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U.S. Commodity Futures Trading Commission v. Creagh

United States District Court, S.D. New York

May 10, 2017

U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff,
v.
GARY CREAGH and WALL STREET PIRATE MANAGEMENT, LLC, Defendants.

          OPINION AND ORDER

          J. PAUL OETKEN United States District Judge.

         On August 5, 2015, Plaintiff U.S. Commodity Futures Trading Commission (“Commission”) filed a Complaint against Defendants Gary Creagh and Wall Street Pirate Management, LLC (“WSPM”) seeking injunctive and other equitable relief and civil penalties for violations of the Commodity Exchange Act (the “Act”), 7 U.S.C. §§ 1-26, and the regulations promulgated thereunder, 17 C.F.R. §§ 1.1-190.10. (Dkt. No. 1 (“Compl.”).)

         On April 25, 2016, the Court entered a Consent Order for Permanent Injunction and Other Statutory and Equitable Relief Against Defendants. (Dkt. No. 39 (“Consent Order”).) The Consent Order resolved and settled all liability claims against Defendants and entered a permanent injunction prohibiting them from violating the Act and regulations as charged. (Consent Order ¶¶ 47-53.) The issues of statutory relief pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1, as well as appropriate equitable relief, including injunctive relief as to registration and trading, in addition to the amount of a civil monetary penalty (“CMP”) to be assessed against Defendants were reserved. (Id. ¶¶ 54-55.)

         The Commission filed a Motion for a Supplemental Order of Permanent Injunction and Other Equitable Relief Against Defendants. (Dkt. No. 41.) For the reasons discussed below, the motion is granted in part, with respect to the injunctive relief, and denied in part, as regards the amount of the CMP.

         I. Background

         As provided in the Consent Order, facts alleged in the Complaint and the Findings of Fact and Conclusions of Law contained in the Consent Order are deemed true for purposes of this Order and are incorporated herein by reference. (Consent Order ¶ 56.)

         From December 2011 through September 2013, WSPM-by and through its managing member and sole employee, Creagh-willfully made multiple false statements to the National Futures Association (“NFA”), the self-regulatory organization for the U.S. futures industry, in statutorily required reports and during an NFA audit of WSPM in furtherance of NFA's official duties under the Act. (Compl. ¶ 1; Consent Order ¶ 47.) The NFA is a futures association registered with the Commission pursuant to Section 17 of the Act, 7 U.S.C. § 21. (Compl. ¶ 13.) Membership in the NFA is mandatory for all persons and entities conducting business with the public in the U.S. futures industry, including commodity pool operators (“CPOs”), such as WSPM, and associated persons (“APs”) of CPOs, such as Creagh. (Id.) NFA members are subject to audits and investigations by the NFA to ensure compliance with NFA rules, the Act, and related Regulations. (Id.)

         Creagh, individually and on behalf of WSPM, falsely represented to the NFA that the Wall Street Pirate Fund, L.P. (“WSPF” or “WSPF commodity pool”), a commodity pool operated by WSPM, was not active during calendar year 2012. (Compl. ¶ 2; Consent Order ¶¶ 31, 33, 35, 37.) Creagh knew that his statements to the NFA were false, since he had, throughout 2012, accepted funds from participants in the WSPF commodity pool and actively traded commodity futures contracts on behalf of the WSPF commodity pool, through an account in the pool's name at a futures commission merchant called Interactive Brokers (“Pool Trading Account”). (Compl. ¶¶ 2, 49-50.) As the sole person authorized to trade on behalf of WSPM, and the sole person who made trades as the agent of WSPM, Creagh knew that he had personally and actively traded the Pool Trading Account on behalf of pool participants during the relevant period and thus knew that his statements to the NFA were false. (Compl. ¶ 2; Consent Order ¶¶ 19, 21, 31, 33, 35, 37.)

         Additionally, throughout the relevant period, WSPM, by and through its agent Creagh, failed to maintain required books and records or to provide account statements and privacy notices to WSPF pool participants in violation of the Act and Regulations. (Compl. ¶ 4; Consent Order ¶¶ 48-50.) As such, in addition to concealing WSPF's trading activity, Creagh's false statements to the NFA concealed that WSPM had failed to maintain required books and records or to provide account statements and privacy notices to pool participants in violation of the Act and Regulations. (Compl. ¶ 5.)

         II. Discussion

         The parties are largely in agreement about the nature of the relief to be entered by the Court; they disagree only about the amount of the CMP and whether the permanent injunction should include a lifetime personal trading ban for Creagh. (Dkt. No. 43 at 11.)

         Regarding the personal trading ban, Creagh claims the ban is not sufficiently related to the conduct in question. (Id. at 10.) However, in order to obtain a permanent injunction, “the CFTC must only show that ‘there is a likelihood that unless enjoined, the violations will continue.'” CFTC v. Kelly, 736 F.Supp.2d 801, 804 (S.D.N.Y. 2010) (quoting CFTC v. Am. Bd. of Trade, Inc., 803 F.2d 1242, 1250-51 (2d Cir. 1986)). “A district court may properly infer a likelihood of future violations from the defendant's past unlawful conduct.” Am. Bd. of Trade, 803 F.2d at 1251. Courts need not enjoin only identical future violations; they may extend to restrictions on trading activity generally, if a court finds that defendants are not likely to “make good faith efforts to comply with restrictions, ” more broadly, in the future. See CFTC v. Wilshire Inv. Mgmt. Corp., 531 F.3d 1339, 1346-47 (11th Cir. 2008); see also, e.g., CFTC v. GIGFX, LLC, 844 F.Supp.2d 58, 64 (D.D.C. 2012); CFTC v. Rosenberg, 85 F.Supp.2d 424, 454-55 (D.N.J. 2000).

         Given Creagh's repeated false statements to the NFA regarding WSPM's commodity trading activity-false statements made both in quarterly filings and during an audit (Consent Order ¶¶ 27-28)-coupled with his erroneous understanding about his legal obligations (Dkt. No. 44 ¶¶ 6-7), he presents a likelihood of violating trading regulations in the future. Accordingly, a ban on personal trading is justified.

         As to the amount of the CMP, the Commission seeks $500, 000, or $125, 000 for each of the four counts charged in the Complaint. (Dkt. No. 42 at 7.) In determining an appropriate penalty, the Court “considers the general seriousness of the violation as well as any particular mitigating or aggravating circumstances that exist.” Wilshire Inv. Mgmt. Corp., 531 F.3d at 1346. The Act provides ...


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