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U.S. Commodity Futures Trading Commission v. Simmons

United States District Court, W.D. North Carolina, Charlotte Division

March 29, 2017

U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff,
v.
KEITH F. SIMMONS, et al. Defendants, and LAWRENCE SALAZAR, et al. Relief Defendants.

          ORDER

          Robert J. Conrad, Jr. United States District Judge

         THIS MATTER comes before the Court on the motion of Plaintiff U.S. Commodity Futures Trading Commission (“CFTC”) for summary judgment, (Doc. No. 156), against Relief Defendant Shiloh Estate, LLC (“Shiloh”), and related pleadings.[1] The issues have been fully briefed and are ripe for adjudication.

         I. BACKGROUND

         This civil case arises out of a Ponzi scheme operating in this district and elsewhere approximately between 2007 and 2011. (Doc. No. 1: Complaint at 2, 6). Investigation of the scheme led to the criminal convictions of Keith Simmons, Bryan Coats, Jonathan Davey and others for various offenses including securities fraud, wire fraud, money laundering, and tax evasion. (See Case Nos. 3:10-cr-23 (Simmons), 3:11-cr-309 (Coats), 3:12-cr-68 (Davey)).

         For purposes of this motion, it is undisputed that Shiloh received $1, 305, 642.33 in ill-gotten gains from Davey. (Doc. No. 164: Shiloh Resp. at 2). Specifically, Simmons, Davey, and others fraudulently solicited approximately $35 million from at least 240 investors for purported trading in off-exchange foreign currency. (Doc. No. 156-1: CFTC Mem. at 4).[2] Davey diverted investor funds into a number of accounts and transferred a portion of those funds to Shiloh as “loans” from an entity he controlled called Sovereign Grace. (Id. at 8-10).

         Shiloh's sole purpose was to own a luxury home for Davey's residence. (Id. at 4, 6). After purchasing land, Shiloh contracted with Claggett & Sons, Inc. (“Claggett”)[3] to build the house. Claggett continued to perform construction work after Shiloh defaulted by failing to pay a $93, 000 invoice in May 2009.[4] (Id. at 11). Claggett purchased Shiloh from Davey in January 2010 for $1 and released the purported debt for the unpaid and post-default construction invoices totaling over $1.8 million.[5] (Id.). According to the Sale of LLC Interest Agreement between Davey and Claggett, “Claggett and Sons purchased the stocks of Shiloh and became its sole member …” (Id.).

         There are no disputes about these material facts, but the parties contest whether Shiloh has a legitimate claim to the $1, 305, 642.33 “loaned” to it by Davey's Sovereign Grace. As detailed below, CFTC is entitled to summary judgment as a matter of law because Shiloh did nothing to merit the receipt of funds fraudulently obtained from Davey's victims.

         II. STANDARD OF REVIEW

         Summary judgment shall be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A factual dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is material only if it might affect the outcome of the suit under governing law. Id. The movant has the “initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotation marks omitted). This “burden on the moving party may be discharged by ‘showing'- that is, pointing out to the district court-that there is an absence of evidence to support the nonmoving party's case.” Id. at 325.

         Once this initial burden is met, the burden shifts to the nonmoving party, which “must set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 250. The nonmoving party may not rely upon mere allegations or denials of allegations in the pleadings to defeat a motion for summary judgment, rather it must present sufficient evidence from which “a reasonable jury could return a verdict for the nonmoving party.” Id. at 248; accord Sylvia Dev. Corp. v. Calvert Cnty., Md., 48 F.3d 810, 818 (4th Cir. 1995).

         When ruling on a summary judgment motion, a court must view the evidence and any inferences from the evidence in the light most favorable to the nonmoving party. Anderson, 477 U.S. at 255. “Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.” Ricci v. DeStefano, 557 U.S. 557, 586 (2009) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). The mere argued existence of a factual dispute does not defeat an otherwise properly supported motion. Anderson, 477 U.S. at 248-49. “If the evidence is merely colorable or is not significantly probative, ” summary judgment is appropriate. Id. at 249-50 (citations omitted).

         III. DISCUSSION

         A. Disgorgement by Shiloh

         The Commodity Exchange Act (CEA), 7 U.S.C. § 13a-1(d)(3)(B), enables a court to impose the equitable remedy of disgorgement of gains received in connection with a person found in violation of the Act. Appellate courts have recognized the broad equitable power of federal courts to recover ill-gotten gains for the benefit of victims held by the original wrong doer or a subsequent holder of the proceeds. CFTC v. Kimberlynn Creek Ranch, Inc., 276 F.3d 187, 192 n.4 (4th Cir. 2002) (citing SEC v. Colello, 139 F.3d 674, 676 (9th Cir. 1998); SEC v. Cavanagh, 155 F.3d 129, 136 (2d Cir. 1998). The exercise of such power prevents a violator from circumventing the government's authority to recapture fraud proceeds by simply passing them on to others, even without their knowledge. Cavanagh, 155 F.3d at 137. Thus, a ...


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