, 1996