Commodity Futures Trading Com'n v. Chilcott Portfolio Management, Inc., 82-2461

• Citation: 713 F.2d 1477
• Decision Date: 25 July 1983
• Docket Number: Nos. 82-2460,B,No. 82-2518,No. 82-2461,W,No. 82-2517,No. 82-2460,No. 82-2462,A,P,82-2461,82-2462,82-2518,82-2460,82-2517,s. 82-2460
• Parties: COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellee, v. CHILCOTT PORTFOLIO MANAGEMENT, INC.; Chilcott Commodities Corporation; Thomas D. Chilcott; and Thomas D. Chilcott, d/b/a Chilcott Futures Fund, Defendants, Shearson/American Express, Inc., Appellant inoettcher & Company, Appellant inlatte View Bluffs Developments, Inc., Wayne E. Collins, II, Kim Collins, Kent Collins, Mark Collins, Tyson Collins, Sean Collins, Kirk Collins, Richard W. Nyman, Mildred E. Nyman, 7-C's Investments, Inc., and Ned E. Collins, Appellants inJ. Forster, U. Forster, Acambaro Investment N.V., a Netherlands Antilles corporation, General Efficiency Establishment, a Principality of Liechtenstein corporation, Inwitax Ag, a Switzerland corporation, Midas Marketing & Investment Planning Ltd., a Cayman Islands corporation, Roger Wolf, Toni Stiffler, and C. Neven-Dumont, Appellants in, and Elsie Baader, et al., Appellants inppellants, James P. Johnson, Receiver for Chilcott Portfolio Management, Inc., Chilcott Commodities Corporation, and Chilcott Futures Fund, Appellee. to 82-2462, 82-2517 and 82-2518.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1477

713 F.2d 1477

COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellee, v. CHILCOTT PORTFOLIO MANAGEMENT, INC.; Chilcott Commodities Corporation; Thomas D. Chilcott; and Thomas D Chilcott, d/b/a Chilcott Futures Fund, Defendants Shearson/American Express, Inc., Appellant in No. 82-2461 Boettcher & Company, Appellant in No. 82-2462, Platte View Bluffs Developments, Inc., Wayne E. Collins, II, Kim Collins, Kent Collins, Mark Collins, Tyson Collins, Sean Collins, Kirk Collins, Richard W. Nyman, Mildred E. Nyman 7-C's Investments, Inc., and Ned E. Collins, Appellants in No. 82-2518, W.J. Forster, U. Forster, Acambaro Investment N.V., a Netherlands Antilles corporation, General Efficiency Establishment, a Principality of Liechtenstein corporation, Inwitax Ag, a Switzerland corporation, Midas Marketing & Investment Planning Ltd., a Cayman Islands corporation, Roger Wolf, Toni Stiffler, and C. Neven-Dumont, Appellants in No. 82-2460, and Elsie Baader, et al., Appellants in No. 82-2517, Appellants, James P. Johnson, Receiver for Chilcott Portfolio Management, Inc., Chilcott Commodities Corporation, and Chilcott Futures Fund, Appellee.

Nos. 82-2460 to 82-2462, 82-2517 and 82-2518.

United States Court of Appeals, Tenth Circuit.

July 25, 1983.

Kenneth M. Raisler, Acting Gen. Counsel and Nancy E. Yanofsky, Atty., Washington, D.C., for Commodity Futures Trading Com'n, plaintiff-appellee (oral argument waived by counsel for the Com'n, submitting their position on the briefs).

Kenneth C. Groves, Denver, Colo. (Rodney R. Patula and Elaine A. Menter of Pryor, Carney & Johnson, Englewood, Colo., and Arthur E. March, Jr., of March, March, Myatt, Korb & Carroll, Fort Collins, Colo., of counsel, were on the brief), for James P. Johnson, as Equity Receiver for the Chilcott Futures Fund, appellee.

Stephen W. Myers of Wentworth & Ludin, Phoenix, Ariz. (Edwin S. Kahn of Kelly, Haglund, Garnsey & Kahn, Denver, Colo. and David S. Shughart, II, Phoenix, Ariz., were also on the brief), for appellants Elsie Baader, et al., in No. 82-2517.

Howard C. Buschman, III, of Willkie Farr & Gallagher, New York City (John R. Dutt of Willkie Farr & Gallagher, New York City, and Gorsuch, Kirgis, Campbell, Walker & Grover, John S. Pfeiffer, Robert E. Warren, Jr., S. Lee Terry, Jr., and Mark E. Haynes, of Denver, Colo., were also on the brief), for appellant Shearson/American Exp., Inc. in No. 82-2461.

David M. Ebel of Davis, Graham & Stubbs, Denver, Colo. (Glen E. Keller, Jr., Michael John Gallagher of Davis, Graham & Stubbs, Denver, Colo., and John S. Lutz, Denver, Colo., and Perry L. Taylor, Jr., of Katten, Muchin, Zavis, Pearl & Galler, Chicago, Ill., of counsel, were also on the brief), for appellant Boettcher & Co. in No. 82-2462.

Charles E. Matheson of Fairfield & Woods, Denver, Colo., on the brief for appellants W.J. Forster, et al. in No. 82-2460.

Charles F. Brega and Stuart N. Bennett of Roath & Brega, Denver, Colo., were on the brief, for appellants Platte View Bluffs Developments, Inc., et al. in No. 82-2518.

Before HOLLOWAY, BARRETT and DOYLE, Circuit Judges.

HOLLOWAY, Circuit Judge.

These consolidated appeals have been taken from an order entered by the District Court which stayed all proceedings in seven other suits in that court and, in addition, stayed one action in the District Court of Arizona and one in an Arizona state court. All of the cases arose from the allegedly fraudulent commodities investment activities of Thomas D. Chilcott. A general overview of the factual background and procedural history of the cases is necessary for an understanding of the issues on appeal. The facts are more thoroughly detailed in the order of Chief Judge Finesilver of August 30, 1982, in this cause, granting the Receiver's motion for the stay.

I

The facts as essentially stated in the District Court's order, are as follows: Thomas D. Chilcott, individually and through various entities under his control (collectively referred to hereinafter as "Chilcott"), was engaged in commodities futures trading and was registered with the Commodities Futures Trading Commission ("CFTC") as both a commodities advisor and a commodities pool operator. An FBI investigation disclosed evidence that, from 1975 to 1981, Chilcott had attracted nearly $80 million in investments for a commodities pool from approximately 400 persons. The FBI estimated that in 1981 the commodities pool had only about $8 million in liquid assets, over one-half of which were held by Chilcott in his own name. The remainder was allegedly diverted by Chilcott into personal ventures or lost in speculative trading.

The CFTC and the FBI alleged that Chilcott had operated a "Ponzi" scheme. Reduced to the simplest terms, a "Ponzi" scheme attracts investors' monies by falsely reporting generous profits in past transactions and promising more lucrative results in the future. When losses are incurred instead of the predicted profits, the program must continue to attract more investments to keep afloat. The scheme includes paying attractive "profits" to some investors in order to sustain the appearance of success and increase the attractiveness of the plan to the unwary investors.

In 1981 the CFTC filed suit against Chilcott in the District Court of Colorado seeking preliminary and permanent injunctions and the appointment of an equity receiver pursuant to 7 U.S.C. § 13a-1 (hereinafter referred to as "the CFTC action"). The District Court granted the injunctions and appointed the appellee, James P. Johnson, as equity receiver. The Receiver was directed, inter alia, to take custody and control of all assets and records, to prevent further dissipation of assets, and to prosecute or defend all actions which he, with the court's approval, might deem necessary to protect or recover assets of Chilcott. Furthermore, in the same order the court prohibited any person from interfering with the Receiver or with the court's jurisdiction over the Chilcott defendants. Thus the court effectively prevented any creditor or defrauded investor from seeking damages directly against Chilcott.

Subsequently Chilcott consented to a permanent injunction, an equitable accounting, and disgorgement of all profits derived from the fraudulent activities. The CFTC action has continued as one concerned with the administration of the receivership estate, with the eventual goal of distributing the recoverable assets to creditors and defrauded investors. Accordingly, the Receiver, with the court's approval, brought a separate, ancillary action against Thomas D. Chilcott individually and against several persons who allegedly dealt with Chilcott in soliciting investors and investing assets of the pool. The defendants included Boettcher & Company ("Boettcher") and Shearson/American Express, Inc. ("Shearson"), appellants, as well as three other individuals and "one or more John and/or Jane Does, and/or Doe Entities." (This ancillary action will hereinafter be referred to as "the Receiver's action.") ¹

On June 4, 1982, the same day that the Receiver's action was filed, the Receiver moved in the CFTC action for an order staying all other suits against the defendants in the Receiver's action. Before ruling on the motion the District Court permitted all parties who would be affected by the requested stay to appear specially to support or oppose the motion. All of the appellants appeared below and opposed the stay. The granting of this stay is the order from which this interlocutory appeal has been taken.

The stay expires by its terms on August 1, 1983, unless extended by the Court. The Receiver has requested an extension. ² The stay affected some eight cases filed in federal court; seven of these are in the District of Colorado, and one is in the District of Arizona. In addition, one action filed in state court in Arizona has been stayed. All of the federal cases apparently were filed in 1982, most of them before the Receiver's action was filed. ³ All of these cases were brought by groups of investors against brokerage firms and individual brokers, including appellants Shearson and Boettcher. So far as we can determine from the record, two individual investors whose actions were stayed have not appealed from the order. Plaintiffs in the other six federal cases have appealed, appearing before this court in three groups: the Baader plaintiffs, the Forster plaintiffs, and the Collins plaintiffs. The Baader group are the plaintiffs in both the state and federal cases in Arizona. (All of these lawsuits will be referred to at times as "the investors' actions.")

The investors' actions are based on the role of the intermediary brokers and their employees in the operation of Chilcott's allegedly fraudulent scheme and generally allege that the investors were induced to invest with Chilcott through misrepresentations. In contrast, the Receiver's action, although naming some of the same defendants, is based on the dissipation of the pool's assets rather than on any culpable conduct in soliciting the investments. This distinction is crucial to the disposition of this matter and requires some further explication.

While the Receiver's complaint averred actions by Chilcott inducing the investors to invest in the pool, the Receiver's position is that this was done merely to allege the entire Ponzi scheme, but that the allegations of fradulent inducement do not mean that damages on the claims for the investors are sought by the Receiver; rather the Receiver says the actual damages sought by the Receiver are damages to the Fund itself (the pool) as a result of actions of Chilcott. (Receiver's Brief at 37-38). Moreover, the District Court clearly based the order on its conclusion that the Receiver had authority to prosecute only claims of the pool, based on the handling of the monies after their investment. Slip Opinion at 7.

We turn now to the rulings made by the District Court in its stay order, which is appealed.

II

The...