U.S. Commodities Futures Trading Comm'n v. Am. Bullion Exch. Abex Corp.
| Decision Date | 07 August 2014 |
| Docket Number | Case No.: SACV 10-01876 DOC(RNBx) |
| Court | U.S. District Court — Central District of California |
| Parties | U.S. COMMODITIES FUTURES TRADING COMMISSION, Plaintiff, v. AMERICAN BULLION EXCHANGE ABEX CORP., ET AL., Defendants. |
Before the Court is the motion for summary judgment (Dkt. 257) filed by Plaintiff United States Commodity Futures Trading Commission ("CFTC") against Defendant Ryan A. Nassbridges and Relief Defendants. After considering the moving and opposing papers, the entirety of the record, and oral argument, the Court GRANTS IN PART and DENIES IN PART the motion.
The CFTC brought the instant lawsuit against defendants Ryan A. Nassbridges, American Bullion Exchange ABEX Corp. ("ABEX Corp."), and American Bullion Exchange, LLC ("ABEX LLC") (together, "ABEX" or "ABEX entities"). See Compl. at 1-2. The CFTC also named Relief Defendants American Preferred Commodities APC Corp. ("APC"), R.E. Lloyd Commodities Group Holding LLC ("R.E. Lloyd"), and Bita J. Nassbridges, wife of Ryan A. Nassbridges. Id.
The CFTC alleges that Mr. Nassbridges, as President and CEO of ABEX Corp. and president of ABEX LLC, ran both companies and exercised control over their regular operations. The CFTC claims that Mr. Nassbridges held the companies out as coin and bullion trading businesses, but then commingled investor funds and invested a substantial portion of those funds in high-risk options and futures contracts instead. The CFTC further alleges that Mr. Nassbridges sustained an overall net trading loss of roughly $2.2 million in investor funds through his futures and options trading. Mr. Nassbridges also allegedly misappropriated client funds by funneling roughly $2.5 million of those funds into his and his wife's personal bank accounts and the bank accounts of relief defendants R.E. Lloyd and APC.
The CFTC filed the instant complaint on December 8, 2010. See Compl. (Dkt. 1). The CFTC brings claims for violations of the Commodity Exchange Act and associated regulations as follows: (1) violation of 7 U.S.C. §§ 6b(a)(2)(i) and (iii): fraud by solicitation, misappropriation and failure to disclose trading and losses (futures) (count 1); (2) violation of 7 U.S.C. § 6c(b) and regulations 33.10(a) and (c), 17 C.F.R. §§ 133.10(a) and (c): fraud by fraudulent solicitation, misappropriation and failure to disclose trading and losses (options) (count 2); (3) violation of section 7 U.S.C. § 6o(1), fraud as a CPO and associated person (count 3); (4) violation of 7 U.S.C. § 6(m)(l) and 17 U.S.C. § 13c(b), violation of 7 U.S.C. 6k2, failure to register as an associated person and a commodity pool operator (count 4); (5) violation of Regulation 4.20(a)(1), 17 C.F.R. § 4.20(a)(1), CPO accepting pool funds other than in the name of the pool and failure to treat the pool as a separate legal entity (count 5); (6) violation of Regulation 4.21, 17 C.F.R. § 4.21(a)(1), failure to provide pool disclosure documents (count 6); (7) violation of Regulation 4.22, 17 C.F.R. § 4.22, failure to provide monthly account statements(count 7); and (8) disgorgement of funds from the relief defendants (count 8). See generally Compl.
The CFTC presents the testimony of two investors: Henry Gindt and the Murrays. Mr. Gindt testified in his deposition that he invested in ABEX in September 2007 after speaking by phone with ABEX employee Curtis Lund and Mr. Nassbridges. Gindt Dep. at 5. Mr. Gindt invested $1.4 million with ABEX on the understanding that Mr. Nassbridges was investing in gold bullion, platinum, and palladium, and that Mr. Nassbridges had a seat on the Commodities Exchange. Id. at 10. Mr. Gindt testified that Mr. Nassbridges discussed gold bullion investments with him and did not mention futures or options. Id. at 6-7, 12-13. Mr. Gindt testified that he would not have invested with ABEX if he had known the investment would be in futures or options. Id. at 7. Mr. Gindt received statements from ABEX stating that trades were being conducted in bullion and coins. Id. at 12. Mr. Nassbridges told Mr. Gindt that Mr. Gindt's investment funds would be maintained in a segregated account, that the investments were insured by Lloyd's of London, and that Mr. Nassbridges would use stop-loss orders to protect investors from any loss of principle. Id. at 13.
Arla Jeanne Murray testified in her deposition that she and her husband spoke to Curtis Lund by phone and received two ABEX brochures in the mail. Murray Dep. at 9. In September 2007, Ms. Murray and her husband spoke over the phone with Mr. Nassbridges. Mr. Nassbridges represented to the Murrays:
That he was the president of ABEX and an experienced gold bullion dealer; he was registered with the Chicago Board of Trade and the National Futures Association; ABEX would use our money to buy gold bullion at spot prices; our money would be separately accounted for and segregated from other customers' money; our money would be kept in the United States; our money would not be commingled with other persons or accounts; our money would not be used to secure or extend credit of any customer or person; we could pay in full and take immediate physical delivery of the gold bullion or store our metal with HSBCBank or an independent depository; we could finance our purchase through ABEX with a down payment . . . [A]nd ABEX's investments were insured against loss by Lloyd's of London.
Id. at 11-12. Ms. Murray understood Mr. Nassbridges's representations to mean that "the Nassbridges through ABEX would purchase and store gold bullion for our account." Id. at 13. The Murrays ordered gold bullion bars and coins through ABEX, and sold coins as well. ABEX sent the Murrays month-end statements from November 2007 until April 2008 that showed balances in quantities of gold bullion bars and the "current gross equity" of the account at the time. See id. Exs. 9-14. ABEX did not provide any account statements showing the futures and options trading of the funds. Id. at 22. The Murrays paid ABEX a total of $1,531,523. Id. at 23. The Murrays filed an adversary proceeding in the Nassbridges' 2008 bankruptcy proceeding and won a $1.5 million judgment after the bankruptcy court found that Mr. Nassbridges had defrauded them. Id. at 28.
Curtis Lund worked for ABEX as an account representative. Lund Dep. (Mot. Ex. D) at 11. Mr. Lund testified that Mr. Nassbridges controlled ABEX's marketing materials and solicitation practices, including writing the handbook sent to investors. Mr. Lund testified that the content of the ABEX solicitation materials included representations that: (1) ABEX would invest customers' funds in bullion and coins; (2) customers' funds would be maintained in segregated accounts; (3) ABEX's investments were insured against loss by Lloyd's of London; (4) ABEX would use stop-loss orders to protect customers from any loss of their principal; and (5) Mr. Nassbridges was registered with the National Futures Association. Id. at 17-18. In soliciting customers, ABEX disclosed neither that customer funds would be used to trade commodity futures and options, nor the risks associated with the trading. Id. at 19-20. Mr. Nassbridges conducted all trades, and Mr. Lund and the other employees were not allowed to observe or listen in on the trade calls with the exchanges. Id. at 19.
Although he did not represent to customers that ABEX invested funds in futures and options, Mr. Nassbridges opened and maintained five commodity futures and options trading accounts in his name, his wife's name, or ABEX Corp.'s name at two Futures Commission Merchants ("FCMs"). Bougas Decl. ¶¶ 2, 48-55, 66. Ryan Nassbridges held at least three accounts in his name at MF Global and Vision: a Vision account ending -6623 opened in July 2006, see id. Exs. 5-A, 5-B, an MF Global account ending in -6623 opened in December 20061, and a Vision account ending -0855, see id. Exs. 7-A, 7-B. MF Global also had at least one trading account open in Bita Nassbridges's name, opened in October 2007, ending -8501. See id. Exs. 8-A, 8-B. Mr. Nassbridges also opened an account for ABEX with MF Global in October 2007, account number ending -8506. See id. Exs. 9-A, 9-B. All of these accounts traded futures or options between August 2006 and March 2008. See id. Exs. 5-B, 6-B, 7-B, 8-B, 9-B; Castellano Dep. at 26-28.
Employees of the FCMs testified that the accounts at issue traded only futures and options, and that Mr. Nassbridges seemed entirely aware of that. First, all of the trading employees spoke to Mr. Nassbridges about futures and trading in his accounts. Mr. Castellano, a broker for MF Global, spoke to Mr. Nassbridges about placing orders and margin calls on the various accounts at MF Global. Castellano Dep. at 12, 39. Josh Lewis discussed margin calls with Mr. Nassbridges, and how various global issues might affect the price of gold. Lewis Dep. at 23. Mr. Lewis testified that these conversations only addressed futures trading and futures markets, as the conversations dealt with COMEX and the futures exchange in Chicago. Id. at 23. Joseph Texido, a Senior Vice President with MF Global, was the primary contact at MF Global for the accounts opened for Mr. Nassbridges, Bita Nassbridges, and ABEX. Texido Dep. at 18-19. Mr. Texido believed Mr. Nassbridges was fully aware that he was trading futures, ashe referred to the trades as "contracts", and did not use language that would have made any sense for the buying and selling of physical bullion (which would require buying actual quantities, not contracts). Id. at 24.
Trading employees also stated that the account statements for Mr. Nassbridges's various accounts showed futures and options trading, not spot metals trading. Castellano Dep. at 27, 40, 45-46, 74; Texido Dep. at 49. The trading employees testified that Mr. Nassbridges had full control of all of these accounts, and...
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