U.S. Commodity Futures Trading Comm'n v. Gramalegui, Civil Case No. 15-cv-02313-REB-GPG

• Decision Date: 26 September 2018
• Docket Number: Civil Case No. 15-cv-02313-REB-GPG
• Parties: U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. GREGORY L. GRAMALEGUI, Defendant.
• Court: U.S. District Court — District of Colorado

U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. GREGORY L. GRAMALEGUI, Defendant.

Civil Case No. 15-cv-02313-REB-GPG

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

September 26, 2018

Judge Robert E. Blackburn

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDERS

Blackburn, J.

This case came before me for a trial to the court on February 27 and 28, 2018. The plaintiff, the United States Commodity Futures Trading Commission (CFTC), brings claims against defendant, Gregory L. Gramalegui, for (1) fraud by a Commodity Trading Advisory pursuant to 7 U.S.C. §§ 6o(1)(A) & (B); (2) failure to disclose prominently information about customer testimonials and hypothetical trading results pursuant to 17 C.F.R. §§ 4.41(a)(3) and 4.41(b), respectively; (3) violations of the CFTC's July 2001 Order; and (4) making false statements to the CFTC pursuant to 7 U.S.C. § 9(2). (See Complaint for Injunctive Relief, Restitution, Civil Monetary Penalties, and Equitable Relief Under the Commodity Exchange Act [#1]¹ filed October 19, 2015; Final Pretrial Order [#324] filed February 7, 2018.) The parties appeared through their respective attorneys, and defendant Gregory L. Gramalegui appeared in person.

Having judicially noticed all relevant adjudicative facts in the file and record of this case pro tanto, considered the evidence educed at trial in its various forms, determined the credibility of the witnesses, weighed the evidence, considered all reasons stated, arguments advanced, and the authorities cited by the parties in both written and oral form, and being otherwise sufficiently advised, I enter the following findings of fact (which have been established by a preponderance of the evidence), conclusions of law, and orders.²

I. FINDINGS OF FACT

I have jurisdiction over the parties to this action pursuant to 7 U.S.C. § 13a-1 (violations of the Commodity Exchange Act).

Venue is proper in the District Court for the District of Colorado pursuant to 7 U.S.C. § 13a-1(e).

Plaintiff, the U.S. Commodity Futures Trading Commission (CFTC) is the federal regulatory agency charged with administering and enforcing the Commodity Exchange Act ("CEA" or "the Act") and its regulations.

Defendant Gregory L. Gramalegui is a resident of Vail, Colorado. At all times relevant to this litigation, he marketed and operated an online trading room called Emini Trading Systems ("ETS").

I accept as established the following facts, to which the parties stipulated in the Final Pretrial Order, Exhibit A [#324-1], filed February 7, 2018:

1. The "Emini" in the name ETS refers to the E-mini S&P 500 futures contract, which is traded on the Chicago Mercantile Exchange ("CME") and has the ticker symbol "ES" (hereinafter, "ES" or "ES contract"). As a futures contract, the E-mini S&P 500 represents an agreement to buy or sell the underlying S&P 500 stock index at a specified future date. However, the ES contract is cash settled, which means that no delivery of the stocks that make up the index takes place. A trader engaged in day trading the ES contract places a directional "bet" (i.e., enters an order based on the expectation that the contract price will rise or fall) and then exits the trade with either a realized profit or loss.

2. Defendant was born on November 26, 1960, and is 57 years old.

3. Defendant has at all times been the sole owner and operator of the ETS Website.

4. ETS was not a brick-and-mortar business; it was operated entirely through a website at http://www.eminitradingschool.com.

5. Defendant developed the ETS products and services himself.

6. On December 2, 2014, defendant produced to the CFTC a copy of the Website in native web format saved in a .zip file (Tr. Exh. 48).

7. On January 14, 2015, CFTC counsel sent Robert Mackovski an email requesting a telephone call at his "earliest convenience." When CFTC counsel and Mr. Mackovski spoke, counsel for the CFTC disclosed that a subpoena for documents and testimony was forthcoming and requested that defendant accept service via email. Mr. Mackovski stated that hewould relay the request to defendant and left a voicemail on January 16^th confirming defendant's consent to email service.

8. At the deposition, which took place in Chicago on April 21, 2015, defendant was represented by Robert Mackovski and Gary Sinclair.

9. Defendant did not provide an accounting of revenues or records of his sales.

10. Defendant maintained a checking account at First Bank of Vail in the name of Trader 4x LLC ("Trader 4x Account").

11. The majority of deposits into the Trader 4x Account came in the form of credit card transfers, without information identifying the associated customer.

12. From June 22, 2011, through October 29, 2014, ETS revenues were also deposited into defendant's PayPal account ending in -9591. These revenues totaled $4,493.97.

13. Defendant held or controlled three accounts with two futures commission merchants, AMP Global and Dorman Trading, LLC, during the period of March 2010 through October 2015. Defendant did not hold, control, or execute trades in any other futures trading accounts during that time.

14. As of April 8, 2015, the ETS Website was live.

15. The text of the disclosures in the scrollbox on the bottom of webpages of the ETS website which the CFTC's preserved on October 7, 2014 (Tr. Exh. 638) read as follows:

Risk Disclaimer ~ Risk Disclosure

*RULE 4.41

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. SIMULATED RESULTS DO NOT NECESSARILY IMPLY FUTURE PROFITS. THE RISK OF LOSS IN TRADING FOREX OR COMMODITY CONTRACTS CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL

OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

Any and all systems, methodology, or pattern discussed within or in any of the product materials are for illustrative purposes only and are not to be construed as specific advisory recommendations. This material and any opinions are for education purposes only. Testimonials are not indicative of future performance results or any success and my not be representative or indicative of the experiences of other clients or your own experience. EminiTradingSchool and Trader4x LLC does not verify or endorse any claims or opinions provided by the above individuals.

Important Notice - Risk Disclaimer:

Futures & Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any emini trading system or methodology is not necessarily indicative of future results.

16. Neither "trading system" nor "advisory service" is defined in the CEA or the regulations promulgated thereunder.

17. On October 20, 2015, CFTC Division of Enforcement Staff carried out the court's Statutory Restraining Order by copying a hard drive at defendant's residence in Vail, Colorado.

18. On October 20, 2015, CFTC Division of Enforcement Staff carried out the court's Statutory Restraining Order by copying some documents and handwritten notes of defendant at defendant's residence in Vail, Colorado.

19. A "system" can consist of a collection of products or a package.

20. Defendant's FirstBank account ending in number 6518 is titled in the name of Trader4X, LLC.

A. The 2001 Order

Defendant is self-taught in the business of trading of futures contracts and, in particular, in the use of Market Profile, a method for viewing, organizing, and charting market data which was developed in the 1980s by a trader named J. Peter Steidlmayer.

Defendant started his first futures trading business in 1997 or 1998.

In 2001, the CFTC brought charges against defendant for fraudulent marketing of a software futures trading program called the "Trend Reflection Trading System." The CFTC charged that

[i]n a series of magazine advertisements, Gramalegui made false claims that his mother traded the Trend System and implied that her trading results were positive. As such, Gramalegui's solicitations to actual and prospective customers of the Trend System

...