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U.S. Commodity Futures Trading Commission v. Vasquez

United States District Court, W.D. North Carolina

December 30, 2014

U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff,
v.
EDWIN A. VASQUEZ and VASQUEZ GLOBAL INVESTMENTS, LLC, Defendants.

DEFAULT JUDGMENT

MARTIN REIDINGER, District Judge.

THIS MATTER is before the Court on the Motion for Default Judgment Ordering a Permanent Injunction and Other Equitable Relief ("Motion for Default Judgment") filed by Plaintiff U.S. Commodity Futures Trading Commission ("CFTC" or "Commission") against Defendants Edwin A. Vasquez ("Vasquez") and his company, Vasquez Global Investments, LLC ("VGI").

Having considered the Commission's well-pled Complaint, the Memorandum in Support of the Motion for Default Judgment, and declarations and attachments referenced therein, the Commission's Motion for Default Judgment is granted.

The Court finds that there is good cause for the entry of this Order and that there is no just reason for delay. The Court therefore directs the entry of the following Findings of Fact, Conclusions of Law, Permanent Injunctive Relief, Restitution, Civil Monetary Penalties and Other Ancillary Relief pursuant to Section 6c of the Commodity Exchange Act ("Act"), 7 U.S.C. § 13a-1 (2012), as set forth herein.

I. RELEVANT PROCEDURAL HISTORY

1. On July 30, 2014, the Commission filed a Complaint for Injunctive and Other Equitable Relief and Penalties under the Commodity Exchange Act as Amended ("Complaint" or "Compl.") against Defendants Vasquez and VGI for violating core anti-fraud provisions of the Commodity Exchange Act, 7 U.S.C. §§ 1 et seq. (2012), and the Commission Regulations promulgated thereunder (the "Regulations"), 17 C.F.R. §§ 1.1 et seq. (2014), by fraudulently soliciting at least $583, 491 from participants in an unregistered commodity pool Defendants operated, by misappropriating at least $331, 556 of those funds, and by issuing false or misleading account statements to pool participants to conceal their fraud. (Doc. No. 1).

2. The Commission properly served Defendant VGI with the Complaint and summons through its registered agent, and properly served Defendant Vasquez with the Complaint and summons through publication pursuant to Fed.R.Civ.P. 4(e)(1) and North Carolina Rule of Civil Procedure 4(j1), N.C. Gen. Stat. §1A-1.

3. Neither VGI nor Vasquez filed an answer or otherwise responded to the Complaint. Accordingly, on November 3, 2014, an Order of Default Pursuant to Federal Rule of Civil Procedure 55(a) was entered against Defendants. (Doc. No. 27). Accordingly, this Court finds that the well-pleaded allegations of the Complaint concerning the Defendant's liability are admitted and shall be taken as true. Fed.R.Civ.P. 8(b)(6) (allegations other than those relating to damages are admitted if a responsive pleading is required and the allegations are not denied). Moreover, Federal Rule of Civil Procedure 55(b) authorizes this Court to enter a default judgment against a properly-served defendant who fails to filed a timely responsive pleading, and this Court finds that the well-pleaded allegations of the Complaint support the relief sought.

II. FINDINGS OF FACT

A. The Parties

4. Plaintiff U.S. Commodity Futures Trading Commission is an independent federal regulatory agency charged by Congress with administering and enforcing the Act, 7 U.S.C. §§ 1 et seq., and Commission Regulations, 17 C.F.R. §§ 1.1 et seq.

5. Defendant Edwin A. Vasquez resides in Arden, North Carolina. Vasquez identifies himself, on LinkedIn, as an "independent futures and commodities trader through CME, NYSE, [and] ICE." In fact, Vasquez has never been registered with the Commission in any capacity.

6. Defendant Vasquez Global Investments, LLC is a North Carolina limited liability company that Vasquez formed on or around November 22, 2011. VGI has maintained offices in Arden, North Carolina and Fletcher, North Carolina. Vasquez is and was at all times the sole owner and president of VGI. VGI has never been registered with the Commission in any capacity.

B. The VGI Pool and Solicitation of Pool Participants

7. From at least August 9, 2011 to the present, Defendants have solicited and accepted at least $583, 491 from at least 19 Vasquez pool participants.

8. Vasquez, acting individually and after August 2012 on behalf of VGI, solicited individuals to participate in the Vasquez pool through emails and face-to-face meetings. During those solicitations, Vasquez willfully or recklessly misrepresented to pool participants and prospective participants that all of their funds would be used to trade commodity futures, including oil, gold and S&P futures. Vasquez also willfully or recklessly misrepresented the profitability of the Vasquez pool, including that the Vasquez pool was a no-risk investment with guaranteed returns, typically of 10% per month. Some of the individuals Vasquez solicited trusted him because they or their family members had a personal relationship with Vasquez or his wife, while others trusted him because they met him at business networking events.

9. Vasquez typically provided pool participants and perspective participants with a document titled "Vasquez Investment Prospectus" for a private investment pool (the "Prospectus"). In the Prospectus, Vasquez willfully or recklessly misrepresented that the Vasquez pool was a "no-risk investment opportunity" that created "tangible cash flow" by "outperforming any product available" while "protecting and preserving capital."

10. Vasquez also provided certain pool participants and perspective participants with a "How It All Works" analysis in which Vasquez willfully or recklessly misrepresented that pool participants' "[f]unds will be redirected into numerous investment vehicles currently operated in the United States and offshore" and that by "pooling resources" pool participants were able to "diversify [their] investment and eliminate risk."

11. Vasquez had most, if not all, pool participants execute an Investment Contract Agreement (the "Participant Agreement"). The Participant Agreement states in part that Vasquez will "use investment contribution [ i.e., pool participant's funds] as he deems necessary in multiple investment vehicles" and that pool participants "shall receive a fixed monthly payment of... (10%) per month." The Participant Agreement also states that pool participant's "entire initial investment" will be returned in one year, or earlier if the participant "requests his/her investment contribution in advance of contract due date."

12. In connection with the Vasquez pool enterprise, Vasquez opened at least five bank accounts in his own name, or in the name of Vasquez and his wife, and at least one account in the name of VGI with Wells Fargo Bank, N.A., f/k/a as Wachovia Bank ("Wells Fargo"). Specifically, in or around August 2011, Vasquez opened account numbers xxxxxxx4692 ("4692 Bank Account"), xxxxxxx4938 ("4938 Bank Account"), and xxxxxxx7787 ("4938 Bank Account"); sometime prior to January 1, 2011, Vasquez opened account number xxxxxxxxx2538 ("2538 Bank Account") in his own name or in the name of Vasquez and his wife; and in or around December 9, 2011, Vasquez opened account number xxxxxx4147 ("4147 Bank Account") in the name of VGI (collectively "the Vasquez Bank Accounts").

13. Vasquez was an authorized signatory for the Vasquez Bank Accounts and maintained control over the Vasquez Bank Accounts during the Relevant Time. At Vasquez's direction, at least six Vasquez pool participants made their funds payable to Vasquez or gave cash directly to Vasquez. Vasquez deposited at least $583, 491 of pool participants' funds into the Vasquez Bank Accounts, where Vasquez commingled them with his, his wife's and VGI's funds, and from which he misappropriated at least $331, 566.

C. The VGI's Commodity Futures Trading Accounts and Trading Losses

14. Vasquez opened, managed, and controlled a commodity futures trading account at Dorman Trading, LLC ("Dorman"), a futures commission merchant ("FCM") registered with the Commission.[1] Specifically, in January 2009, Vasquez opened a futures trading account in his own name, account number xxxxxx3539 (the "3539 Account"). In the account opening documents, dated January 7, 2009, Vasquez falsely represented that he was neither trading nor planned on trading any funds besides his own. Vasquez also provided a signed letter, dated January 7, 2009, in which he confirmed that he "did not solicit any customer funds" and was using his "own funds to trade the account." Vasquez last actively traded the 3539 Account in July 2012.

15. Between August 9, 2011, when Vasquez began accepting customer funds, and July 26, 2012, the date Vasquez liquidated the 3539 Account, Vasquez deposited $114, 500 of pool participant funds into the 3539 Account, lost $65, 374 trading the 3539 Account, including commissions and fees, and withdrew $49, 126 from the 3539 Account, which he deposited into the Vasquez Bank Accounts and misappropriated. Although he represented to pool participants that he was earning consistent monthly profits trading commodity futures, Vasquez lost money in 11 of the 12 months that he actively traded customer funds in the 3539 Account. Throughout the life of the account, Vasquez had constant access to information regarding the 3539 Account, including all open positions and account balances. Vasquez received or had access to actual monthly statements from Dorman that showed, among other things, the profits or losses resulting from trading, and the month-end trade balances for the account. In addition to the 3539 Account, Vasquez opened but never funded two futures trading accounts in the name of VGI. Vasquez has neither funded nor entered into any trades through any commodity futures trading account since July 26, 2012.

D. The Misappropriation of Pool Participant Funds and Issuance of False Statements

16. Between August 9, 2011 and November 18, 2013, Defendants misappropriated at least $331, 556 in pool participants' funds by depositing them in the Vasquez Bank Accounts that Vasquez controlled, and then using those funds to pay VGI's operating costs and for Vasquez's personal expenses, including at least $14, 464 on dining and food, $13, 349 on travel, $33, 578 on retail purchases, $53, 741 on VGI payroll, $15, 500 on rent and $52, 000 in cash withdrawals.

17. Despite the actual trading losses and misappropriation of funds described above, Vasquez either willfully or recklessly misrepresented to pool participants and prospective participants that all of the Vasquez pool funds had been invested in commodity futures trading accounts, and that the Vasquez pool was returning profits of 10% per month.

18. Further, Vasquez either willfully or recklessly issued false written statements to at least two pool participants regarding the profitability and value of their respective shares of the Vasquez pool. Vasquez made these false statements through emails or other written statements that he and/or VGI issued.

19. Vasquez also utilized an online trading software platform known as the "Ninjatrader" system that he gained access to after opening the 3539 Account to falsely represent the value and performance of the Vasquez pool trading account. The Ninjatrader system includes a simulated account function known as the "Ninjatrader Simulator Account, " which is designed to allow customers to practice trading on the Ninjatrader platform, and therefore does not reflect actual trades or funds.

20. During an in-person meeting with at least one pool participant on or around August 9, 2011, Vasquez falsely represented that the Ninjatrader Simulator Account was an actual trading account through which Vasquez was able to make 20% to 30% returns trading commodity futures. Vasquez informed the participant that he used Ninjatrader to trade funds belonging to him and to Vasquez pool participants, that the account had a balance of over $3 million, and that he would take losses ahead of investors. In fact, the 3539 Account had a balance of $460 on August 9, 2011, and had no open positions as of that date.

21. In July 2012, Vasquez sent another pool participant, via email, a weekly statement dated July 20, 2012 and purportedly issued by Dorman (the "July Fake FCM Statement"). The July Fake FCM Statement was addressed to "Edwin A Vasquez (PIP)" and reflected a credit into the account of $64, 256 as of July 20, 2012 for "P&L" and "cash amounts" of $58, 388, as well as "total equity" and "account value at market" of $3, 271, 203. In fact, the 3539 Account had a balance of $649 on July 20, 2012.

22. In or around October 2012, Vasquez sent a pool participant, via email, a weekly statement dated October 3, 2012 purportedly issued by Dorman for the 3539 Account (the "October Fake FCM Statement"). The October Fake FCM Statement was also addressed to "Edwin A Vasquez (PIP)" and reflected "net exposure" of $3, 094, 725 and "excess equity" of $391, ...


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