Commodity Futures Trading Com'n v. Rosenberg

• Decision Date: 01 March 2000
• Docket Number: Civil Action No. 97-2927.
• Citation: 85 F.Supp.2d 424
• Parties: COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. MURRAY IRA ROSENBERG, d/b/a Pro Broker Services, Inc. (a/k/a Pro-Broker Service, Inc.), and Pro-Broker Service, Inc., Defendants.
• Court: New Jersey Supreme Court

85 F.Supp.2d 424

COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. MURRAY IRA ROSENBERG, d/b/a Pro Broker Services, Inc. (a/k/a Pro-Broker Service, Inc.), and Pro-Broker Service, Inc., Defendants.

Civil Action No. 97-2927.

United States District Court, D. New Jersey.

March 1, 2000.

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Robert J. Cleary, United States Attorney, Paul A. Blaine, Assistant United States Attorney, Camden, NJ, Matthew Elkan, Karen Kenmotsu, Commodity Futures Trading Commission, Washington DC, for Plaintiff, Commodity Futures Trading Commission.

Murray Ira Rosenberg, Mullica Hill, NJ, pro se.

Gary W. Stuhltrager, Deptford, NJ, for Defendant, Pro-Broker Service, Inc.

OPINION

ORLOFSKY, District Judge.

This case requires this Court to enter the realm of commodity futures and options on futures trading as regulated by the provisions of the Commodities Exchange Act, 7 U.S.C. §§ 1 et seq. (1999)("CEA"). Plaintiff, Commodity Futures Trading Commission ("CFTC"), brought this civil enforcement action against Defendant Murray I. Rosenberg ("Rosenberg") for his alleged violations of the CEA, and the regulations which have been promulgated to enforce it, 17 C.F.R. §§ 1.1 et seq. (1999). Simply stated, the CFTC alleges that Rosenberg offered to introduce James Stollenwerck ("Stollenwerck") to a registered trading firm so that Stollenwerck could open a trading account, but instead, used Stollenwerck's money to open an account in Rosenberg's own name and then pilfered the money for payment of his personal expenses. See Joint Final Pre-trial Order ("JFPO") at 3-7. The CFTC alleges that Rosenberg and his corporation, Pro Broker Service, Inc. ("Pro Broker"): (1) committed futures and options fraud, in violation of 7 U.S.C. §§ 6b(a)(i)-(iii), 6c(b) and 17 C.F.R. § 33.10 (1999); (2) unlawfully converted Stollenwerck's money in violation of 7 U.S.C. § 13(a)(1); (3) acted as a futures commission merchant ("FCM") or introducing broker ("IB") without registering as such and commingled funds in violation of 7 U.S.C. §§ 6d(1)-(2) and 17 C.F.R. § 33.3(b); and (4) failed to execute commodity option orders in violation of 17 C.F.R. § 33.9(c) and failed to issue written monthly account and confirmation statements, in violation of 17 C.F.R. § 1.33(a)(b). See id. at 7-9.

Based upon my findings of fact and conclusions of law as set forth below,¹ I find that Rosenberg and Pro Broker have violated the Commodities Exchange Act and the regulations promulgated thereunder. Accordingly, I shall permanently enjoin Rosenberg and Pro Broker from further violations of the CEA as well as from trading commodity futures or options on futures on behalf of any other person or entity, including, but not limited to, any association, partnership, corporation, or trust. Furthermore, I shall order ancillary relief in the form of restitution.

I. BACKGROUND AND PRELIMINARY EVIDENTIARY ISSUES

A. The Nature of Commodity Futures and Options on Futures

This case is brought pursuant to the Commodities Exchange Act ("CEA"), 7 U.S.C. §§ 1 et seq., a comprehensive statutory scheme governing the trading of commodity futures and options on futures. See id. For the sake of clarity, this Court shall set forth a brief description of commodity trading.

Commodity futures trading involves contracts of sale for a specific quantity of a commodity² at a set price to be delivered at some future date. See 7 U.S.C. § 2(i) (1999); see also Commodity Futures Trading Comm'n v. Co Petro Mktg. Group, Inc., 680 F.2d 573, 579-80 (9th Cir.1982); Cargill, Inc. v. Hardin, 452 F.2d 1154, 1156 (8th Cir.1971). Options trading involves contracts under which the holder has the right to purchase a commodity futures contract at a specified price. See Harold S. Bloomenthal, 3 Securities and Federal Corporate Law § 2.92 (1999).

In Commodity Futures Trading Comm'n v. Standard Forex, Inc., No. CV-93-0088, 1996 WL 435440 (E.D.N.Y. July 25, 1996), the Court described futures contracts in the following way:

A holder of futures contracts discharges his or her legal obligations under the contract by making or accepting delivery of the underlying commodity or by engaging in an opposite (offsetting) transaction-that is, purchasers and seller may extinguish their respective obligations to accept and deliver the subject commodity by forming offsetting contracts prior to the delivery date; the price differential between the opposite contracts determines the investor's profits or loss. Investors in futures contracts rarely actually transfer ownership and possession of the underlying commodity. Usually, people invest in futures contracts for the purpose of assuming (speculating) or shifting (hedging) the risk of price change in commodities: neither do they expect actual delivery, nor does it occur.

Id. at *1 (internal citations omitted). The CEA was enacted to regulate the futures and options on futures market, and governs this enforcement action.

B. Evidentiary Issues

Before the trial, Rosenberg filed a rash of motions in limine, seeking, among other things, to exclude from evidence tape recorded conversations between Rosenberg and Stollenwerck as well as the testimony of both Raymond Kent Driskill ("K.Driskill") and Carl Raymond Driskill ("C.Driskill"). See JFPO at 53-60; Notice of "Cross Motion in limine To Exclude Witness and Tape Recordings" at 1 (filed July 1, 1998); Notice of "Cross Motion in limine To Exclude Witnesses" at 1 (filed July 1, 1998).³ On May 25, 1999, I filed an unpublished Opinion in which I excluded the tape recorded conversations ("Tapes") as inadmissible settlement discussions, pursuant to Federal Rule of Evidence 408, and also the testimony of the Driskills on the ground that the in limine motion was premature. See CFTC v. Rosenberg, et al., No. 97-2927 at 16, 18 (D.N.J. filed May 25, 1999)("Rosenberg I").

This Court then conducted a three-day bench trial in this matter, from May 25, 1999 until May 27, 1999. In the course of the trial, the CFTC moved for reargument of my decision to exclude the Tapes and Rosenberg renewed his objection to the admission of the Driskills' testimony. Considering Rosenberg's status as a pro se defendant and the nature of a non-jury trial, I provisionally admitted into evidence, subject to further review based upon the post-trial submissions of the parties: (1) the Tapes (Pl.'s Ex. 2) and the transcript of the Tapes (Pl.'s Ex. 3);⁴ and (2) the trial testimony of C. Driskill and the de bene esse deposition of K. Driskill (Pl.'s Ex. 366).⁵ Following the conclusion of the trial, on June 21, 1999, the parties submitted post-trial memoranda on the admissibility of both the Tapes and the Driskills' testimony. See Pl.'s Post-Trial Submission for Reconsideration of Exclusion of Audiotapes (filed June 21, 1999); Pl.'s Post-Trial Submission Regarding Testimony of the Driskills (filed June 21, 1999); Def.'s Letter Br. in lieu of More Formal Post Trial Submission ("Def.'s Br.")(filed June 21, 1999). I shall now address the admissibility of the Tapes and the corresponding transcript, the court testimony of C. Driskill and the de bene esse deposition testimony of K. Driskill (Pl.'s Ex. 366).

1. The Tapes and Corresponding Transcript

In its original opposition to Rosenberg's pre-trial motion in limine to exclude the Tapes, the CFTC argued, among other things, that the conversations Rosenberg had with Stollenwerck's lawyer, Gary Sinclair, Esq. ("Sinclair"), and the tape recorded conversations between Rosenberg and Stollenwerck did not implicate Federal Rule of Evidence 408⁶ because of the absence of a disputed claim. See Pl.'s Opp. to Def.'s Mot. to Quash at 4. In the alternative, the CFTC contended that the de bene esse deposition of Sinclair and the Tapes were admissible because they would be offered for reasons other than to prove liability or damages, a well-established exception to Rule 408. See id. at 5. Specifically, the CFTC argued that:

[It] is offering [this evidence] to show that Mr. Rosenberg's statements ... were part of an ongoing fraud, in that Mr. Rosenberg lied ... in an attempt to lull ... Mr. Stollenwerck into a false sense of security that Mr. Stollenwerck's money would be returned without resort to [the] legal process and without involving the authorities.

See id. at 6; see also Rosenberg I, at *14.

In my May 25, 1999 opinion, I assumed that the conversations between Rosenberg and Stollenwerck were settlement discussions and rejected the argument that the Tapes were admissible under the exception to Rule 408. See Rosenberg I, at *14-16. The following excerpt is illustrative:

Rule 408 [ ] is inapplicable when the claim is based upon some wrong that was committed in the course of the settlement discussions; e.g., libel[,] assault, breach of contract. Carney [v. American Univ.], 151 F.3d at 1095-96 (holding that Rule 408 is inapplicable in such cases) (quoting 23 Charles Alan Wright & Kenneth W. Graham, Jr., Federal Practice & Procedure § 5314, at 282 (1980)). Evidence of settlement discussions is admissible to support a claim of retaliation where the underlying claim is race discrimination, see Carney, 151 F.3d at 1095, or to impose Rule 11 sanctions based on conduct during settlement discussions, see Eisenberg v. University of New Mexico, 936 F.2d 1131, 1134 (10th Cir.1991), or even to show that the defendant prevented the plaintiff from mitigating damages. See Urico v. Parnell Oil Co., 708 F.2d 852, 854-55 (1st Cir.1983). Such evidence, however, is not admissible as proof of an ongoing scheme, because an "ongoing" scheme is not a "separate wrong." See Carney, 151 F.3d at 1096.

In the JFPO, the CFTC did not allege that Mr. Rosenberg performed "an illegal act ... during the course of settlement negotiations." See United States v. J.R. LaPointe & Sons, Inc., 950 F.Supp. 21, 23 (D.Me.1996); JFPO at 3-7. Instead, the CFTC is attempting to use the...