Commodity Futures Trading Commission v. Financial Tree ( 2022 )

Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 1 of 50 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 COMMODITY FUTURES TRADING No. 2:20-cv-01184 TLN AC COMMISSION, 12 Plaintiff, 13 FINDINGS AND RECOMMENDATIONS v. 14 FINANCIAL TREE dba FINANCIAL 15 TREE TRUST, et al., 16 Defendants. 17 18 This matter is before the Court on plaintiff Commodity Futures Trading Commission’s 19 (“CFTC” or “Commission”) Motion for Issuance of an Order for Final Judgment of Default, 20 Permanent Injunction, Civil Monetary Penalties, and Other Statutory and Equitable Relief 21 (“Motion”) against Defendants Financial Tree (“Financial Tree”), Financial Solution Group 22 (“Financial Solution”), New Money Advisors, LLC (“New Money”), The Law Firm of John 23 Glenn, P.C. (“Glenn Law Firm”), John D. Black (“Black”), Christopher Mancuso (“Mancuso”), 24 Joseph Tufo (“Tufo”), and John P. Glenn (“Glenn,” and together with the Glenn Law Firm, the 25 “Glenn Defendants”) (collectively, “Defendants”); and Relief Defendants Suisse Group (USA) 26 LLC (“Suisse Group”), JMC Industries LLC (“JMC”), Landes Capital Management, LLC 27 (“Landes”), Kingdom Trust LLC (“Kingdom”), Herbert Caswell (“Caswell”), Anne Mancuso 28 (“Anne Mancuso”), and Tyler Mancuso (“Tyler Mancuso”) (collectively, “Relief Defendants,” 1 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 2 of 50 1 and together with Defendants, the “Parties”). Plaintiff asserts that other than the Black and the 2 Glenn Defendants, who appeared in this action solely to litigate bankruptcy stay and/or default- 3 related issues but ultimately defaulted (ECF Nos. 111, 122) the defendants have each failed to 4 appear. 5 Defendants John Glenn and the Law Firm from John Glenn P.C. filed a notice of intent to 6 default (ECF No. 109) and filed a statement of non-opposition to the pending motion (ECF No. 7 127). Two non-parties, acting in pro se, filed a “notice” in response to the motion for default 8 judgment, purportedly on behalf of defendant Kingdom Trust LLC. ECF No. 128. 9 The undersigned issues findings and recommendations on this motion pursuant to Local 10 Rule 302(c)(19). 11 I. FACTUAL AND PROCEDURAL BACKGROUND 12 A. Procedural History 13 On June 15, 2020, the CFTC filed a Complaint charging the Defendants with violating 14 Sections 4b(a)(2)(A)-(C), 4c(b), 4k(2), 4m(1), 4o(1)(A)-(B), and 2(c)(2)(C)(iii)(I)(cc) of the 15 Commodity Exchange Act (“Act”), 7 U.S.C. §§ 6b(a)(2)(A)-(C), 6c(b), 6k(2), 6m(1), 6o(1)(A)- 16 (B), and 2(c)(2)(C)(iii)(I)(cc) (2018), and Commission Regulations (“Regulations”) 4.20(a)(1), 17 (b)-(c), 4.21, 4.22, 5.2(b)(1)-(3), 5.3(a)(2), and 32.4, 17 C.F.R. §§ 4.20(a)(1), (b)-(c), 4.21, 4.22, 18 5.2(b)(1)-(3), 5.3(a)(2), and 32.4 (2021). ECF No. 1. In addition, the Complaint alleges that 19 Relief Defendants, who were not charged with violating the Act or Regulations, received funds 20 and assets from Defendants, to which Relief Defendants held no legitimate interest or entitlement 21 and which were derived from Defendants’ fraudulent and violative acts. Id. On July 2, 2020, the 22 Court entered a Statutory Restraining Order (“SRO”) against the Parties that, among other things, 23 authorized the freezing of assets held in the name of or under the control or management of the 24 Parties. ECF No. 9. 25 On July 8, 2020 and, in the case of Mancuso, July 12, 2020, the CFTC properly effected 26 service of the Summons and Complaint by personal service by private process server pursuant to 27 Rule 4 of the Federal Rules of Civil Procedure (“FRCP”) on Black (and, through Black, on 28 Black’s entities Financial Tree, Financial Solution, and New Money), Mancuso, Tufo, Landes 2 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 3 of 50 1 (through its principal, Justin Smith), Kingdom (through its principals, Michael and Ruby Handler 2 Jacobs), Anne Mancuso, and Tyler Mancuso. ECF Nos. 13-22. On July 22, 2020, the CFTC 3 properly effected service of the Summons and Complaint on JMC and Suisse Group. On July 23, 4 2020, following repeated attempts to serve Caswell personally, the CFTC properly effected 5 service of the Summons and Complaint on Caswell via substitute service on Caswell’s mother at 6 Caswell’s usual place of abode and last known mailing address. ECF No. 57 at 2 ¶¶ 2-3 & nn.1-2 7 (detailing completed service). 8 Other than Black and the Glenn Defendants—who appeared in this action solely to litigate 9 stay- and/or default-related issues but ultimately defaulted—the Parties have failed to appear. All 10 Parties failed to file a responsive pleading or otherwise defend in this action, and the clerk has 11 entered default against all Parties pursuant to FRCP 55(a). ECF Nos. 49-50, 58, 111, 122. The 12 CFTC has moved this Court to grant final judgment by default against Defendants, order 13 permanent injunctive relief, impose restitution obligations, and impose civil monetary penalties. 14 The CFTC has further moved this Court to grant final judgment by default against Relief 15 Defendants and order disgorgement of ill-gotten funds to which they are not entitled. 16 B. Factual Allegations 17 The following allegations are asserted in plaintiff’s complaint unless otherwise specified. 18 ECF No. 1 at 6-54. The court notes that plaintiff has submitted updated calculations regarding 19 the amount of funds returned to pool participants and aggregate pool participant losses; these 20 numbers differ from those described in the complaint and are substantiated by the declaration of 21 fraud examiner Elise Robinson (ECF No. 125-1) filed concurrently with the motion for default 22 judgment. During the Relevant Period, pool participants contributed a total of $14,512,482.49 to 23 the Black Pools. Defendants returned $4,370,307.18 to certain pool participants in the form of 24 Ponzi payments. Pool participants suffered net losses of $10,495,328.38. Of those losses, 25 $4,690,155.52 were suffered by pool participants whose contributions resulted in Tufo receiving a 26 commission. Robinson Declaration (“Robinson Decl.,” attached as Exhibit 1 to this Motion) ¶¶ 27 9-11 & Ex. A. 28 //// 3 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 4 of 50 1 Plaintiff Commodity Futures Trading Commission is an independent federal regulatory 2 agency that is charged by Congress with administering and enforcing the Act, 7 U.S.C. §§ 1–26 3 (2018), and the Regulations promulgated thereunder, 17 C.F.R. pts. 1–190 (2021). Defendant 4 Financial Tree is a “Pure Trust Organization in Common Law” doing business as Financial Tree 5 and Financial Tree Trust. In April 2014, John Black, Trustee, executed Financial Tree’s Articles 6 of Trust. Financial Tree’s mailing address is 13389 Folsom Boulevard, Suite 300-122, Folsom, 7 CA 95630—a UPS store. Defendant Black is Financial Tree’s Trustee. From at least June 15, 8 2015 through at least the filing of the CFTC’s Complaint on June 15, 2020 (the “Relevant 9 Period”), Financial Tree operated as a commodity pool operator (“CPO”) by accepting and 10 receiving funds from members of the public (“pool participants”) for participation in two 11 commodity pools—the Financial Tree Pool (the “FT Pool”) and the Financial Solution Group 12 Pool (the “FSG Pool”) (collectively, the “Black Pools”). In addition to operating as a CPO, 13 during the Relevant Period, Financial Tree also operated as a commodity pool itself—the FT 14 Pool—because it owned a trading account in its name that traded pool funds in forex. Financial 15 Tree has never been registered with the Commission in any capacity. 16 Defendant Financial Solution is a “Pure Trust Organization in Common Law” formed in 17 April 2015 doing business as Financial Solution Group and Financial Solution Group Trust. 18 Financial Solution’s mailing address is 13389 Folsom Boulevard, Suite 300-113, Folsom, CA 19 95630—the same UPS store that Financial Tree utilizes for its mailing address. Defendant Black 20 is Financial Solution’s Trustee. During the Relevant Period, Financial Solution operated as a 21 CPO by soliciting, accepting, and receiving funds from pool participants for participation in the 22 Black Pools. In addition to operating as a CPO, during the Relevant Period, Financial Solution 23 also operated as a commodity pool itself—the FSG Pool—because it owned a trading account in 24 its name that traded pool funds in forex. Financial Solution has never been registered with the 25 Commission in any capacity. 26 Defendant New Money is a Nevada limited liability company formed in December 2017. 27 New Money’s address is 1400 South Linda Street, Pahrump, Nevada 89048. New Money’s 28 Officers are Black and Financial Tree, which Black controls. During the Relevant Period, New 4 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 5 of 50 1 Money operated as a CPO by soliciting funds from pool participants for participation in the Black 2 Pools. New Money has never been registered with the Commission in any capacity. 3 Defendant Glenn Law Firm is a Colorado law firm with its principal place of business at 4 155 East Boardwalk Drive, Suite 400, Fort Collins, CO 80525. Glenn is the Managing Partner of 5 the Glenn Law Firm. During the Relevant Period, the Glenn Law Firm operated as a CPO by 6 soliciting, accepting, and receiving funds from pool participants for participation in the Black 7 Pools. The Glenn Law Firm has never been registered with the Commission in any capacity. 8 Defendant Black is a resident of Folsom, California. Black is also known as John Barnes. 9 Black created and controls Financial Tree, Financial Solution, and New Money. During the 10 Relevant Period, Black acted as an Associated Person (“AP”) for CPOs Financial Tree, Financial 11 Solution, and New Money by soliciting pool participants for participation in the Black Pools and 12 supervising individuals so soliciting. Black has never been registered with the Commission in 13 any capacity. 14 Defendant Mancuso is a resident of Irvine, California. During the Relevant Period, 15 Mancuso acted as an AP for CPOs Financial Tree, Financial Solution, and New Money by 16 soliciting pool participants for participation in the Black Pools. Mancuso has never been 17 registered with the Commission in any capacity. 18 Defendant Tufo is a resident of Antioch, California. During the Relevant Period, Tufo 19 acted as an AP for CPOs Financial Tree, Financial Solution, and New Money by soliciting pool 20 participants for participation in the Black Pools. Separate from this Complaint’s allegations, in 21 1999, the Securities and Exchange Commission issued an order against Tufo relating to his role in 22 the fraudulent offer and sale of securities to the public. Similarly, in November 2015, Tufo pled 23 guilty to criminal violations of the Alabama Securities Act for fraudulently soliciting investments 24 in “no risk” gold trading programs where funds would purportedly be held in an attorney’s trust 25 account. Tufo has never been registered with the Commission in any capacity. 26 Defendant Glenn is a resident of Fort Collins, Colorado. During the Relevant Period, 27 Glenn acted as an AP for CPOs Financial Tree, Financial Solution, New Money, and the Glenn 28 Law Firm by soliciting at least one pool participant for participation in the Black Pools. In 5 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 6 of 50 1 addition, Glenn was the Managing Partner of the Glenn Law Firm. Glenn directed and controlled 2 the Glenn Law Firm’s actions in all relevant respects, including the Glenn Law Firm’s activities 3 as a CPO soliciting, receiving, and accepting funds from pool participants for participation in the 4 Black Pools. Glenn used his Glenn Law Firm email address to communicate with pool 5 participants. Glenn has never been registered with the Commission in any capacity. 6 Relief Defendant Landes is a Wyoming limited liability company with an address of 109 7 E. 17th Street #25, Cheyenne, Wyoming 82001. In September 2016, JMC transferred $200,000 8 in pool funds to Landes. Landes has no legitimate claim to pool funds and did not provide any 9 services for the Black Pools or pool participants. 10 Relief Defendant Kingdom is a Wyoming limited liability company with an address of 11 2123 Pioneer Ave., Cheyenne, Wyoming 82001. Between March and October 2016, Financial 12 Solution transferred approximately $1,050,000 in pool funds to Kingdom. On September 30, 13 2016, the BBB Jabez Foundation—which Black controls—transferred approximately $25,000 in 14 pool funds to Kingdom. On October 3, 2016, Tyler Mancuso transferred approximately $25,000 15 in pool funds to Kingdom. Kingdom has no legitimate claim to pool funds and did not provide 16 any services for the Black Pools or pool participants. 17 Relief Defendant Suisse Group is a Delaware limited liability company with an address of 18 1650 Margaret Street, Suite 302-326, Jacksonville, Florida 32209—a UPS store. Caswell is the 19 Director of and controls Suisse Group. In June 2016, Financial Solution transferred $500,000 in 20 pool funds to a Suisse Group bank account. Suisse Group has no legitimate claim to pool funds 21 and did not provide any services for the Black Pools or pool participants. 22 Relief Defendant JMC is a Delaware limited liability company with an address of 1650 23 Margaret Street, Suite 302-326, Jacksonville, Florida 32209—the same UPS store address as 24 Suisse Group’s. During the Relevant Period, Caswell was the Managing Member of and 25 controlled JMC until April 2019. In September 2016, Glenn transferred $300,000 in pool funds 26 from a Glenn Law Firm bank account to JMC. JMC has no legitimate claim to pool funds and 27 did not provide any services for the Black Pools or pool participants. 28 //// 6 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 7 of 50 1 Relief Defendant Caswell is a resident of Jacksonville, Florida. During the Relevant 2 Period, including in 2016 when Financial Solution and the Glenn Law Firm transferred funds to 3 Suisse Group and JMC, respectively, Caswell controlled both entities as the lone Director of 4 Suisse Group and the lone Managing Member of JMC, commingled his personal funds with 5 Suisse Group and JMC Funds, and transferred Suisse Group and JMC funds to apparent relatives 6 and acquaintances. Suisse Group and JMC were the alter egos of Caswell. In 2016, Suisse 7 Group and JMC transferred at least $150,187.33 in pool funds to bank accounts owned by 8 Caswell. Caswell has no legitimate claim to pool funds and did not provide any services for the 9 Black Pools or pool participants. 10 Relief Defendant Anne Mancuso is a resident of Newport Beach, California. Anne 11 Mancuso was Chris Mancuso’s wife. During the Relevant Period, Defendant Chris Mancuso 12 transferred at least $252,874.93 in pool funds to Anne Mancuso. Anne Mancuso has no 13 legitimate claim to pool funds and did not provide any services for the Black Pools or pool 14 participants. 15 Relief Defendant Tyler Mancuso is a resident of San Diego, California. Tyler Mancuso is 16 Chris Mancuso’s son. During the Relevant Period, Defendant Chris Mancuso transferred at least 17 $340,087.23 in pool funds to Tyler Mancuso. Tyler Mancuso has no legitimate claim to pool 18 funds and did not provide any services for the Black Pools or pool participants. 19 Plaintiff alleges that Defendants created and operated a Ponzi scheme. To operate the 20 fraudulent scheme, Black caused to be created, and controlled, three entities: Financial Tree, 21 Financial Solution, and New Money. Black has used these entities to operate and control the 22 Black Pools (i.e., the FSG Pool and the FT Pool). Financial Tree has served in three roles in 23 Defendants’ fraud—as a CPO operating and controlling the Black Pools; as one of the Black 24 Pools itself (the FT Pool); and as an officer of New Money. Similarly, Financial Solution has had 25 a dual role in Defendants’ fraud—as a CPO operating and controlling the Black Pools; and as one 26 of the Black Pools itself (the FSG Pool). Black is the only employee of the three entities. And 27 the only business the three entities conducted was related to Defendants’ fraud. 28 //// 7 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 8 of 50 1 Through Financial Solution and New Money, Black and other APs solicited funds from 2 pool participants for participation in the Black Pools, in which pool participant funds were 3 purportedly to be held in a protected account and used as collateral to secure separate lines of 4 credit to trade forex and binary options. Pool participants could participate by entering into joint 5 venture agreements (“Agreements”) with Financial Solution or New Money. The Agreements, 6 however, did not direct pool participants to send funds directly to the Black Pools. Instead, the 7 Agreements required pool participants to send funds to a Glenn Law Firm “attorney escrow 8 account,” after which the Glenn Law Firm was to pass those funds along to the Black Pools. 9 In approximately August 2014, Mancuso contacted Glenn “to provide paymaster services 10 for Mr. Black and his companies based upon his various joint ventures with his clients.” Later 11 that month, Black (on behalf of Financial Tree) and Glenn (on behalf of the Glenn Law Firm) 12 signed a “Paymaster Agreement” providing that the Glenn Law Firm would accept funds from 13 third parties and disburse such funds to Financial Tree in exchange for a fee. In practice, the only 14 service the Glenn Law Firm provided to the Black Pools was to accept and transfer pool funds. 15 There was no legitimate business reason for pool participants to wire funds to the Glenn Law 16 Firm, and for the Glenn Law Firm to then wire funds to Financial Tree (less Glenn’s fee). Pool 17 participants could have just as easily wired money directly to Financial Tree. Black engaged the 18 Glenn Law Firm to provide a false veneer of safety and legitimacy to the Black Pools. Glenn 19 used his position as an attorney and Managing Partner of the Glenn Law Firm to deceive pool 20 participants into believing that the Black Pools were legitimate and safe. 21 During the Relevant Period, 92 pool participants (Robinson Decl. n.2) deposited over 22 $14.32 million in the Black Pools through at least 134 total wire transfers to the Glenn Law 23 Firm’s bank accounts. In addition, at least five pool participants deposited at least $190,793.73 24 through at least six wire transfers directly to Financial Tree or Financial Solution. Pool 25 participants deposited funds for trading in the Black Pools at least as early as January 2, 2015, and 26 at least as recently as January 29, 2020. Specifically, on February 14, 2016, the FSG Pool, by and 27 through Black, opened a forex trading account at Trading Firm A, a registered futures 28 commission merchant (“FCM”) and retail foreign exchange dealer (“RFED”). On March 18, 8 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 9 of 50 1 2016, Financial Solution transferred $5,000 into the FSG Pool’s forex trading account at Trading 2 Firm A. No trading occurred in the account. As of March 2020, the account was dormant. 3 Likewise, on July 6, 2016, the FT Pool, by and through Black, opened a forex (foreign 4 exchange) trading account at Trading Firm B. On July 7, 2016, Financial Tree transferred $5,000 5 into the account. The account engaged in limited forex trading, generating net losses. On May 7, 6 2018, the FT Pool, at Black’s direction, transferred the remaining $2,554.79 from the account, 7 which is no longer active. In addition, during the Relevant Period, Financial Solution and 8 Financial Tree, by and through Black and/or other employees or agents, transferred 9 approximately $254,280 overseas to possible binary options and/or forex trading firms. Financial 10 Solution and Financial Tree received back only approximately $59,239. 11 Financial Solution and Financial Tree, by and through Black and/or other employees or 12 agents, made payments totaling $4,370,307.18 (approximately 30% of pool funds) to certain pool 13 participants during the Relevant Period. Robinson Decl. ¶ 11. These were Ponzi payments made 14 from funds newly received from other pool participants. Defendants also misappropriated funds 15 to enrich themselves. Of the approximately $14.5 million in pool funds, Defendants redirected 16 approximately $6.3 million (approximately 43% of pool funds) to various Defendants’ business 17 or personal bank accounts. Of the approximately $14.32 million transferred to the Glenn Law 18 Firm’s bank accounts in connection with the Black Pools, Glenn misappropriated at least 19 approximately $285,438.24 by retaining such funds in those accounts and/or transferring such 20 pool funds to other bank accounts Glenn owned and/or controlled. Glenn had no legal right to 21 these pool funds. Glenn spent such funds on, among other things, expenses related to his divorce 22 and spousal support. 23 Of the remaining pool funds that Glenn did not misappropriate for himself, Glenn 24 transferred approximately $13.5 million to Financial Tree and Financial Solution; approximately 25 $300,000 to Relief Defendant JMC; at least approximately $171,292.18 in apparent Ponzi 26 payments to pool participants; and approximately $51,503.56 to an entity owned by Mancuso. 27 Upon receipt, Financial Tree, Financial Solution, and New Money did not deposit pool funds into 28 fiduciary-protected, separate bank accounts, and did not use pool funds as collateral to obtain 9 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 10 of 50 1 lines of credit to trade binary options and forex on pool participants’ behalf, as the Agreements 2 promised. Instead, during the Relevant Period, Financial Solution and Financial Tree, by and 3 through Black and/or other employees or agents, transferred at least $1,809,117.56 of pool funds 4 to business and personal bank accounts owned and/or controlled by Black. Black withdrew in 5 cash at least $367,408.57 in pool funds, and spent additional misappropriated funds on, among 6 other things, personal travel, rent for his personal residence, legal fees, online gambling, 7 multilevel marketing programs, food and dining expenses, and software and online advertising. 8 Similarly, during the Relevant Period, Financial Solution and Financial Tree, by and through 9 Black and/or other employees or agents, made at least 238 payments totaling at least 10 approximately $3,977,470.20 of pool funds to business and personal bank accounts owned and/or 11 controlled by Mancuso. Mancuso further misappropriated such funds, including by withdrawing 12 at least approximately $1.3 million in cash, transferring at least approximately $593,000 to Relief 13 Defendants Anne Mancuso and Tyler Mancuso, and spending additional such funds on, among 14 other things, personal travel, limousine expenses, spa and haircare expenses, and home 15 renovations.1 16 Likewise, during the Relevant Period, Financial Solution and Financial Tree, by and 17 through Black and/or other employees or agents, made payments totaling at least approximately 18 $228,000.01 in pool funds to business and personal bank accounts owned or controlled by, or 19 affiliated with, Tufo. Tufo further misappropriated pool funds by spending them on, among other 20 things, automobile-related expenses, eating out, groceries, insurance premiums, office expenses, 21 utilities, and miscellaneous household expenses. During the Relevant Period, pool participants 22 contributed a total of $14,512,482.49 to the Black Pools. Defendants returned $4,370,307.18 to 23 certain pool participants in the form of Ponzi payments. Pool participants suffered net losses of 24 $10,495,328.38. Of those losses, $4,690,155.52 were suffered by pool participants whose 25 contributions resulted in Tufo receiving a commission. 26 1 27 The updated financial information in these paragraphs is taken from plaintiff’s proposed order, which is supported by the Robinson Declaration and the Motion for Default Judgment. ECF No. 28 125-2 ¶¶ 33-41. 10 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 11 of 50 1 As set forth above, Financial Tree, Financial Solution, and New Money, by and through 2 its employees or agents, misappropriated and dissipated the vast majority of pool funds received, 3 including by transferring pool funds to Black, Mancuso, Tufo, and others. However, as of July 4 2020, Financial Tree and Financial Solution owned trading accounts containing pool funds 5 totaling $4,630.15, which the CFTC froze pursuant to the SRO issued by this Court (ECF No. 9). 6 Financial Solution, Black, and Mancuso Ignored a California Department of Business Oversight 7 (“DBO”) Desist and Refrain Order to Cease Their Unlawful Activities. 8 On April 27, 2018, the California DBO issued a Desist and Refrain Order to Financial 9 Solution, Black, and Mancuso finding they unlawfully sold unregistered securities in California 10 and made material misrepresentations or omissions to a pool participant in connection therewith. 11 Financial Solution, Black, and Mancuso did not abide by the Desist and Refrain Order and 12 continued soliciting for the Black Pools. Defendants did not disclose to pool participants any of 13 the above conduct, including that they had traded very few pool funds in binary options or forex, 14 that they were using pool funds to pay personal expenses and make Ponzi payments instead of 15 keeping funds in a separate fiduciary-protected account, and that the California DBO had issued a 16 Desist and Refrain Order to Financial Solution, Black and Mancuso. Instead, Defendants made 17 material misrepresentations when soliciting pool participants to participate in the Black Pools. 18 Financial Solution, by and through Black, issued false account statements to pool participants. 19 Defendants also made material misrepresentations and/or omitted material facts to pool 20 participants when they asked for their funds to be returned or otherwise inquired about the status 21 of their deposits in the Black Pools, and Defendants did this while continuing to solicit and/or 22 accept funds from new pool participants. 23 Defendants made material misrepresentations and omissions to prospective and actual 24 pool participants, including in teleconference seminars, emails, and Agreements executed with 25 pool participants. Defendants’ representations to pool participants downplayed the risk 26 associated with the pools while promising monthly returns between 10-70%. These fraudulent 27 solicitations, as illustrated by the following representative examples, included, but were not 28 limited to, material misrepresentations that: 11 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 12 of 50 1 a. all pool funds would be protected in a “no risk” separate account by a 2 fiduciary-protected bank block and returned to pool participants on a schedule 3 prescribed by the Agreements; 4 b. traders would secure separate lines of credit to trade binary options and/or 5 forex for the benefit of pool participants; 6 c. pool participants would receive between 10% and 70% monthly returns on 7 their deposits as profits, depending on participation level; 8 d. more than 85% of trades had been successful; and 9 e. the Black Pools’ activities were overseen by a “globally renowned and highly 10 respected fiduciary accounting firm.” 11 The fraudulent solicitations also included, but were not limited to, the material omissions that: 12 a. the California DBO had issued a Desist & Refrain Order against Financial 13 Solution, Black, and Mancuso; 14 b. Defendants would pay themselves and other Defendants approximately 43% of 15 pool fund principal received, prior to trading any funds; 16 c. Defendants would make Ponzi payments to other pool participants using an 17 additional approximately 34% of pool fund principal received, prior to trading any 18 funds; 19 d. Defendants would improperly transfer pool fund principal to other third parties, 20 prior to trading any funds; 21 e. Defendants would trade binary options and forex with, at most, 2% of pool fund 22 principal received; 23 f. binary options and forex trading involves significant risk of trading losses; 24 g. Defendants had failed to return principal and deliver profits to other pool 25 participants; and 26 h. at least as early as December 2016, Defendants were expressly communicating to 27 existing pool participants that Defendants were struggling to make profitable 28 trades (which, itself, was a misrepresentation because Defendants were not in fact 12 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 13 of 50 1 trading pool funds) and were not returning principal or delivering profits to pool 2 participants as promised. 3 For example, during the Relevant Period, Black advised Pool Participant B that he could 4 increase his return on deposits from 10% to 13% per month—but only if he deposited an 5 additional $25,000 in addition to his previously deposited $25,000. Similarly, during the 6 Relevant Period, Mancuso circulated an email to prospective pool participants making similar 7 claims, adding “YOU WILL EARN A MINIMUM 10% on your money EVERY MONTH… 8 Funds must be wired to the Escrow Attorney here in the USA.” Mancuso promised escalating 9 monthly returns depending on the size of the deposit, up to 45% per month for deposits exceeding 10 $1 million. On approximately June 13, 2015, a pool participant responded to Mancuso requesting 11 additional information regarding “the guarantee on your money.” Mancuso replied the next day, 12 “[i]n this program the funds are blocked and the trader uses his credit for the trade. So no risk to 13 blocked funds.” 14 Also during the Relevant Period, Tufo solicited potential pool participants by stating that 15 they could earn exorbitant returns (for example, $600,000 from a $100,000 deposit in 120 days); 16 and that the Black Pools were “foolproof” and “a sure thing.” Similarly, during the Relevant 17 Period, Glenn solicited potential pool participants, communicating, among other things, that 18 participating in the Black Pools would be a “good deal” for a pool participant and that Black and 19 Mancuso were “great guys.” On January 18, 2017, that pool participant transferred $100,000 to 20 the Glenn Law Firm. Later that day, on a telephone call, Glenn told that pool participant that she 21 would receive the full amount promised in the Agreement. 22 In approximately June 2018, a pool participant spoke with Black, Mancuso, Tufo, and 23 others on a teleconference call. Mancuso communicated that the pool participant’s money would 24 be safe because “you’re not paying us, you’re paying an attorney.” Mancuso introduced Tufo as 25 the account manager who would be the pool participant’s principal point of contact for the 26 opportunity. Prior to the pool participant’s deposit of $150,000 on approximately July 9, 2018, 27 Tufo communicated to the pool participant that Tufo knew many people who had successfully 28 deposited funds with Defendants, that the pool participant’s money would be safe, and if the pool 13 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 14 of 50 1 participant ever wanted to cancel the Agreement, he could do so easily and would receive his 2 money back. 3 Throughout the Relevant Period, pool participants entered into Agreements with Financial 4 Solution or New Money, signed by Black, containing representations that pool funds would be 5 deposited in a bank account where they would be “blocked and thereby fully protected against 6 loss of principal at all times” and used only as collateral for trading binary options, forex, and 7 other products; that pool participants would receive 10% or higher monthly returns and/or loan 8 funding generated by trading profits; that activities would be monitored by a global accounting 9 firm; and that pool participants could withdraw all principal after a specified period of time. The 10 Agreements directed pool participants to wire their funds to a Glenn Law Firm “attorney escrow” 11 bank account. 12 The above solicitations contained material misrepresentations and material omissions 13 because, among other things, Defendants did not have a historical 85% success rate trading; did 14 not segregate all pool funds in “no-risk” separate accounts protected by a Fiduciary-protected 15 bank block; did not return pool funds to pool participants on Agreement-prescribed schedules; did 16 not secure separate lines of credit to trade binary options and/or forex for the benefit of pool 17 participants; did not have an accounting firm overseeing trading activities; traded, at most, only a 18 small percentage of pool funds collected in binary options or forex; did not generate 10-70% 19 monthly returns or turn a $100,000 deposit into $600,000 in four months; and misappropriated the 20 vast majority of pool funds for unauthorized personal and business expenses and to make Ponzi 21 payments. 22 During the Relevant Period, Financial Solution, by and through Black and/or other 23 employees or agents, provided false account statements to pool participants purporting to reflect 24 monthly profits. However, these account statements contained material misrepresentations. 25 Financial Solution had not, in fact, generated any profits at all for pool participants, as Financial 26 Solution had not engaged in any profitable trading using pool funds. False account statements, 27 combined with Ponzi payments, in at least one case incentivized additional deposits by a pool 28 participant. 14 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 15 of 50 1 Despite making Ponzi payments to certain pool participants, Financial Solution and New 2 Money failed to return principal plus profits as promised to most pool participants. When pool 3 participants complained, Defendants made bogus excuses regarding Financial Solution’s and New 4 Money’s failures to return pool funds, all while soliciting additional funds and/or accepting pool 5 funds from those very same pool participants as well as new pool participants. 6 For example, in or about April of 2017, Mancuso and Black jointly sent a letter to pool 7 participants falsely claiming that “funds are actually flowing” and promising imminent return of 8 funds. Mancuso forwarded to pool participants a similar letter from Financial Solution (signed by 9 Black) blaming “breach of contract and nonpayment from some of our previous banking sources” 10 but claiming to have “hit the jackpot” with a new funding source and falsely promising repayment 11 by the end of the month. In a separate instance, Mancuso falsely claimed to a pool participant 12 that funds had arrived at a Bahamian bank, but storms and rain in the Bahamas had created 13 connectivity issues delaying return of funds. In some cases, Mancuso communicated with pool 14 participants over the course of multiple years offering a litany of fraudulent excuses and 15 repeatedly falsely promising the imminent return of funds. Yet at the very same time—in some 16 cases in the same communications that offered the fraudulent excuses—Black and Mancuso 17 solicited additional funds from existing and new pool participants. 18 During the Relevant Period, a pool participant emailed Mancuso and others, noting “this 19 matter has become exhausting, comical and nonsensical. It borders on criminal. Your last 20 response that the matters would close in 15 days has per usual been nothing but . . . another lie. I 21 am sick to my core of your damn lies.” Mancuso replied claiming no one had lied to the pool 22 participant, that funds would arrive within a month, and that Defendants were simply at the mercy 23 of various banks. Also during the Relevant Period, another pool participant emailed Black and 24 others, expressing frustration at receiving “one story after the next” from Black, including “that 25 funds were delayed in August because the European market had fluctuation and it was their 26 summer vacations” and that “there was a legal issue as to why the funds did not transfer from 27 Singapore to Hong Kong.” During the Relevant Period, after a pool participant confronted 28 Mancuso regarding the Desist & Refrain Order from the California DBO, Mancuso claimed to the 15 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 16 of 50 1 pool participant that the Order “WAS RESOLVED SOME TIME AGO… A CURRENCY 2 PROGRAM THAT WAS NOT OUR SERVICE. THIS CLIENT RECEIVED A REFUND BUT 3 SOMETIMES IT’S HARD TO REMOVE ADMINISTRATIVE PROCEEDINGS FROM THE 4 INTERNET…” 5 Like Black and Mancuso, Tufo knew of Financial Solution’s and New Money’s failure to 6 return pool funds and Black’s and Mancuso’s excuses for such failures. For example, during the 7 Relevant Period, Tufo emailed pool participants, stating “I am so sorry for these never ending 8 excuses. I’ve suggested several times that Chris and John sell everything they own to make you 9 whole . . . .” While Tufo, on emails to pool participants responding to their complaints, claimed 10 to be frustrated regarding such failures and that he was attempting to help resolve them, Tufo 11 continued soliciting new pool participants—and receiving payments in the form of 12 commissions—while omitting information regarding such failures and excuses. 13 Glenn also made fraudulent statements to pool participants regarding their funds, received 14 extensive complaints from pool participants regarding Defendants’ broken promises, and yet 15 continued to accept funds (and misappropriate his secret, unauthorized commissions) from new 16 pool participants as if the entire business was legitimate, while omitting that other pool 17 participants were complaining about their money. For example, during the Relevant Period, 18 shortly after Financial Solution and New Money failed to deliver funds to a pool participant as the 19 Agreements promised, the pool participant called Glenn requesting an update on her funds. 20 Glenn, in his capacity as an attorney and as the Managing Partner of the Glenn Law Firm, told the 21 pool participant that he was in possession of the pool participant’s money and would transfer the 22 $600,000 she was owed by the end of the week. But these statements were false. At no time 23 during the Relevant Period did Glenn or the Glenn Law Firm possess the $600,000 the pool 24 participant was owed under her Agreement. Defendants never paid the pool participant. When 25 the pool participant subsequently attempted to call Glenn, he did not answer his phone or return 26 her calls. 27 During the Relevant Period, Glenn, in his capacity as an attorney from his Glenn Law 28 Firm email address with his Glenn Law Firm signature block, emailed unspecified recipients 16 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 17 of 50 1 regarding a pool participant’s deposit, claiming that he had been trying to resolve with Financial 2 Solution, Black, and Mancuso the issues returning funds. In this communication, Glenn omitted 3 the material fact that Glenn, himself, had misappropriated a portion of the pool participant’s 4 funds. During the Relevant Period, the Colorado Supreme Court, Attorney Regulation Counsel 5 sent Glenn three separate bar complaints filed by individuals, including a pool participant, 6 regarding Glenn’s role in the fraud. 7 Separately during the Relevant Period, pool participants repeatedly emailed Glenn 8 complaining that he was participating in a fraud. For example, one pool participant emailed 9 Glenn stating Mancuso and Black “have absolutely no intention of returning our money.” 10 Thereafter during the Relevant Period, that pool participant forwarded Glenn correspondence 11 regarding extensive delays, stating, “These are the kind of people you have supported transferring 12 our money into their accounts for personal gains . . . . There are more victims.” Again, during the 13 Relevant Period, Glenn forwarded the pool participant from his Glenn Law Firm email account 14 correspondence with Black and Mancuso asserting that the pool participant would be paid “by 15 month end.” Separately during the Relevant Period, another pool participant emailed Glenn, 16 expressing concern regarding Glenn’s involvement and that Glenn’s “participation lended 17 credibility to . . . [Black’s and Mancuso’s] operation.” As Black, Mancuso, Tufo, and Glenn 18 made those communications, each, along with the remaining Defendants, continued to solicit 19 and/or accept new funds from new and existing pool participants, and each misappropriated 20 money from those pool participants, while omitting the material facts that Defendants had failed 21 to return funds as promised to other pool participants and were expressly communicating with 22 those pool participants regarding such failures. 23 During the Relevant Period, Financial Tree, Financial Solution, New Money, and the 24 Glenn Law Firm acted as CPOs by engaging in a business that is of the nature of a commodity 25 pool and, in connection with that business, soliciting, accepting, and/or receiving funds for the 26 Black Pools. However, Financial Tree, Financial Solution, New Money, and the Glenn Law Firm 27 failed to register with the CFTC as CPOs. During the Relevant Period, Black, Mancuso, Tufo, 28 and Glenn acted as APs of CPOs by soliciting funds for the Black Pools, but failed to register 17 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 18 of 50 1 with the CFTC as APs of CPOs. Defendants Financial Tree and Financial Solution, while acting 2 as CPOs of the FT Pool and the FSG Pool, respectively, failed to operate the FT Pool and FSG 3 Pool as legal entities separate from those of the CPOs and commingled pool funds with non-pool 4 property by transferring pool funds into bank accounts controlled by Black, Mancuso, Tufo, and 5 others which contained non-pool funds. Defendant Glenn Law Firm, while acting as CPO of the 6 Black Pools, received and accepted pool funds into the Glenn Law Firm’s attorney trust bank 7 accounts, rather than accounts in the names of the Black Pools. In addition, the Glenn Law Firm 8 commingled pool funds with non-pool property by accepting pool funds into bank accounts that 9 contained non-pool property. 10 Defendants Financial Tree, Financial Solution, New Money, and the Glenn Law Firm, 11 while acting as CPOs of the Black Pools, failed to provide pool disclosure documents, account 12 statements presented and computed in accordance with generally accepted accounting principles 13 and containing required information, and other documents required by Regulations 4.21 and 4.22, 14 17 C.F.R. §§ 4.21, 4.22 (2021), including but not limited to required cautionary statements, risk 15 disclosures, fees and expenses incurred by the Black Pools, past performance disclosures, a 16 statement that the CPO is required to provide all pool participants with monthly or quarterly 17 account statements, as well as an annual report containing financial statements certified by an 18 independent public accountant. 19 During the Relevant Period, Black was a controlling person for Financial Tree, Financial 20 Solution, and New Money. Black is the lone Trustee of Financial Tree and Financial Solution. 21 Financial Tree’s and Financial Solution’s Articles of Trust list Black as Trustee having exclusive 22 control of Financial Tree and Financial Solution. Black opened bank accounts for Financial Tree 23 and Financial Solution and was the sole signatory on these accounts (including the bank accounts 24 to which the Glenn Law Firm’s bank accounts transferred funds). Black signed Agreements 25 between Financial Solution and pool participants. Black did not act in good faith or knowingly 26 induced Financial Tree’s and Financial Solution’s fraudulent acts. 27 During the Relevant Period, Glenn was a controlling person for the Glenn Law Firm. 28 Glenn is the Managing Partner of the Glenn Law Firm, whose website does not list other 18 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 19 of 50 1 attorneys as being members of the firm. Glenn signed the August 25, 2014 “Paymaster 2 Agreement” with Financial Tree on behalf of the Glenn Law Firm. Glenn opened bank accounts 3 for each Glenn Law Firm bank account to which pool participants contributed funds. Glenn did 4 not act in good faith or knowingly induced the Glenn Law Firm’s fraudulent acts. Black, 5 Mancuso, Tufo, and Glenn Acted Within the Scope of Their Employment, Office, or Agency with 6 Financial Tree, Financial Solution, New Money, and/or the Glenn Law Firm. Black, Mancuso, 7 Tufo, and Glenn committed the acts and omissions described above within the course and scope 8 of their employment, office, or agency with Financial Tree, Financial Solution, New Money, 9 and/or the Glenn Law Firm. 10 Suisse Group and JMC Were Alter Egos of Caswell. When Financial Solution and the 11 Glenn Law Firm transferred a total of $800,000 to Suisse Group and JMC in June and September 12 2016, Caswell controlled both entities as the lone Director of Suisse Group and the lone 13 Managing Member of JMC. Suisse Group and JMC share the same UPS store mailing address 14 and the same email address—ctkholdingsfund@gmail.com. Caswell operated Suisse Group and 15 JMC to receive and dissipate ill-gotten funds for his personal benefit. 16 In the three months prior to receiving the $500,000 transfer from Financial Solution in 17 June 2016, the Suisse Group bank account that received the transfer maintained a balance of 18 $12.15 or lower. After receiving the $500,000 transfer, within two days, Suisse Group transferred 19 approximately $55,000 to JMC (owned by Caswell), approximately $30,100 to a personal bank 20 account owned by Caswell, and additional funds to other entities and individuals. Over the next 21 two days, Suisse Group transferred a total of approximately $415,000 to a TD Ameritrade 22 securities account in the name of JMC, which in turn funded a TD Ameritrade forex trading 23 account (“JMC Forex Account”) in the same name. After incurring approximately $50,000 in 24 trading losses, the JMC Forex Account transferred the remaining approximately $365,000 to JMC 25 from June to August 2016. After dissipating the approximately $500,000 in pool funds, the 26 balance in the Suisse Group account that received those funds was, at its highest, approximately 27 $383.14, and closed in July 2016. 28 //// 19 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 20 of 50 1 After the JMC Forex Account transferred approximately $365,000 in pool funds to JMC 2 in July and August 2016, Caswell transferred approximately $88,087.33 to a checking account 3 Caswell controlled and otherwise dissipated the remaining funds on business and personal 4 expenses having nothing to do with the Black Pools. Similarly, within one week of the Glenn 5 Law Firm transferring $300,000 to JMC in September 2016, Caswell transferred approximately 6 $200,000 to Landes; withdrew approximately $1,500 in cash from this account; transferred 7 approximately $32,000 to personal bank accounts owned by Caswell; transferred approximately 8 $68,350 to various individuals including another person with the last name “Caswell;” and made 9 payments from this account for massages, insurance premiums, and a mobile phone. After 10 dissipating the pool funds, in 2016, the balance in that account was, at its highest, approximately 11 $155, and the account was overdrawn by December 2016. 12 II. CONCLUSIONS OF LAW 13 A. The CFTC Has Established Jurisdiction and Venue 14 This Court has jurisdiction over this action pursuant to Section 6c of the Act, 7 U.S.C. § 15 13a-1 (2018), which provides that whenever it shall appear to the CFTC that any person has 16 engaged, is engaging, or is about to engage in any act or practice constituting a violation of any 17 provision of the Act or any rule, regulation, or order promulgated thereunder, the CFTC may 18 bring an action in the proper district court of the United States against such person to enjoin such 19 act or practice, or to enforce compliance with the Act, or any rule, regulation or order thereunder. 20 See also 28 U.S.C. § 1331 (2018) (federal question jurisdiction) and 28 U.S.C. § 1345 (2018) 21 (jurisdiction over civil actions commenced by the United States or by any agency authorized to 22 sue by Act of Congress). 23 The Court has personal jurisdiction over the Parties because they transacted business 24 within this District and otherwise engaged in acts and practices in violation of the Act and 25 Regulations in this District, among other places. Venue properly lies with this Court pursuant to 26 7 U.S.C. § 13a-1(e), because Parties reside or transact business in this jurisdiction and the acts 27 and practices in violation of the Act and Regulations occurred, are occurring or are about to occur 28 within this District, among other places. 20 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 21 of 50 1 B. Default Judgment is Warranted Against All Defaulting Parties 2 1. Legal Standards 3 In accordance with Federal Rule of Civil Procedure 55, default may be entered against a 4 party against whom a judgment for affirmative relief is sought who fails to plead or otherwise 5 defend against the action. See Fed. R. Civ. P. 55(a). However, “[a] defendant’s default does not 6 automatically entitle the plaintiff to a court-ordered judgment.” PepsiCo, Inc. v. Cal. Sec. Cans, 7 238 F.Supp.2d 1172, 1174 (C.D. Cal. 2002) (citing Draper v. Coombs, 792 F.2d 915, 924-25 (9th 8 Cir. 1986)); see Fed. R. Civ. P. 55(b) (governing the entry of default judgments). Instead, the 9 decision to grant or deny an application for default judgment lies within the district court’s sound 10 discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In making this 11 determination, the court may consider the following factors: (1) the possibility of prejudice to the 12 plaintiff; (2) the merits of plaintiff's substantive claim; (3) the sufficiency of the complaint; (4) 13 the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; 14 (6) whether the default was due to excusable neglect; and (7) the strong policy underlying the 15 Federal Rules of Civil Procedure favoring decisions on the merits. Eitel v. McCool, 782 F.2d 16 1470, 1471-72 (9th Cir. 1986). Default judgments are ordinarily disfavored. Id. at 1472. 17 As a general rule, once default is entered, well-pleaded factual allegations in the operative 18 complaint are taken as true, except for those allegations relating to damages. TeleVideo Sys., Inc. 19 v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (per curiam) (citing Geddes v. United Fin. 20 Group, 559 F.2d 557, 560 (9th Cir. 1977) (per curiam)); see also Fair Housing of Marin v. 21 Combs, 285 F.3d 899, 906 (9th Cir. 2002). Although well-pleaded allegations in the complaint 22 are admitted by a defendant’s failure to respond, “necessary facts not contained in the pleadings, 23 and claims which are legally insufficient, are not established by default.” Cripps v. Life Ins. Co. 24 of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (citing Danning v. Lavine, 572 F.2d 1386, 1388 25 (9th Cir. 1978)); accord DIRECTV, Inc. v. Huynh, 503 F.3d 847, 854 (9th Cir. 2007) (“[A] 26 defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law”) 27 (citation and quotation marks omitted); Abney v. Alameida, 334 F.Supp.2d 1221, 1235 (S.D. Cal. 28 2004) (“[A] default judgment may not be entered on a legally insufficient claim.”). A party’s 21 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 22 of 50 1 default conclusively establishes that party’s liability, although it does not establish the amount of 2 damages. Geddes, 559 F.2d at 560; cf. Adriana Int’l Corp. v. Thoeren, 913 F.2d 1406, 1414 (9th 3 Cir. 1990) (stating in the context of a default entered pursuant to Federal Rule of Civil Procedure 4 37 that the default conclusively established the liability of the defaulting party). 5 2. Analysis 6 a. Possibility of Prejudice to Plaintiff 7 Regarding the first Eitel factor, the CFTC will be prejudiced if default judgment is not 8 entered because it “will be deprived of the opportunity to obtain judicial resolution of its 9 claim[s].” Sky Billiards, 2016 WL 6661175, at *5; see also Halsey v. Colonial Asset Mgmt., No. 10 5:13-cv-02025, 2014 WL 12601015, at *4 (C.D. Cal. July 17, 2014) (concluding plaintiff lacked 11 remedy in absence of default judgment where defendant failed to file responsive pleading). The 12 CFTC has strong, congressionally mandated interests in enforcing the Act, obtaining restitution 13 and disgorgement for victims of fraud, and deterring future wrongdoing through penalties, among 14 other monetary relief. Yet the Parties’ refusal to appear and defend will continue to deprive the 15 CFTC of the opportunity to obtain judgment on the merits. This factor thus supports a default 16 judgment. See SEC v. Fortitude Grp., No. 16-50, 2017 WL 818604, at *2 (W.D. Pa. Feb. 10, 17 2017) (granting SEC’s motion for default judgment because SEC would “be prejudiced by its 18 inability to effectively enforce federal securities laws” if motion were denied). 19 b. Merits of Claims and Sufficiency of Complaint 20 The second and third Eitel factors also weigh in favor of default judgment. The CFTC’s 21 claims are meritorious and the allegations of the Complaint, accepted as true, are sufficient to 22 establish all defendants’ liability. Plaintiff brings six claims based on violations of the 23 Commodity Exchange Act (“the Act”) and Commission Regulations (“Regulations”); each cause 24 of action is addressed individually below. In this context, the court also evaluates the sufficiency 25 of the complaint’s allegations to establish various principles of liability that pertain to the claims 26 collectively. 27 //// 28 //// 22 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 23 of 50 1 i. Defendants Committed Commodity Option Fraud in Violation of 7 U.S.C. 2 § 6c(b) (2018) and 17 C.F.R. § 32.4 (2021) (Count One) 3 Section 4c(b) of the Act, 7 U.S.C. § 6c(b) (2018), provides, in relevant part, that “[n]o 4 person shall offer to enter into, enter into or confirm the execution of any transaction involving 5 any commodity . . . which is . . . an ‘option’ . . . . contrary to” CFTC Regulations. Regulation 6 32.4, 17 C.F.R. § 32.4 (2021), provides: 7 In or in connection with an offer to enter into, the entry into, or the confirmation of the execution of, any commodity option transaction, 8 it shall be unlawful for any person directly or indirectly: (a) To cheat or defraud or attempt to cheat or defraud any other person; (b) To 9 make or cause to be made to any other person any false report or statement thereof or cause to be entered for any person any false 10 record thereof; or (c) To deceive or attempt to deceive any other person by any means whatsoever. 11 12 “Binary options” transactions are commodity option transactions under the Act and 13 Regulations. See, e.g., CFTC v. Vision Fin. Partners, LLC, 190 F. Supp. 3d 1126, 1130 (S.D. 14 Fla. 2016) (denying motion to dismiss; holding that binary options are commodity options within 15 the meaning of 7 U.S.C. § 6c(b)). Defendants’ conduct occurred “[i]n or in connection with an 16 offer to enter into, the entry into, or the confirmation of the execution of” binary options 17 transactions. Conduct so occurs when, inter alia, a defendant solicits individuals to trade binary 18 options. See CFTC v. Vault Options, Ltd., No. 1:16-CV-01881, 2016 WL 5339716, at *2, *6 19 (N.D. Ill. July 20, 2016) (by “solicit[ing] . . . customers . . . to trade binary commodity options . . . 20 [defendants] offered to enter into . . . binary option transactions”). 21 To establish that Defendants violated 7 U.S.C. § 6c(b) and 17 C.F.R. § 32.4 through 22 misrepresentations and omissions, the Commission must prove that (1) Defendants made 23 misrepresentations or omissions; (2) the misrepresentations or omissions were material; and (3) 24 Defendants acted with scienter. CFTC v. R.J. Fitzgerald & Co., Inc., 310 F.3d 1321, 1328 (11th 25 Cir. 2002); Am. Bullion, 2014 WL 12603558, at *4. Misappropriation and issuing false account 26 statements also violates these provisions. See, e.g., Am. Bullion, 2014 WL 12603558, at *7 27 (holding misappropriation violated 7 U.S.C. § 6c(b)) and other anti-fraud provisions of the Act 28 and related Regulations); CFTC v. Weinberg, 287 F. Supp. 2d 1100, 1107 (C.D. Cal. 2003) 23 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 24 of 50 1 (default order) (finding false and misleading statements as to amount and location of investors’ 2 money violated 7 U.S.C. § 6c(b)). 3 By the conduct described herein, Defendants Financial Tree, Financial Solution, and New 4 Money (acting as a common enterprise) and Defendant Glenn Law Firm, by and through their 5 officers, employees, and agents, and Defendants Black, Mancuso, Tufo, and Glenn, in connection 6 with offers to enter into, entry into, or confirmation of the execution of commodity option 7 transactions, directly or indirectly, and knowingly or recklessly, violated 7 U.S.C. § 6c(b) and 17 8 C.F.R. § 32.4 by, among other things, misrepresenting and omitting material facts in soliciting 9 pool participants, misappropriating funds solicited for the Black Pools, and, in the case of 10 Financial Tree, Financial Solution, and New Money (acting as a common enterprise), by and 11 through their officers, employees, and agents, and Defendant Black, by making and disseminating 12 false account statements. 13 ii. Defendants Committed Forex Fraud in Violation of 7 U.S.C. § 14 6b(a)(2)(A)-(C) (2018) and 17 C.F.R. § 5.2(b) (2021) (Count Two) 15 7 U.S.C. § 6b(a)(2)(A)-(C) of the Act makes it unlawful 16 [f]or any person, in or in connection with any order to make, or the making of, any contract of sale of any commodity for future delivery, 17 or swap, that is made, or to be made, for or on behalf of, or with, any other person, other than on or subject to the rules of a designated 18 contract market—(A) to cheat or defraud or attempt to cheat or defraud the other person; (B) willfully to make or cause to be made 19 to the other person any false report or statement or willfully to enter or cause to be entered for the other person any false record; [or] (C) 20 willfully to deceive or attempt to deceive the other person by any means whatsoever in regard to any order or contract or the 21 disposition or execution of any order or contract, or in regard to any act of agency performed, with respect to any order or contract for or, 22 in the case of paragraph (2), with the other person[.] 23 To show that Defendants violated 7 U.S.C. § 6b(a)(2) through misrepresentations and 24 omissions, the Commission must prove the same elements as those required to prove a violation 25 under 7 U.S.C. § 6c(b) and 17 C.F.R. § 32.4. See, e.g., Am. Bullion, 2014 WL 12603558, at *5 26 (citing CFTC v. Rosenberg, 85 F. Supp. 2d 424, 445 (D.N.J. 2000)). The Complaint establishes 27 all three elements, for the reasons described above. Likewise, the Complaint establishes 28 violations of 7 U.S.C. § 6b(a) through misappropriation and through issuing false account 24 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 25 of 50 1 statements, for the same reasons previously explained. 2 Regulation 5.2(b)(1)-(3), 17 C.F.R. § 5.2(b)(1)-(3) (2021), provides, in relevant part: 3 “[i]t shall be unlawful for any person, by use of the mails or by any means or instrumentality of interstate commerce, directly or 4 indirectly, in or in connection with any retail forex transaction: 5 (1) To cheat or defraud or attempt to cheat or defraud any person; (2) Willfully to make or cause to be made to any person any false report 6 or statement or cause to be entered for any person any false record; or (3) Willfully to deceive or attempt to deceive any person by any 7 means whatsoever. 8 9 17 C.F.R. § 5.2(b) adds only one additional element not found in 7 U.S.C. § 6b(a)(2)(A)- 10 (C): that a defendant’s conduct must involve “use of the mails or by any means or instrumentality 11 of interstate commerce.” Here, Defendants communicated with pool participants via email and 12 telephone, both instrumentalities of interstate commerce. And much money was transferred to 13 bank accounts through wire transfers or other instrumentalities of interstate commerce. Thus, the 14 Complaint establishes the additional required element. 15 iii. Defendants Committed Fraud By Commodity Pool Operators (“CPOs”) 16 and Associated Persons (“APs”) of CPOs in Violation of 7 U.S.C. § 17 6o(1)(A)-(B) (2018) (Count Three) 18 Section 1a(10)(A) of the Act, 7 U.S.C. § 1a(10)(A) (2018), defines a “commodity pool” as 19 “any investment trust, syndicate, or similar form of enterprise operated for the purpose of trading 20 in commodity interests,” including for the trading of futures, binary options, or forex. 7 U.S.C. § 21 1a(11)(A)(i) defines a CPO as 22 any person engaged in a business that is of the nature of a commodity pool, investment trust, syndicate, or similar form of enterprise, and 23 who, in connection therewith, solicits, accepts, or receives from others, funds, securities, or property, either directly or through capital 24 contributions, the sale of stock or other forms of securities, or otherwise, for the purpose of trading in commodity interests, 25 including any—(I) commodity for future delivery, security futures product, or swap; [or] (II) agreement, contract, or transaction 26 described in [S]ection 2(c)(2)(C)(i) [of the Act] or [S]ection 2(c)(2)(D)(i) [of the Act.] 27 28 25 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 26 of 50 1 Pursuant to Regulation 5.1(d)(1), 17 C.F.R. § 5.1(d)(1) (2021), and subject to certain 2 exceptions not relevant here, any person who operates or solicits funds, securities, or property for 3 a pooled investment vehicle and engages in retail forex transactions is defined as a retail forex 4 CPO. Pursuant to Section 2(c)(2)(C)(ii)(I) of the Act, 7 U.S.C. § 2(c)(2)(C)(ii)(I) (2018), 5 “[a]greements, contracts, or transactions” in retail forex and accounts or pooled investment 6 vehicles in retail forex “shall be subject to . . . [7 U.S.C. §] 6o,” except in circumstances not 7 relevant here. 8 During the Relevant Period, Defendants Financial Tree, Financial Solution, and New 9 Money (acting as a common enterprise) and Defendant Glenn Law Firm solicited, accepted, 10 and/or received funds for the Black Pools, and thus acted as CPOs and retail forex CPOs, as 11 defined by 7 U.S.C. § 1a(11) of the Act and 17 C.F.R. § 5.1(d)(1), respectively. Regulation 1.3, 12 17 C.F.R. § 1.3 (2021), defines an AP of a CPO as: 13 a natural person associated with: (3) A [CPO] as a partner, officer, employee, consultant, or agent (or any natural person occupying a 14 similar status or performing similar functions), in any capacity which involves (i) the solicitation of funds, securities, or property for a 15 participation in a commodity pool or (ii) the supervision of any person or persons so engaged[.] 16 17 Similarly, 17 C.F.R. § 5.1(d)(2) defines as an AP of a retail forex CPO any person 18 associated with a retail forex CPO (as defined by 17 C.F.R. § 5.1(d)(1)) as: 19 a partner, officer, employee, consultant or agent (or any natural person occupying a similar status or performing similar functions), 20 in any capacity which involves: (i) [t]he solicitation of funds, securities, or property for a participation in a pooled investment 21 vehicle; or (ii) [t]he supervision of any person or persons so engaged[.] 22 23 During the Relevant Period, Defendants Black, Mancuso, Tufo, and Glenn were each 24 associated with one or more of the above CPOs and retail forex CPOs as a partner, officer, 25 employee, consultant, or agent in a capacity that involved the solicitation of funds for the Black 26 Pools, and/or the supervision of any person or persons so engaged. Therefore, these Defendants 27 were APs of a CPO as defined by Regulation 1.3 and APs of a retail forex CPO as defined by 28 Regulation 5.1(d)(2). 26 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 27 of 50 1 Section 4o(1) of the Act, 7 U.S.C. § 6o(1) (2018), provides, in relevant part, that: 2 [i]t shall be unlawful for a . . . [CPO or an AP of a CPO], by use of the mails or any means or instrumentality of interstate commerce, 3 directly or indirectly—(A) to employ any device, scheme, or artifice to defraud any client or participant or prospective client or 4 participant; or (B) to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or 5 participant or prospective client or participant. 6 Defendants violated 7 U.S.C. § 6o(1) by the same fraudulent misconduct described above. 7 7 U.S.C. § 6o(1) is a parallel statute to 7 U.S.C. § 6b of the Act—the same conduct that violates 8 the latter can violate the former. Am. Bullion, 2014 WL 12603558, at *5; Driver, 877 F. Supp. 9 2d at 978. To prove a violation of 7 U.S.C. § 6o(1)(B), the Commission need not prove 10 scienter—only that “the [violator] . . . intended to do what was done and its consequence is to 11 defraud.” See CFTC v. Crombie, 914 F.3d 1208, 1215 (9th Cir. 2019) (citation omitted); CFTC 12 v. Savage, 611 F.2d 270, 285 (9th Cir. 1978). 13 The only additional element set forth in 7 U.S.C. § 6o(1) is that Defendants’ conduct must 14 involve use of the mails or any means or instrumentality of interstate commerce, which it did as 15 described above. 7 U.S.C. § 6o(1) of the Act applies to all CPOs and APs whether registered, 16 required to be registered, or exempt from registration. See Weinberg, 287 F. Supp. 2d at 1107-08 17 (so noting with respect to CPOs). 18 iv. Defendants Failed to Properly Register with the Commission in Violation 19 of 7 U.S.C. §§ 2(c)(2)(C)(iii)(I)(cc), 6k(2), 6m(1) (2018) and 17 C.F.R. § 20 5.3(a)(2) (2021) (Count Four) 21 Section 4m(1) of the Act, 7 U.S.C. § 6m(1) (2018), provides that it is unlawful for a CPO, 22 unless registered, “to make use of the mails or any means or instrumentality of interstate 23 commerce in connection with his business as a CPO.” Similarly, Section 2(c)(2)(C)(iii)(I)(cc) of 24 the Act, 7 U.S.C. § 2(c)(2)(C)(iii)(I)(cc), states that a person shall not operate or solicit funds for 25 any pooled investment vehicle in connection with forex transactions, unless registered pursuant to 26 Commission regulations. Regulation 5.3(a)(2)(i), 17 C.F.R. § 5.3(a)(2)(i) (2021), requires retail 27 forex CPOs, as defined by 17 C.F.R. § 5.1(d)(1), to register as such with the Commission. 28 Section 4k(2) of the Act, 7 U.S.C. § 6k(2) (2018) states that APs of CPOs who are soliciting for 27 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 28 of 50 1 participation in a pool must register with the Commission. And, except in certain circumstances 2 not relevant here, 17 C.F.R. § 5.3(a)(2)(ii) requires those that meet the definition of an AP of a 3 retail forex CPO under Regulation 5.1(d)(2) to register as an AP of a CPO with the Commission. 4 See, e.g., Am. Bullion, 2014 WL 12603558, at *7 (finding defendants who should have registered 5 but failed to register as CPOs and APs violated the Act and Regulations). 6 For the reasons described above, Defendants Financial Tree, Financial Solution, and New 7 Money (acting as a common enterprise) and the Glenn Law Firm are CPOs, and Defendants 8 Black, Mancuso, Tufo, and Glenn are APs of CPOs. Although required by the Act and 9 Regulations, they did not register with the Commission as such. Defendants thus violated 7 10 U.S.C. §§ 2(c)(2)(C)(iii)(I)(cc), 6k(2), 6m(1), and 17 C.F.R. § 5.3(a)(2)(i)-(ii). 11 v. Defendants Financial Tree, Financial Solution, and the Glenn Law Firm 12 Failed to Operate Pools as Separate Entities and Commingled Pool Funds 13 in Violation of 17 C.F.R. § 4.20(a)(1), (b)-(c) (2021) (Count Five) 14 Regulation 4.20(a)(1), 17 C.F.R. § 4.20(a)(1) (2021), requires a CPO, whether registered 15 or not, to operate its pool as a legal entity separate from that of the CPO. See, e.g., Am. Bullion, 16 2014 WL 12603558, at *7 (finding CPOs violated 17 C.F.R. § 4.20(a)(1) and (b) when they failed 17 to operate pool as separate legal entity and received pool funds in a name other than that of the 18 pool). 17 C.F.R. § 4.20(c) prohibits a CPO, whether registered or not, from commingling the 19 property of any pool it operates with the property of any other person. See, e.g., Capitol Equity 20 FX, 2017 WL 9565340, at *5 (holding that CPO violated 17 C.F.R. § 4.20(c) by commingling 21 pool funds with non-pool property). Regulation 5.4, 17 C.F.R. § 5.4 (2021), states that Part 4 of 22 the Regulations, 17 C.F.R. pt. 4 (2021), applies to any person required to register as a CPO 23 pursuant to Part 5 of the Regulations, 17 C.F.R. pt. 5 (2021), relating to forex transactions. 24 During the Relevant Period, Financial Tree and Financial Solution violated Regulation 25 4.20(a)(1) by failing to operate the FT Pool and FSG Pool, respectively, as a legal entity separate 26 from that of the CPO. Financial Tree and Financial Solution violated Regulation 4.20(c) by 27 transferring pool funds into bank accounts controlled by Black, Mancuso, Tufo, and others which 28 contained non-pool property. During the Relevant Period, the Glenn Law Firm, while acting as 28 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 29 of 50 1 CPO for the Black Pools, violated Regulation 4.20(b) by failing to receive pool participants’ 2 funds in the names of the Black Pools and violated Regulation 4.20(c) by accepting pool funds 3 into bank accounts containing non-pool property. 4 vi. Defendants Financial Tree, Financial Solution, New Money, and the Glenn 5 Law Firm Failed to Provide Pool Participants with Disclosure and Other 6 Required Documents in Violation of 17 C.F.R. §§ 4.21, 4.22 (2021) (Count 7 Six) 8 Regulation 5.4, 17 C.F.R. § 5.4 (2021), states that Part 4 of the Regulations, 17 C.F.R. pt. 9 4 (2021), applies to any person required to register as a CPO pursuant to Part 5 of the 10 Regulations, 17 C.F.R. pt. 5 (2021), relating to forex transactions. Regulation 4.21(a)(1), 17 11 C.F.R. § 4.21(a)(1) (2021), provides that: 12 each commodity pool operator registered or required to be registered under the Act must deliver or cause to be delivered to a prospective 13 participant in a pool that it operates or intends to operate a Disclosure Document for the pool prepared in accordance with §§ 4.24 and 4.25 14 by no later than the time it delivers to the prospective participant a subscription agreement for the pool . . . 15 16 Regulation 4.22(a), (c), 17 C.F.R. § 4.22(a), (c) (2021), provides that: 17 each commodity pool operator registered or required to be registered under the Act must periodically distribute to each participant in each 18 pool . . . an Account Statement, which shall be presented in the form of a Statement of Operations and a Statement of Changes in Net 19 Assets . . . [and which] must be presented and computed in accordance with generally accepted accounting principles . . . . [and] 20 must [also] distribute an Annual Report . . . . 21 See, e.g., Am. Bullion, 2014 WL 12603558, at *7 (finding CPOs violated Regulations 4.21 and 22 4.22 when they failed to provide a required disclosure document and account statements). 23 Defendants Financial Tree, Financial Solution, and New Money (acting as a common 24 enterprise) and the Glenn Law Firm failed to provide prospective pool participants with a pool 25 disclosure document in the form specified in Regulations 4.24 and 4.25. Nor did these 26 Defendants provide accurate account statements presented and computed in accordance with 27 generally accepted accounting principles and containing required information, fees, and expenses 28 incurred by the Black Pools, or an annual report containing financial statements certified by an 29 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 30 of 50 1 independent public accountant. Accordingly, Financial Tree, Financial Solution, New Money, 2 and the Glenn Law Firm violated 17 C.F.R. §§ 4.21, 4.22. 3 vii. Defendants Black and Glenn Are Liable as Controlling Persons for the 4 Unlawful Conduct of the Entities They Controlled 5 Controlling persons are liable for violations of the entities they control under certain 6 circumstances. Section 13(b) of the Act, 7 U.S.C. § 13c(b) (2018), states that a controlling person 7 of an entity is liable for the violations of that entity if the controlling person knowingly induced 8 the violations, directly or indirectly, or did not act in good faith. “A fundamental purpose of 9 Section 13[(b)] is to allow the Commission to reach behind the corporate entity to the controlling 10 individuals of the corporation and to impose liability for violations of the Act directly on such 11 individuals as well as the corporation itself.” R.J. Fitzgerald, 310 F.3d at 1334 (citation omitted) 12 (defendant who was ultimate decision maker at firm, was ultimately responsible for compliance 13 with Act and Regulations, and reviewed and approved activities violating Act was controlling 14 person); see also Capitol Equity FX, 2017 WL 9565340, at *4 (noting that “one is a controlling 15 person when he or she has the possession, direct or indirect, of the power to direct or cause the 16 direction of the management and policies of a person . . . .” and holding that husband and wife 17 who were president and sole owner, respectively, of relevant entities and opened trading accounts 18 in entities’ names were controlling persons of those entities); CFTC v. FX First, Inc., No. SACV 19 03-1454JVS (MLGx), 2007 WL 9711431, at *8–12 (C.D. Cal. Sept. 28, 2007) (applying 7 U.S.C. 20 § 13c(b) and finding controlling person liability). 21 Defendant Black was a controlling person of Financial Tree, Financial Solution, and New 22 Money during the Relevant Period. Black caused the creation of Financial Tree, Financial 23 Solution, and New Money. Black is the lone Trustee of Financial Tree and Financial Solution 24 and is the Managing Director of New Money. Financial Tree’s and Financial Solution’s Articles 25 of Trust list Black as Trustee having exclusive control of Financial Tree and Financial Solution. 26 New Money’s registration documents with the Nevada Secretary of State list Black and Financial 27 Tree (which Black controls) as New Money’s two managers. Black opened bank accounts for 28 Financial Tree, Financial Solution, and New Money and was the sole signatory on those accounts. 30 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 31 of 50 1 Black signed Agreements on behalf of Financial Solution and New Money. Therefore, pursuant 2 to 7 U.S.C. § 13c(b), Black is liable for all of Financial Tree’s, Financial Solution’s, and New 3 Money’s violations of the Act and Regulations as described in Counts 1 through 6 of the 4 Complaint and above. 5 Defendant Glenn was a controlling person of the Glenn Law Firm during the Relevant 6 Period. Glenn is the Managing Partner of the Glenn Law Firm, whose website does not list other 7 attorneys as being members of the firm. Glenn signed the August 25, 2014 “Paymaster 8 Agreement” with Financial Tree on behalf of the Glenn Law Firm. Glenn opened bank accounts 9 for each Glenn Law Firm bank account to which pool participants contributed funds. Therefore, 10 pursuant to 7 U.S.C. § 13c(b), Glenn is liable for all of the Glenn Law Firm’s violations of the 11 Act and Regulations as described in Counts 1 through 6 of the Complaint and above. 12 viii. Defendants Financial Tree, Financial Solution, New Money, and the Glenn 13 Law Firm Are Liable For the Acts of Their Agents Black, Mancuso, Tufo, 14 and/or Glenn 15 Corporate entities can also be liable for the acts of individuals acting on their behalves. 16 Section 2(a)(1)(B) of the Act, 7 U.S.C. § 2(a)(1)(B) (2018), and Regulation 1.2, 17 C.F.R. § 1.2 17 (2020), state that the act, omission, or failure of any person acting for any entity within the scope 18 of his employment or office shall be deemed the act, omission or failure of such entity, as well as 19 of that person. See R.J. Fitzgerald, 310 F.3d at 1335 (imposing liability on corporate entity 20 because of acts of individuals); Am. Bullion, 2014 WL 12603558, at *8 (same). During the 21 Relevant Period, Defendants Black, Mancuso, Tufo, and Glenn were officers, employees, or 22 agents of Financial Tree, Financial Solution, and New Money. Likewise, Defendant Glenn was 23 an officer, employee, or agent of the Glenn Law Firm. Therefore, pursuant to 7 U.S.C. § 24 2(a)(1)(B) and 17 C.F.R. § 1.2, Financial Tree, Financial Solution, New Money, and the Glenn 25 Law Firm are liable for each of the acts, misrepresentations, omissions, and failures of those 26 officers, employees, or agents done in the scope of their employment or office, as described in 27 Counts 1 through 6 of the Complaint and above. 28 //// 31 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 32 of 50 1 ix. Defendants Financial Tree, Financial Solution, and New Money Are Liable 2 for the Acts of Each Other as a Common Enterprise 3 When defendants act “[a]s a common enterprise,” they may be held “jointly and severally 4 liable for the acts of the common scheme.” Am. Bullion, 2014 WL 12603558, at *8 (citations 5 omitted); see, e.g., Noble Wealth, 90 F. Supp. 2d at 691. When determining whether a common 6 enterprise exists, courts consider “a variety of factors, including: common control; the sharing of 7 office space and officers; whether business is transacted through a maze of interrelated 8 companies; unified advertising; and evidence which reveals that no real distinction existed 9 between the Corporate Defendants.” Am. Bullion, 2014 WL 12603558, at *8 (internal citations 10 and quotations omitted) (finding two entities operated as a common enterprise because “[t]heir 11 principals are the same, their employees are the same and their customers are the same” and 12 “there is no meaningful distinction between the two entities”). Black formed, opened bank 13 accounts for, is the only employee associated with, and controls Financial Solution, New Money, 14 and Financial Tree. Financial Solution and Financial Tree share the same address—a UPS store 15 in Folsom, California. The only business Financial Solution, New Money, and Financial Tree 16 conducted was related to Defendants’ fraud. These facts warrant treating Financial Tree, 17 Financial Solution, and New Money as a common enterprise, thus making each individual 18 company liable for the deceptive acts and practices of the other, as reflected in Counts 1 through 19 6 of the Complaint. 20 x. Relief Defendants Are Liable for Disgorgement 21 Each Relief Defendant received ill-gotten funds with no entitlement to those funds and is 22 thus liable for disgorgement. To support disgorgement against a relief defendant, the CFTC need 23 only demonstrate that the relief defendant received ill-gotten funds and does not have a legitimate 24 claim to those funds. SEC v. World Capital Mkt., Inc., 864 F.3d 996, 1004 (9th Cir. 2017); Am. 25 Bullion, 2014 WL 12603558, at *8 (holding Relief Defendants who received over $1 million in 26 pool funds without providing legitimate services or having legitimate claim to those funds should 27 be required to disgorge such funds). The relief defendant must disgorge such funds even if the 28 relief defendant no longer possesses the funds. See World Capital Mkt., 864 F.3d at 1007 32 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 33 of 50 1 (“ongoing possession of the funds is not required for disgorgement”). As the Complaint 2 describes, each Relief Defendant received pool funds, either directly from Defendants or through 3 other Relief Defendants. The Relief Defendants have no legitimate claim to pool funds and did 4 not provide any services related to the Black Pools for pool participants. The Relief Defendants 5 are thus required to disgorge the money they received. 6 xi. Relief Defendant Caswell Is Jointly and Severally Liable for Relief 7 Defendants Suisse Group’s and JMC’s Disgorgement Obligations 8 Relief Defendant Caswell is jointly and severally liable for Relief Defendants Suisse 9 Group’s and JMC’s disgorgement obligations because Suisse Group and JMC were alter egos of 10 Caswell. In the Ninth Circuit, an individual relief defendant may be held jointly and severally 11 liable for disgorgement of ill-gotten funds received by an entity relief defendant where the entity 12 is the alter ego of the individual. See FTC v. Ivy Capital, Inc., 616 Fed. Appx. 360, 361 (9th Cir. 13 2015) (holding district court did not err in finding entity was alter ego of jointly and severally 14 liable individual where individual was 51% owner, entity funds were used to pay personal 15 expenses, and adherence to the corporate fiction would promote injustice). Under California law, 16 to prove alter ego liability, (1) there must be “such unity of interest and ownership that the 17 separate personalities of the corporation and the individual no longer exist, and (2) that, if the acts 18 are treated as those of the corporation alone, an inequitable result will follow.” Associated 19 Vendors, Inc. v. Oakland Meat Co., 210 Cal. App. 2d 825, 837 (1962) (citations omitted) 20 (identifying factors supporting alter ego liability, including commingling and personal use of 21 corporate funds and other assets, undercapitalization of the corporate entity, the disregard of legal 22 formalities and failure to maintain an arms-length relationship among related entities, and use of 23 the same office locations and employment of the same employees). 24 Here, Caswell solely owned and controlled Suisse Group and JMC. Both entities shared 25 the same UPS store mailing address and the same email address. Caswell transferred corporate 26 funds to himself as well as apparent relatives and friends, made payments from corporate 27 accounts for personal expenses such as massages and mobile phones, transferred pool funds from 28 Suisse Group to JMC, and, for most of 2016, maintained almost zero funds, beyond pool funds, in 33 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 34 of 50 1 the bank accounts that received transfers from Defendants in 2016. It appears Caswell utilized 2 Suisse Group and JMC not for legitimate business purposes, but to receive and immediately 3 dissipate ill-gotten pool funds. It would be inequitable for Suisse Group and JMC to avoid 4 disgorging the $800,000 they collectively received simply because Caswell transferred the money 5 elsewhere. Thus, Suisse Group, JMC, and Caswell are jointly and severally liable for 6 disgorgement of the $800,000 on an alter ego basis. 7 c. Sum of Money at Stake 8 The fourth Eitel factor, “the amount of money at stake in relation to the seriousness of the 9 defendant’s conduct” weighs in favor of a default judgment. PepsiCo, Inc. v. Los Potros Dist. 10 Ctr., LLC, No. CV-07-2425, 2008 WL 942283, at *3 (D. Ariz. Apr. 7, 2008). Although the 11 amount of money at stake in this case is large, the restitution and civil monetary penalties the 12 CFTC seeks from Defendants, as well as the disgorgement the CFTC seeks from Relief 13 Defendants, are consistent with awards and penalties in similar enforcement actions. See, e.g., 14 CFTC v. Driver, 877 F. Supp. 2d 968, 981 (C.D. Cal. 2012) (awarding over $9.5 million in 15 restitution and a $31.8 million civil monetary penalty) aff’d 585 F. App’x 366 (9th Cir. 2014); 16 CFTC v. Am. Bullion Exch. ABEX, Corp. (“Am. Bullion”), No. SACV10-1876, 2014 WL 17 12603558, at *10-11 (C.D. Cal. Sept. 16, 2014) (entering default judgment for CFTC and 18 ordering defendants to pay a civil monetary penalty of triple the defendants’ gain, which 19 exceeded $14 million, and ordering two relief defendants to disgorge $1.25 million and $110,600, 20 respectively, reflecting pool funds improperly received by those relief defendants); CFTC v. 21 Schiera, No. CV05 2660, 2006 WL 4586786, at *7, *9 (S.D. Cal. Dec. 11, 2006) (entering default 22 judgment and ordering defendants to disgorge $3 million and pay a $9 million civil monetary 23 penalty). 24 Moreover, Defendants’ fraudulent conduct and registration violations constitute core 25 violations of the Act and Regulations which attack the integrity of the commodity markets. The 26 CFTC’s requested relief is therefore reasonable. See Sky Billiards, 2016 WL 6661175, at *5 27 (entering default judgment and noting that the “award [was] consistent with other default 28 judgment awards in the context of [similar cases].”). 34 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 35 of 50 1 d. Possibility of Factual Disputes 2 The fifth Eitel Factor, the possibility of a dispute as to material facts, weighs in favor of a 3 default judgment. The Complaint details Defendants’ fraudulent solicitations, misappropriation 4 of pool funds, and extensive efforts to conceal and prolong the scheme. The Complaint refers to, 5 and relies heavily on, documentary evidence such as emails and account statements reflecting 6 Defendants’ communications and financial activities. Given this, the likelihood of a genuine 7 factual dispute on a material issue is exceedingly remote. See also Sky Billiards, 2016 WL 8 6661175, at *5 (recognizing that the defendant’s failure to respond “supports the conclusion that 9 the possibility of a dispute as to the material facts is minimal”).2 10 e. Excusable Neglect 11 As to the sixth Eitel factor, there was no excusable neglect for the defaults because all 12 Parties were properly served with the Summons and Complaint in July and August 2020. See 13 Halsey, 2014 WL 12601015, at *4 (recognizing that proper service of process supports a finding 14 that default is not due to excusable neglect). Since that time, Black and the Glenn Defendants 15 appeared only to litigate matters related to stay and default, then ultimately chose to default. The 16 remaining, non-appearing Parties made no effort to appear and defend this lawsuit either pro se 17 (in the case of individual Parties) or through counsel (as permitted for individuals and required for 18 entity Parties). Notably, this Court explicitly placed the Parties on notice of the requirements 19 under E.D. Cal. L.R. 183(a) for entities to appear through counsel. See, e.g., ECF Nos. 48, 96 20 21 2 The court notes that non-parties Michael J. Jacobs and Ruby Handler Jacobs filed a “notice” 22 with the court as a “courtesy” that purports to argue the facts of this case. ECF No. 128 at 1, 8. The Jacobses, who were officers of the “now defunct named Relief Defendant Kingdom Trust 23 LLC” make clear that they “speak for themselves as they are not authorized to represent nominal Kingdom in this action.” ECF No. 128 at 2. Their statements as non-parties do not alter the 24 outcome of this Eitel factor because in the default judgment context, the court makes a determination based on the well-pleaded facts in the Complaint which, as discussed above, 25 support default judgment against Relief Defendant Kingdom in this case. Kingdom, the actual 26 party to this case, has not raised any dispute as to material facts and is inarguably in default. ECF No. 50. The Court has previously explained that Michael Jacobs may not represent Kingdom in 27 this matter. ECF No. 48. The Jacobses’ notice is an attempt at an end-run around their inability to represent Kingdom and it does not alter the court’s analysis with respect to the entry of default 28 judgment. 35 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 36 of 50 1 (rejecting efforts by Financial Tree, Financial Solution, New Money, and Kingdom to appear 2 through non-attorney principals). Thus, the Parties’ defaults cannot be excused. 3 f. Policy Favoring Merits Determinations 4 Finally, the seventh Eitel factor—the general preference for deciding cases on the 5 merits—does not counsel against a default judgment here because “[d]efendant[s’] failure to 6 answer Plaintiffs’ Complaint makes a decision on the merits impractical, if not impossible.” 7 PepsiCo, Inc. v. Cal. Sec. Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002) (noting that the on- 8 the-merits “preference, standing alone, is not dispositive”) (citation omitted). In addition, 9 countervailing interests outweigh any residual interest in preserving the remote potential for a 10 merits decision. “[T]he CFTC is the statutory guardian entrusted with the enforcement of the 11 congressional scheme for safeguarding the public interest in commodity futures markets.” See 12 Stephen Bronte, Advisors, LLC v. CFTC, 90 F. App’x 251, 252 (9th Cir. 2004) (internal 13 quotations and citations omitted). Absent a default judgment, the CFTC will likely be unable to 14 secure an order of restitution and disgorgement on behalf of defrauded pool participants, deter 15 misconduct through penalties, and protect the public through permanent injunctive relief. This 16 weighs in favor of a default judgment. 17 g. Conclusion 18 For the reasons explained above, all Eitel factors weigh in favor of default judgment. 19 Accordingly, default judgment is appropriate in this case. What remains is a determination of the 20 terms of relief. 21 III. RECOMMENDED TERMS OF JUDGMENT 22 A. Permanent Injunction 23 The CFTC is authorized to seek, and the Court to impose, injunctive relief. Section 6c of 24 the Act, 7 U.S.C. § 13a-1(a) (2018). “The CFTC is entitled to a permanent injunction upon a 25 showing that a violation [of the Act or Regulations] has occurred and is likely to continue unless 26 enjoined.” Driver, 877 F. Supp. 2d at 981. “Once a violation is demonstrated, the [CFTC] need 27 show only that there is some reasonable likelihood of future violations.” CFTC v. Wilson, No. 28 //// 36 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 37 of 50 1 11-cv-1651, 2011 WL 6398933, at *2 (S.D. Cal. Dec. 20, 2011) (quoting CFTC v. Hunt, 591 F.2d 2 1211, 1220 (7th Cir. 1979)). 3 The well-pleaded facts of the CFTC’s Complaint, and the evidence submitted through 4 declarations, establish a long-standing pattern of sophisticated unlawful conduct. In light of these 5 facts, the undersigned finds it highly likely that Defendants will be repeat violators of the Act and 6 Regulations unless permanently restrained and enjoined by the Court. Defendants’ repetitive 7 prior misconduct—fraudulently soliciting over ninety pool participants over five years, 8 misappropriating their money, and offering bogus excuses for failure to return funds—is highly 9 suggestive of future violations. So too is Defendants’ disregard of the California DBO’s Desist & 10 Refrain Order against Black, Mancuso, and Financial Solution in April 2018 and repeated 11 complaints from pool participants to that Defendants were defrauding them. Mancuso continued 12 falsely promising disbursement of funds to pool participants and discouraging cooperation with 13 the CFTC at least as recently as August 2020—well after being served with the SRO entered by 14 this Court. And Tufo is a recidivist—he has been charged civilly and criminally with two prior 15 fraudulent schemes. Defendants have shown no signs of stopping their fraud. 16 Based upon and in connection with the foregoing conduct, pursuant to 7 U.S.C. § 13a-1, 17 Defendants should be permanently restrained, enjoined and prohibited from directly or indirectly 18 engaging in conduct in violation of Sections 4b(a)(2)(A), (C), 4c(b), 4k(2), 4m(1), 4o(1)(A)-(B), 19 and 2(c)(2)(C)(iii)(I)(cc) of the Act, 7 U.S.C. §§ 6b(a)(2)(A), (C), 6c(b), 6k(2), 6m(1), 6o(1)(A)- 20 (B), and 2(c)(2)(C)(iii)(I)(cc) (2018), and Regulations 5.2(b)(1)-(3), 5.3(a)(2), and 32.4, 17 C.F.R. 21 §§ 5.2(b)(1)-(3), 5.3(a)(2), and 32.4 (2021), including: 22 a. Cheating or defrauding, or attempting to cheat or defraud, any other person; or 23 deceiving, or attempting to deceive, any other person by any means whatsoever; in or in 24 connection with an offer to enter into, the entry into, or the confirmation of the execution of, any 25 commodity option transaction; 26 b. in or in connection with any order to make, or the making of, any contract of sale 27 of any commodity for future delivery, or swap, that is made, or to be made, for or on behalf of, or 28 with, any other person, (i) cheating or defrauding, or attempting to cheat or defraud, any other 37 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 38 of 50 1 person; or (ii) willfully deceiving or attempting to deceive any other person by any means 2 whatsoever in regard to any order or contract or the disposition or execution of any order or 3 contract, or in regard to any act of agency performed, with respect to any order or contract for or 4 with the other person; 5 c. acting as a CPO or an AP of a CPO and employing any device, scheme, or artifice 6 to defraud any client or participant or prospective client or participant; or engaging in any 7 transaction, practice, or course of business which operates as a fraud or deceit upon any client or 8 participant or prospective client or participant; or 9 d. acting as a CPO or an AP of a CPO without being registered with the CFTC. 10 Based upon and in connection with the foregoing conduct, pursuant to 7 U.S.C. § 13a-1, 11 Defendants Financial Tree, Financial Solution, New Money, and Black should also be 12 permanently restrained, enjoined, and prohibited from directly or indirectly engaging in conduct 13 in violation of 7 U.S.C. § 6b(a)(2)(B), including willfully making or causing to be made to any 14 other person any false report or statement or willfully entering or causing to be entered for the 15 other person any false record, in or in connection with any order to make, or the making of, any 16 contract of sale of any commodity for future delivery, or swap, that is made, or to be made, for or 17 on behalf of, or with, any other person. 18 Based upon and in connection with the foregoing conduct, pursuant to 7 U.S.C. § 13a-1, 19 Defendants Financial Tree, Financial Solution, New Money, the Glenn Law Firm, Black, and 20 Glenn should also be permanently restrained, enjoined and prohibited from directly or indirectly 21 engaging in conduct in violation of 7 U.S.C. § 6b(a)(2)(B) and 17 C.F.R. §§ 4.20(a)(1), (b)-(c), 22 4.21, and 4.22, including failing to properly operate any commodity pool in compliance with the 23 Act and Regulations, including but not limited to 17 C.F.R. §§ 4.20(a)(1), (b)-(c), 4.21, and 4.22. 24 Defendants should also be permanently restrained, enjoined and prohibited from directly 25 or indirectly: 26 a. Trading on or subject to the rules of any registered entity (as that term is defined in 27 Section 1a(40) of the Act, 7 U.S.C. § 1a(40) (2018)); 28 //// 38 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 39 of 50 1 b. Entering into any transactions involving “commodity interests” (as that term is 2 defined in Regulation 1.3, 17 C.F.R. § 1.3 (2021)), for their own personal account or for any 3 account in which they have a direct or indirect interest; 4 c. Having any commodity interests traded on their behalves; 5 d. Controlling or directing the trading for or on behalf of any other person or entity, 6 whether by power of attorney or otherwise, in any account involving commodity interests; 7 e. Soliciting, receiving or accepting any funds from any person for the purpose of 8 purchasing or selling any commodity interests; 9 f. Applying for registration or claiming exemption from registration with the CFTC 10 in any capacity, and engaging in any activity requiring such registration or exemption from 11 registration with the CFTC, except as provided for in Regulation 4.14(a)(9), 17 C.F.R. § 12 4.14(a)(9) (2021); and/or 13 g. Acting as a principal (as that term is defined in Regulation 3.1(a), 17 C.F.R. § 14 3.1(a) (2021)), agent or any other officer or employee of any person (as that term is defined in 7 15 U.S.C. § 1a(38)), registered, exempted from registration or required to be registered with the 16 CFTC except as provided for in 17 C.F.R. § 4.14(a)(9). 17 B. Restitution 18 The CFTC is authorized to seek, and the Court to impose, equitable remedies for 19 violations of the Act and Regulations, including “restitution to persons who have sustained losses 20 proximately caused by such violation (in the amount of such losses).” 7 U.S.C. § 13a-1(d)(3)(A). 21 Restitution exists to “restore the status quo” and reflects “the difference between what defendants 22 obtained and the amount customers received back . . . .” Driver, 877 F. Supp. 2d at 981; see also 23 CFTC v. Leighton, No. 2:12-cv-04012, 2013 WL 4101874, at *9 (C.D. Cal. July 8, 2013). 24 Defendants Financial Tree, Financial Solution, New Money, the Glenn Law Firm, Black, 25 Mancuso, and Glenn should be ordered to pay, jointly and severally, restitution in the amount of 26 $10,495,328.38 (“General Restitution Obligation”), representing net pool participant losses. See 27 Robinson Decl. ¶ 11 (describing losses). If the General Restitution Obligation is not paid 28 immediately, post-judgment interest should accrue on the General Restitution Obligation 39 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 40 of 50 1 beginning on the date of entry of this Order and shall be determined by using the Treasury Bill 2 rate prevailing on the date of entry of this Order pursuant to 28 U.S.C. § 1961 (2018). 3 Defendant Tufo should be ordered to pay, jointly and severally with the remaining 4 Defendants, restitution in the amount of $4,690,155.52 (“Tufo Restitution Obligation,” and 5 together with the General Restitution Obligation [of which the Tufo Restitution Obligation is a 6 subset], the “Restitution Obligations”), representing total losses by pool participants Tufo 7 fraudulently solicited. See Robinson Decl. ¶ 11. If the Tufo Restitution Obligation is not paid 8 immediately, post-judgment interest should accrue on the Tufo Restitution Obligation beginning 9 on the date of entry of this Order and shall be determined by using the Treasury Bill rate 10 prevailing on the date of entry of this Order pursuant to 28 U.S.C. § 1961 (2018). 11 Defendants Black, Mancuso, and Tufo are currently defendants in a criminal action 12 charging them, in part, for the misconduct that is at issue in this matter. See The People of the 13 State of California v. Christopher J. Mancuso, John D. Black, and Joseph P. Tufo, Case No. 20- 14 FE-011219 (Superior Court of the State of California, County of Sacramento, filed July 22, 2020) 15 (with respect to Black, the “Black Criminal Action;” with respect to Mancuso, the “Mancuso 16 Criminal Action;” and with respect to Tufo, the “Tufo Criminal Action”). For amounts disbursed 17 to pool participants as a result of satisfaction of any restitution ordered (1) in the Black Criminal 18 Action or the Mancuso Criminal Action, Defendants should receive a dollar-for-dollar credit 19 against the General Restitution Obligation; or (2) in the Tufo Criminal Action, Defendants should 20 receive a dollar-for-dollar credit against both Restitution Obligations. Within ten days of 21 disbursement in the Criminal Action to pool participants, Mancuso and Tufo should be ordered to 22 transmit, under a cover letter that identifies the name and docket number of this proceeding, to the 23 Chief Financial Officer, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 24 21st Street, NW, Washington, D.C. 20581, and the Office of Administration, National Futures 25 Association, 300 South Riverside Plaza, Suite 1800, Chicago, Illinois 60606, copies of the form 26 of payment to those pool participants; with a copy to Charles Marvine, Deputy Director, 27 Commodity Futures Trading Commission, 2600 Grand Boulevard, Suite 210, Kansas City, MO 28 64108. 40 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 41 of 50 1 To effect payment of the Restitution Obligations and the distribution of any restitution 2 payments to pool participants, the Court should appoint the National Futures Association 3 (“NFA”) as Monitor (“Monitor”). The Monitor should be directed to receive restitution payments 4 from Defendants and make distributions as set forth below. Because the Monitor will be acting as 5 an officer of this Court in performing these services, the NFA shall not be liable for any action or 6 inaction arising from NFA’s appointment as Monitor, other than actions involving fraud. 7 Defendants should be ordered to make payments of their Restitution Obligations, and any post- 8 judgment interest payments, under this Order to the Monitor in the name “Financial Tree 9 Restitution Fund” and directed to send such payments by electronic funds transfer, or by U.S. 10 postal money order, certified check, bank cashier’s check, or bank money order, to the Office of 11 Administration, National Futures Association, 300 South Riverside Plaza, Suite 1800, Chicago, 12 Illinois 60606 under cover letter that identifies the paying Defendant(s) and the name and docket 13 number of this proceeding. Defendants should be further ordered as follows: If payment by 14 electronic funds transfer is chosen, Defendants shall contact Daniel Driscoll or his successor at 15 312-781-1300 or at the address above to receive payment instructions and shall fully comply with 16 those instructions. Defendants shall simultaneously transmit copies of the cover letter and the 17 form of payment to the Chief Financial Officer, Commodity Futures Trading Commission, Three 18 Lafayette Centre, 1155 21st Street, NW, Washington, D.C. 20581; with a copy to Charles 19 Marvine, Deputy Director, Commodity Futures Trading Commission, 2600 Grand Boulevard, 20 Suite 210, Kansas City, MO 64108. 21 It should be further ordered as follows: The Restitution Obligations shall be partially 22 satisfied by applying amounts currently frozen in conjunction with this lawsuit. See ECF No. 9 at 23 2 n.1, 20-21, 24-25 (SRO prohibiting the Parties from transferring, removing, dissipating, and 24 disposing of their assets and prohibiting financial institutions and others who hold, control, or 25 maintain custody of any of the Parties’ assets from permitting the Parties to dispose of those 26 assets); ECF No. 33 at 18-19 (Preliminary Injunction extending asset freeze until further order of 27 the Court). All Assets, as defined in the SRO (ECF No. 9 at 2 n.1), currently frozen (“Frozen 28 Assets”) shall be applied toward any restitution award the Court may order, with the exception of 41 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 42 of 50 1 the Glenn Defendants’ Frozen Assets.3 Financial Institutions and others who hold or control 2 Frozen Assets shall transfer Frozen Assets to the Monitor within three days of receiving actual 3 notice of this Order, including notice via electronic mail. Transfers of Tufo’s Frozen Assets shall 4 reduce both Restitution Obligations by the amount transferred. Transfers of any other Frozen 5 Assets shall reduce the General Restitution Obligation by the amount transferred. Transfers to the 6 Monitor shall follow the procedure prescribed above. 7 It should be further ordered as follows: The Monitor shall oversee the Restitution 8 Obligations and shall have the discretion to determine the manner of distribution of such funds in 9 an equitable fashion to pool participants identified by the CFTC or may defer distribution until 10 such time as the Monitor deems appropriate. In the event that the amount of Restitution 11 Obligations payments to the Monitor are of a de minimis nature such that the Monitor determines 12 that the administrative cost of making a distribution to eligible pool participants is impractical, the 13 Monitor may, in its discretion, treat such restitution payments as civil monetary penalty 14 payments, which the Monitor shall forward to the CFTC following the instructions for civil 15 monetary penalty payments set forth below. 16 Defendants should be ordered to cooperate with the Monitor as appropriate to provide 17 such information as the Monitor deems necessary and appropriate to identify pool participants to 18 whom the Monitor, in its sole discretion, may determine to include in any plan for distribution of 19 any Restitution Obligations payments. Defendants should be ordered to execute any documents 20 necessary to release funds that they have in any repository, bank, investment or other financial 21 institution, wherever located, in order to make partial or total payment toward the Restitution 22 Obligations. 23 24 3 On January 6, 2021, Glenn filed for bankruptcy in the United States Bankruptcy Court for the District of Colorado (“Bankruptcy Court”) (Case No. 21-10051-KHT). As a result, there is an 25 automatic stay in place pursuant to 11 U.S.C. § 362(a) (2018) prohibiting the CFTC from 26 obtaining an order transferring the Glenn Defendants’ assets. See, e.g., SEC v. Miller, 808 F.3d 623, 630-35 (2d Cir. 2015). In the event the automatic stay is lifted without disposing of Glenn’s 27 Frozen Assets, or the CFTC is granted an order to lift the automatic stay for the purpose of transferring or collecting Glenn’s Frozen Assets, any such assets shall be transferred and applied 28 to the General Restitution Obligation pursuant to this paragraph. 42 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 43 of 50 1 It should be ordered that the Monitor shall provide the CFTC at the beginning of each 2 calendar year with a report detailing the disbursement of funds to pool participants during the 3 previous year. The Monitor shall transmit this report under a cover letter that identifies the name 4 and docket number of this proceeding to the CFTC recipients specified above. 5 It should be further ordered as follows. The amounts payable to each pool participant 6 shall not limit the ability of any pool participant to prove that a greater amount is owed from 7 Defendants or any other person or entity, and nothing herein shall be construed in any way to 8 limit or abridge the rights of any pool participant that exist under state or common law. Pursuant 9 to Rule 71 of the Federal Rules of Civil Procedure, each pool participant who suffered a loss is 10 explicitly made an intended third-party beneficiary of this Order and may seek to enforce 11 obedience of this Order to obtain satisfaction of any portion of the restitution that has not been 12 paid by Defendants to ensure continued compliance with any provision of this Order and to hold 13 Defendants in contempt for any violations of any provision of this Order. 14 It should be ordered that, to the extent that any funds accrue to the U.S. Treasury for 15 satisfaction of the Restitution Obligations, such funds shall be transferred to the Monitor for 16 disbursement in accordance with the procedures set forth above. 17 C. Disgorgement 18 To support disgorgement against a relief defendant, the CFTC need only demonstrate that 19 the relief defendant received ill-gotten funds and does not have a legitimate claim to those funds. 20 SEC v. World Capital Mkt., Inc., 864 F.3d 996, 1004 (9th Cir. 2017); Am. Bullion, 2014 WL 21 12603558, at *8 (holding Relief Defendants who received over $1 million in pool funds without 22 providing legitimate services or having legitimate claim to those funds should be required to 23 disgorge such funds). The CFTC has so demonstrated with respect to Relief Defendants. Relief 24 Defendants Caswell, Suisse Group, and JMC shall pay, jointly and severally, disgorgement in the 25 amount of eight hundred thousand dollars ($800,000) (“Caswell Disgorgement Obligation”), 26 representing ill-gotten funds for which they did not provide legitimate services and to which they 27 do not have a legitimate claim. 28 //// 43 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 44 of 50 1 Accordingly, it is recommended that the following language be adopted: 2 Relief Defendant Landes shall pay disgorgement in the amount of two hundred thousand dollars ($200,000) (“Landes Disgorgement 3 Obligation”), representing ill-gotten funds for which Landes did not provide legitimate services and to which Landes does not have a 4 legitimate claim. 5 Relief Defendant Kingdom shall pay disgorgement in the amount of one million, one hundred thousand dollars ($1,100,000) (“Kingdom 6 Disgorgement Obligation”), representing ill-gotten funds for which Kingdom did not provide legitimate services and to which Kingdom 7 does not have a legitimate claim. 8 Relief Defendant Anne Mancuso shall pay disgorgement in the amount of two hundred and fifty-two thousand, eight hundred and 9 seventy-four dollars and ninety-three cents ($252,874.93) (“Anne Mancuso Disgorgement Obligation”), representing ill-gotten funds 10 for which Anne Mancuso did not provide legitimate services and to which she does not have a legitimate claim. 11 Relief Defendant Tyler Mancuso shall pay disgorgement in the 12 amount of three hundred forty thousand, eighty-seven dollars and twenty-three cents ($340,087.23) (“Tyler Mancuso Disgorgement 13 Obligation,” and together with the Caswell Disgorgement Obligation, Landes Disgorgement Obligation, Kingdom 14 Disgorgement Obligation, and Anne Mancuso Disgorgement Obligation, the “Disgorgement Obligations”), representing ill-gotten 15 funds for which Tyler Mancuso did not provide legitimate services and to which he does not have a legitimate claim. 16 If the Disgorgement Obligations are not paid immediately, then post- 17 judgment interest shall accrue on the Disgorgement Obligations beginning on the date of entry of this Order and shall be determined 18 by using the Treasury Bill rate prevailing on the date of entry of this Order pursuant to 28 U.S.C. § 1961 (2018). The Relief Defendants 19 shall pay their respective Disgorgement Obligations and any post- judgment interest to the Monitor for satisfaction of the General 20 Restitution Obligation pursuant to the procedure set forth in above, resulting in a dollar-for-dollar credit against the applicable 21 Restitution Obligation(s) as well as the applicable Disgorgement Obligation(s). To the extent the General Restitution Obligation has 22 been satisfied at the time of a payment made, the payment will simply result in a credit against the applicable Disgorgement Obligation(s), 23 and the Monitor shall transfer such funds exceeding the applicable Restitution Obligation to the CFTC. If funds are to be transferred 24 other than by electronic funds transfer, then the payment shall be made payable to the Commodity Futures Trading Commission and 25 sent to the address below: 26 Commodity Futures Trading Commission 27 Division of Enforcement 28 C/O ESC/AMK-326; HQ RM 265 44 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 45 of 50 1 6500 S. MacArthur Blvd. Oklahoma City, OK 73169 2 9-AMC-AR-CFTC@faa.gov 3 4 If payment by electronic funds transfer is chosen, the Monitor shall contact the email address above to receive payment instructions. To 5 the extent any Relief Defendant’s Frozen Assets are utilized to satisfy the General Restitution Obligation described above, that 6 Relief Defendant’s Disgorgement Obligation shall be reduced by the amount of that payment. 7 8 D. Civil Monetary Penalty 9 Under 7 U.S.C. § 13a-1(d)(1), and Regulation 143.8(a)(4)(ii)(D), 17 C.F.R. § 10 143.8(a)(4)(ii)(D) (2021), the CFTC is authorized to seek a civil monetary penalty equal to the 11 higher of triple Defendants’ monetary gain from each violation of the Act or Regulations, or 12 $187,432 per violation. The Court may “fashion a civil monetary penalty appropriate to the 13 gravity of the offense and sufficient to act as a deterrent.” CFTC v. Trimble, No. 11–cv–02887, 14 2013 WL 317576, at *9 (D. Colo. Jan. 28, 2013) (citing Miller v. CFTC, 197 F.3d 1227, 1236 15 (9th Cir. 1999)). 16 Based on Defendants’ intentional and egregious conduct, civil monetary penalties 17 reflecting three times the monetary net gain to each are appropriate. This penalty is authorized by 18 7 U.S.C. § 13a-1(d)(1)(A). Accordingly, the following language should be adopted: 19 Defendants Black, Financial Tree, Financial Solution, and New Money shall pay, jointly and severally, a civil monetary penalty 20 (“CMP”) in the amount of five million, four hundred forty-one thousand, two hundred forty-three dollars and thirteen cents 21 ($5,441,243.13) (“Black and Black Entities CMP Obligation”), representing three times Black’s gains of $1,809,117.56 and 22 Financial Tree’s, Financial Solution’s, and New Money’s gains of $4,630.15 received in connection with the violations described 23 herein. 24 Defendant Mancuso shall pay a CMP in the amount of twelve million, one hundred forty-six thousand, nine hundred twenty-one 25 dollars and twenty-eight cents ($12,146,921.28) (“Mancuso CMP Obligation”), representing three times Mancuso’s gains received in 26 connection with the violations described herein. 27 Defendant Tufo shall pay a CMP in the amount of six hundred eighty-four thousand dollars and three cents ($684,000.03) (“Tufo 28 CMP Obligation”), representing three times Tufo’s gains received in 45 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 46 of 50 1 connection with the violations described herein. 2 Defendants Glenn and the Glenn Law Firm shall pay, jointly and severally, a CMP in the amount of eight hundred fifty-six thousand, 3 three hundred fourteen dollars and seventy-two cents ($856,314.72) (“Glenn Defendants CMP Obligation,” and together with the Black 4 and Black Entities CMP Obligation, the Mancuso CMP Obligation, and the Tufo CMP Obligation, the “CMP Obligations”), representing 5 three times the Glenn Defendants’ gains received in connection with the violations described herein. 6 If the CMP Obligations are not paid immediately, then post- 7 judgment interest shall accrue on the CMP Obligations beginning on the date of entry of this Order and shall be determined by using the 8 Treasury Bill rate prevailing on the date of entry of this Order pursuant to 28 U.S.C. § 1961 (2018). Defendants shall pay their 9 CMP Obligations and any post-judgment interest by electronic funds transfer, U.S. postal money order, certified check, bank cashier’s 10 check, or bank money order. If payment is to be made other than by electronic funds transfer, then the payment shall be made payable to 11 the Commodity Futures Trading Commission and sent to the address below: 12 13 Commodity Futures Trading Commission Division of Enforcement 14 C/O ESC/AMK-326; HQ RM 265 15 6500 S. MacArthur Blvd. Oklahoma City, OK 73169 16 9-AMC-AR-CFTC@faa.gov 17 If payment by electronic funds transfer is chosen, Defendants shall contact the email address above to receive payment instructions and 18 shall fully comply with those instructions. Defendants shall accompany payment of their respective CMP Obligations with a 19 cover letter that identifies the paying Defendant(s) and the name and docket number of this proceeding. Defendants shall simultaneously 20 transmit copies of the cover letter and the form of payment to the CFTC recipients specified above. 21 22 E. Provisions Related to Monetary Relief 23 The undersigned recommends adoption of the following additional language related to 24 monetary relief: 25 Partial Satisfaction: Acceptance by the CFTC or the Monitor of any partial payment of the Parties’ Restitution Obligations, 26 Disgorgement Obligations, or CMP Obligations shall not be deemed a waiver of the Parties’ obligation to make further payments pursuant 27 to this Order, or a waiver of the CFTC’s right to seek to compel payment of any remaining balance. 28 46 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 47 of 50 1 Asset Freeze: On July 2, 2020 the court entered an asset freeze order prohibiting the transfer, removal, dissipation and disposal of Frozen 2 Assets (“Asset Freeze Order”). See ECF No. 9 (July 2, 2020 SRO); ECF No. 33 (July 28, 2020 Preliminary Injunction extending asset 3 freeze). The Monitor shall ensure that all of Parties’ Frozen Assets are collected and applied toward the Restitution Obligations, set out 4 above. See Driver, 877 F. Supp. 2d at 981 (applying amounts in bank accounts and futures trading account and frozen by SRO toward 5 restitution obligation). Once the Monitor completes the collection process and notifies the CFTC recipients described above 6 accordingly, the Asset Freeze Order as applied to the Parties only shall be deemed lifted pursuant to the terms of this Order. 7 8 F. Cooperation 9 The Parties should be ordered to cooperate fully and expeditiously with the CFTC, 10 including the CFTC’s Division of Enforcement, in this action, and in any current or future CFTC 11 investigation or action related thereto. The Parties should also be ordered to cooperate in any 12 investigation, civil litigation, or administrative matter related to, or arising from, this action. 13 G. Miscellaneous Provisions 14 The undersigned recommends adoption of the following miscellaneous provisions, which 15 are necessary to effectuate the judgment: 16 Notice: Unless otherwise specifically required herein, notices required to be given by any provision in this Order shall be sent 17 certified mail, return receipt requested, as follows: 18 Notice to CFTC: 19 Charles Marvine Deputy Director, Division of Enforcement 20 Commodity Futures Trading Commission 21 2600 Grand Boulevard, Suite 210 Kansas City, MO 64108 22 816-960-7743 23 All such notices to the CFTC shall reference the name and docket number of this action. 24 Notice to Defendants and Relief Defendants: 25 John D. Black 26 Financial Tree 27 Financial Solution Group New Money Advisors, LLC 28 128 Silberhorn Drive 47 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 48 of 50 1 Folsom, CA 95630 Christopher Mancuso 2 34 Statehouse Place 3 Irvine, CA 92602 4 Joseph Tufo 4631 Shetland Way, 5 Antioch, CA 94531 6 John P. Glenn 7 The Law Firm of John Glenn P.C. 1400 Orange Court 8 Fort Collins, CO 80525 9 Herbert Caswell Suisse Group (USA) LLC 10 JMC Industries LLC 11 9626 Scadlocke Road Jacksonville, FL 32208 12 Kingdom Trust LLC 13 c/o Michael Jacobs and Ruby Handler Jacobs 800 NE Calle Davina 14 Albuquerque, New Mexico 87113 15 Landes Capital Management, LLC 16 /o Justin Smith 1346 Iroquois Ave. 17 Cleveland, Ohio 44124 18 Anne Mancuso 19 290 Ambroise Newport Coast, CA 92657 20 Tyler Mancuso 21 290 Ambroise 22 Newport Coast, CA 92657 23 Notice to NFA: 24 Daniel Driscoll, Executive Vice President, COO National Futures Association 25 300 S. Riverside Plaza, Suite 1800 Chicago, IL 60606-3447 26 All such notices to the NFA shall reference the name and docket 27 number of this action. 28 48 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 49 of 50 1 Change of Address/Phone: Until such time as the Parties satisfy in full their Restitution Obligations, Disgorgement Obligations, and 2 CMP Obligations as set forth in this Order, each Party shall provide written notice to the Commission by certified mail of any change to 3 the Party’s telephone number and mailing address within ten calendar days of the change. 4 Invalidation: If any provision of this Order or if the application of 5 any provision or circumstance is held invalid, then the remainder of this Order and the application of the provision to any other person or 6 circumstance shall not be affected by the holding. 7 Continuing Jurisdiction of this Court: This Court shall retain jurisdiction of this action to ensure compliance with this Order and 8 for all other purposes related to this action, including any motion by a Party to modify or for relief from the terms of this Order. 9 Injunctive and Equitable Relief Provisions: The injunctive and 10 equitable relief provisions of this Order shall be binding upon the Parties, upon any person under the authority or control of any of the 11 Parties, and upon any person who receives actual notice of this Order, by personal service, e-mail, facsimile or otherwise insofar as he or 12 she is acting in active concert or participation with the Parties. 13 14 IV. RECOMMENDATION 15 Based on the foregoing, the undersigned recommends as follows: 16 1. Plaintiff’s November 4, 2021 motion for default judgment, (ECF No. 126) be granted; 17 2. The court enter judgment in plaintiff’s favor and order the relief described above in the 18 language specified; 19 3. This case be closed. 20 These findings and recommendations are submitted to the United States District Judge 21 assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(1). Within twenty-one days 22 after being served with these findings and recommendations, any party may file written 23 objections with the court and serve a copy on all parties. Id.; see also Local Rule 304(b). Such a 24 document should be captioned “Objections to Magistrate Judge’s Findings and 25 Recommendations.” Any response to the objections shall be filed with the court and served on all 26 parties within fourteen days after service of the objections. Local Rule 304(d). Failure to file 27 objections within the specified time may waive the right to appeal the District Court’s order. 28 //// 49 Case 2:20-cv-01184-TLN-AC Document 129 Filed 01/04/22 Page 50 of 50 1 Turner v. Duncan, 158 F.3d 449, 455 (9th Cir. 1998); Martinez v. Ylst, 951 F.2d 1153, 1156-57 2 (9th Cir. 1991). 3 DATED: January 3, 2022 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 50