U.S. Commodity Futures Trading Comm'n v. Siegel
| Decision Date | 30 December 2014 |
| Docket Number | Civil No. 13-5755 (NLH/JS) |
| Parties | UNITED STATES COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. MICHAEL J. SIEGEL, et al., Defendants. |
| Court | U.S. District Court — District of New Jersey |
FINAL ORDER OF DEFAULT JUDGMENT AS TO DEFENDANTS MICHAEL J. SIEGEL, TOTE FUND LLC AND MJS CAPITAL MANAGEMENT LLC
On September 27, 2013, the Commodity Futures Trading Commission (hereafter, "Commission") filed a complaint against Defendants Michael J. Siegel, TOTE Fund LLC (hereafter, "TOTE") and MJS Capital Management LLC (hereafter, "MJS") seeking injunctive and other equitable relief, as well as the imposition of restitution and civil monetary penalties, for violations of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. §§ 1 et seq. (2002), and the Commission's Regulations promulgated thereunder, 17 C.F.R. § 1 et seq. (2004).
Defendants failed to respond to the complaint, and the Commission thus requested a Clerk's entry of default on January 31, 2014. Thereafter, Defendants having failed to seek to vacate the entry of default, the Commission filed the presentmotion for default judgment. The Court, having carefully considered the complaint, the allegations of which are well-pleaded and hereby taken as true, the Commission's motion for entry of default judgment, and the Declaration of Kara L. Mucha, Futures Trading Investigator for the Commission (hereafter, "Mucha Decl."), finds that there is good cause for the entry of this Final Order of Default Judgment as to Defendants Siegel, TOTE, and MJS and that there is no just reason for delay.
Therefore, on this 30th day of December, 2014, the Court:
GRANTS the Commission's motion [Doc. No. 11] for judgment of default as to Defendants Siegel, TOTE and MJS;
ORDERS the entry of the Findings of Fact and Conclusions of Law set forth below; and
GRANTS the Commission's requests for relief, as set forth below.
The Court hereby finds as follows:
A. The Parties
1. The Commission is an independent federal regulatory agency charged with the responsibility for administering and enforcing the provisions of the Act and the Regulations promulgated under it. (Compl. ¶ 12.)
2. Defendant TOTE was a Delaware limited liability company with its principal place of business in Los Angeles,
California. TOTE served as the commodity pool operator (hereafter, "CPO") for a commodity pool, the Monarch Futures Fund LLC (hereafter, "Monarch"), from August 2007 through at least October 2010. TOTE acted as the manager of Monarch. (Id. ¶¶ 13, 16, 18.)
3. Defendant MJS was a Delaware limited liability company with its principal place of business in Los Angeles, California. MJS served as the CPO for a commodity pool, the QEP Futures Fund LLC (hereafter, "QEP"), from August 2008 through at least October 2010. MJS acted as the manager of QEP. (Id. ¶¶ 14, 16, 20.)
4. Defendant Siegel is an individual who resides in Northfield, New Jersey. Siegel is the chief executive officer and sole principal of both TOTE and MJS, and was responsible for the day-to-day operations of TOTE and MJS. Siegel controlled the operations of TOTE including controlling its bank accounts, and distributing all promotional materials. (Id. ¶ 15.)
B. Siegel's Formation and Operation of the Monarch and QEP Pools
5. In August 2007, Siegel formed Monarch as a vehicle for trading futures contracts using an automated trading system he developed called MX2. In August 2008, Siegel formed QEP for the same purpose. (Id. ¶ 16.)
6. Siegel solicited pool participants for Monarch and QEP from among students and family members of students he taught to trade using his MX2 trading program, which computerized Siegel's trading philosophy. (Id. ¶ 17.)
7. Approximately ten individuals and one entity placed funds totaling $400,000 with Monarch. (Id. ¶ 19.)
8. TOTE filed a Notice of Claim Exemption from Commodity Pool Operator registration pursuant to Commission Regulation 4.13(a)(2), 17 C.F.R. § 4.13(a)(2) (2007), with reference to Monarch, which is listed as a commodity pool operated by TOTE.
9. Three individuals placed funds totaling approximately $975,000 with QEP. (Compl. ¶ 21.)
10. MJS filed a Notice of Claim Exemption from Commodity Pool Operator registration pursuant to Commission Regulation 4.13(a)(4), 17 C.F.R. § 4.13(a)(4) (2007), with reference to QEP, which is listed as a commodity pool operated by MJS. (Id. ¶ 20; see also Mucha Decl., Ex. B.)
11. Defendants used the mails or other instrumentalities of interstate commerce by, inter alia, using the United States Postal Service or other private or commercial interstate carriers to send payments to pool participants and wiring funds to and from pool accounts to Siegel's personal bank accounts. (Compl. ¶ 49.)
C. Siegel's Misappropriation of Monarch and QEP Pool Participant Funds
12. TOTE and MJS were each to receive an incentive fee of thirty-five percent (35%) of all net new trading profits each month, plus 0.2 percent of the net asset values of the pools as a monthly management fee and approximately two percent (2%) of the net asset value of the pools annually as administrative fees or operating expenses. (Compl. ¶ 23.)
13. Although Siegel's trading generated some profits in 2008, overall trading for both pools was unprofitable in 2009. (Id. ¶ 24.)
14. Because there were no profits for either pool in 2009, no incentive fees were due to Defendants. (Id. ¶ 25.)
15. From approximately January 2008 through October 2010, Siegel transferred from Monarch and TOTE to his personal bank accounts and a credit card account approximately $105,186 more than he and TOTE were purportedly due in incentive and other fees. (Id. ¶ 26.)
16. In September 2008, Siegel withdrew approximately $36,000 from QEP to pay non-pool expenses. In addition, from September 2008 through October 2010, Siegel transferred from QEP and MJS to his personal bank account and a credit card account approximately $50,503 more than he and MJS were due in incentive and other fees. Thus, in total, Siegel transferred from the QEPbank accounts and related account approximately $86,503 more than he was purportedly due in incentive and other fees to his personal bank accounts, a credit card account, and for the purpose of paying non-pool expenses. (Id. ¶ 27.)
17. Siegel transferred approximately $511,598 from bank accounts in the names of Monarch, QEP, and TOTE to his personal bank accounts, to a credit card account and to at least one individual. Siegel used some of these funds to pay personal expenses. (Id. ¶ 28.)
18. From September 2008 through October 2010, Siegel earned $319,909 in incentive, management and administrative fees based on his trading for Monarch and QEP. (Id.)
19. From August 2007 through October 2010, Defendants withdrew in total approximately $191,689 from Monarch and QEP for non-pool expenses and fees to which Defendants were not entitled. (Id.)
20. Siegel testified that he did not keep track of the incentive fees, and that he "was just drawing against the fees that [he] felt . . . were being earned and [he] assumed that the records and the brokerage office and the records at the bank ultimately would . . . balance out." (Mucha Decl., Ex. E at 88:8-14.) He further testified that his principle in determining the amount of incentive fees was "arbitrary," that he took whatever amount of money he felt he needed to paypersonal expenses and living expenses, and that he would thereafter calculate what amount of funds should have been withdrawn. (Id. at 89:2-14.)
21. Defendants Siegel and MJS failed to return funds to at least two pool participants who sought to withdraw their funds from QEP at or near the end of 2009. (Compl. ¶ 29.) Specifically, two QEP pool participants, Carl Coffman and Robert Lund, sought to withdraw their funds from QEP at or near the end of 2009. (Mucha Decl. ¶ 46.) Siegel and MJS failed to return approximately $71,998.60 to Coffman and approximately $32,685.87 to Lund. (Id.)
D. Defendant TOTE Failed to Provide Copies of Monthly Futures Commission Merchants Statements to the Monarch Pool Participants
22. From August 2007 through October 2010, TOTE, acting through Siegel, failed to provide pool participants with copies of the monthly statements received by TOTE from the futures commission merchants (hereafter, "FCM") who carried Monarch's trading accounts. (Compl. ¶ 30.)
23. Instead of providing monthly statements from the FCM, TOTE, acting through Siegel, provided only a few quarterly updates generally describing the status of Monarch's trading and sometimes included only a page or two of the statements received from the FCM. (Id. ¶ 32.)
E. Siegel Controlled TOTE and MJS and was their Agent
24. From August 2007 through October 2010, Siegel was a controlling person of TOTE and MJS. Siegel acted as the Chief Executive Officer and sole principal of both TOTE and MJS. Siegel was the sole person responsible for directing trades on behalf of TOTE and MJS and for the day-to-day operations of TOTE and MJS. (Id. ¶ 33.)
F. Recent Trading Communications
25. Since the filing of the complaint in this matter, the Commission has received inquiries from some individuals who had prior dealings with Siegel concerning his trading system or his mentoring. These individuals informed Commission staff that Siegel contact them recently to discuss participation in trading activity. (Mucha Decl. ¶ 49.)
1. This Court has jurisdiction over this action pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1, which authorizes the Commission to bring an action in the United States district court for injunctive relief against any person whenever it shall appear to the Commission that such 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 thereunder.
2. Venue properly lies with the Court pursuant...
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