June 18, 2019

U.S. District Court for the Northern District of California Imposes Permanent Trading Ban against Defendant in CFTC False Statements and Solicitation Fraud Action

U.S. Court of Appeals for the Ninth Circuit Previously Affirmed Summary Judgment against Defendant

Washington, DC – The Commodity Futures Trading Commission (CFTC) today announced that the U.S. District Court for the Northern District of California (District Court) entered a Supplemental Order (Order) against defendant James D. Crombie (Crombie) permanently banning him from trading on CFTC-regulated markets for his own personal account and from having such trades made on his behalf.

Procedural History

The Order, entered on remand on June 5, 2019, stems from a CFTC complaint filed in September 2011 (see CFTC Complaint and Press Release 6112-11) charging Crombie with making false statements and providing false documents to the National Futures Association (NFA), as well as fraudulently soliciting funds from his former company, Paron Capital Management, LLC.  In a July 2013 Order (Summary Judgment Order), the District Court granted the CFTC’s motion for summary judgment on each count in the CFTC’s Amended Complaint and subsequently granted the CFTC’s motion for permanent injunction, restitution, and imposition of civil monetary penalties against Crombie in a November 2013 Judgment and Order (Judgment and Order Granting Relief) (see CFTC Press Release 6784-13).  The Judgment and Order Granting Relief imposed a permanent injunction against Crombie, which included personal trading ban provisions enjoining him from engaging in any personal trading on CFTC-regulated markets for his own personal account and from having such trades made on his behalf. 

U.S. Court of Appeals for the Ninth Circuit Affirmed Summary Judgment against Crombie

Crombie appealed the Summary Judgment Order and the Judgment and Order Granting Relief.  On February 1, 2019, the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) affirmed the District Court’s Summary Judgment findings and imposition of restitution against Crombie (see CFTC v. Crombie, 914 F.3d 1208 (9th Cir. 2019)).  The Ninth Circuit found that the District Court incorrectly applied the civil standard of “willfully” instead of the criminal standard for purposes of Section 9(a)(4) of the Commodity Exchange Act, 7 U.S.C. § 13(a)(4) (2012), but nonetheless affirmed the grant of summary judgment on this charge because it found that Crombie had acted willfully even under the criminal standard.  The Ninth Circuit also affirmed the grant of summary judgment on the CFTC’s claims that Crombie violated Sections 4b and 4o of the Act, 7 U.S.C. §§ 6b, 6o (2012).  Lastly, the Ninth Circuit affirmed all but two provisions of the permanent injunction—those providing for a personal trading ban against Crombie—and remanded those provisions of the injunction to the District Court for further explanation.

U.S. District Court for the Northern District of California Entered Personal Trading Ban against Defendant on Remand

On remand, the District Court entered an Order imposing a permanent personal trading ban against Crombie as requested by the CFTC.  The District Court found that future violations by Crombie are likely given his past egregious and willful fraudulent conduct, and that absent a personal trading ban, Crombie could still make false statements and create falsified documents to solicit funds and utilize his personal accounts for such purposes.  The District Court specifically rejected Crombie’s arguments that (1) a personal trading ban was overly broad because there was no finding of misappropriation of client funds for personal use in this action; and (2) a personal trading ban was unnecessary given that the NFA had previously imposed a lifetime ban on membership against Crombie.  The District Court ruled that a personal trading ban was appropriate in order to prevent future fraud by Crombie and to protect market integrity.  

CFTC Division of Enforcement staff members responsible for this case are Danielle Karst, A. Daniel Ullman II, and Paul G. Hayeck.  The Ninth Circuit appeal was argued by Martin White of the CFTC’s Office of the General Counsel, and the underlying case was brought by Paul G. Hayeck, John Einstman, Joan Manley, Danielle Karst, and Dmitriy Vilenskiy, as well as CFTC alumnus Jon Robell (now with the U.S. Department of Justice).