The opinion of the court was delivered by: HAIGHT
HAIGHT, Senior District Judge :
In this action brought by citizens and residents of Germany under the anti-fraud provisions of the Commodities Exchange Act, 7 U.S.C. § 1 et seq ("CEA"), which also asserts common law legal and equitable claims, defendants move to dismiss the complaint pursuant to Rule 12(b)(3), Fed. R. Civ. P., for improper venue; or, in the alternative, pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction; or, in the alternative, pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted.
Much of the procedural history of this litigation is recited in the Court's Memorandum Opinion and Order dated May 1, 1996 ("the May 1996 Opinion"), familiarity with which is assumed. The May 1996 Opinion granted in part and denied in part plaintiffs' motion to file and serve a third amended complaint. Thereafter plaintiffs filed and served a third amended complaint consistent with the May 1996 Opinion. Defendants' motion to dismiss addresses that pleading, which for the sake of brevity I will refer to as "the complaint."
The facts set forth below are drawn from the complaint and do not represent findings of fact by the Court.
Defendant FSI Futures, Inc. ("FSI") is a New York corporation, registered under the CEA as a future commission merchant ("FCM"). Because FSI is not a "clearing member" of any futures clearing house, it must utilize an FCM which is a clearing member of the various American futures contract markets. At the relevant times, FSI utilized defendant LIT America, Inc. ("LIT") as its clearing broker for commodities transactions in the United States. Compl. P 2.
Defendant Techno Trading Systems Company ("Techno Trading") is a Pennsylvania corporation, registered under the CEA as an introducing broker ("IB"). The CEA defines an IB as a person or entity engaged in soliciting or in accepting orders for the purchase or sale of any commodity for futures delivery on or subject to the rules of any contract market. Under the CEA, an IB may not accept any money, securities, or property to margin, guarantee, or secure any trades or contracts. Compl. P 3.
Defendant Michael Hjalmar Thomas is a citizen of Senegal who held a "green card" to work in the United States at the relevant times, was the principal of Techno Trading, and also operated an entity known as "Hosse USA." Compl. P 4.
Defendant LIT was registered under the CEA as an FCM until August 17, 1993, and maintained offices in New York City and Chicago. Compl. P 5.
Defendants and their agents operated the HOSSE Program from about May 1988 until May 1993, through oral and written sales solicitations. During this period, approximately 1,570 German citizens and residents invested approximately 70,000,000 Deutsche Marks ($ 45,000,000 U.S.) in the Program. These investors were unsophisticated in financial matters generally, and inexperienced in commodity trading in particular. Plaintiffs and the other investors were solicited though high pressure "boiler room" sales agents representing a firm called H.O.S.S.E. GmbH and two sister firms, Tunc & Partner and Rosco GmbH of Germany, all located in or near the city of Essen, Germany. Throughout their complaint, plaintiffs refer to these three sales operations collectively as "HOSSE." All three firms were owned and controlled by one Jurgen Schoeps, who is now incarcerated in Germany.
The Essen police authorities have closed the HOSSE offices and suspended their operations. Compl. PP 10-12.
The seed of defendants' fraudulent scheme was planted when in December 1988, Thomas travelled to Germany to meet with one Marcus Hosse. They decided to embark upon a joint venture to sell commodity investments to German citizens. The joint venturers were the HOSSE companies, Techno Trading, FSI, and LIT. The role of Techno Trading, an IB, was to act as a de facto FCM. FSI and LIT carried the HOSSE Program accounts as FCMs. Compl. P 13.
These offering materials failed to disclose to investors the material facts that substantial cash kickbacks were deducted from the investors' monies and rebated to the German sales agents; that contrary to assurances given to investors that they were buying individual positions in commodity futures contracts on the various exchanges, the individual investments would be pooled in an omnibus, commingled account under the defendants' control, and that the defendants intended to, and did, place and liquidate trades without any prior contact with plaintiff investors, on a wholesale basis where all investors were treated as part of one commingled entity, so that no investor could be assured that the investment results reported to him could fairly be allocated to his investment instructions; that despite assurances to that effect, Techno Trading and Hosse USA, far from being "renowned" brokerage houses, were in fact not even brokerage houses; that the extraordinarily high ratio of brokerage commissions and management fees to the amount of funds invested made any return to investors very unlikely; the true amount of risk involved in the HOSSE Program; that commodity transactions and option trades, referred to interchangeably in the prospectuses, involved very different elements of risk; and the rate of commissions that would be charged on commodity transactions. Compl. PP 17-20.
Funds invested by German investors in the HOSSE Program were transferred from HOSSE accounts at the Frankfurt branch of the Royal Bank of Scotland to accounts in the name of HOSSE or its principals at Citibank in New York, and from there to brokerage accounts at FSI and LIT. Defendants also established separate accounts for the specific purpose of paying rebates to their German agents. The defendants carried out trading in the HOSSE Program for the purpose of generating excessive commissions on trades, without regard for their profitability. LIT and FSI deducted those commissions and paid them to Techno Trading or Thomas, or funnelled such payments directly in the form of large cash kickbacks, undisclosed to investors, to relatives and agents of the German sales force. Specifically, a Mrs. Van Leeuwen, the sister of Jorg Schoeps, a HOSSE principal, and Ralph Fasstner, Jorg Schoep's brother-in-law, flew every several weeks from Germany to New York, proceeded to Techno Trading's offices in Zionsville, Pennsylvania to pick up suitcases containing between U.S. $ 100,000 and $ 300,000, and carried the suitcases back to Germany, where the currency was converted into Deutsche Marks. Plaintiff investors ...