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U.S. Commodity Futures Trading Commission v. Simmons

United States District Court, W.D. North Carolina

September 19, 2017

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

         ORDER FOR ENTRY OF DEFAULT JUDGMENT, PERMANENT INJUNCTION, CIVIL MONETARY PENALTIES, AND ANCILLARY EQUITABLE RELIEF AGAINST DEFENDANTS GENESIS WEALTH MANAGEMENT, LLC, DIVINE CIRCULATION SERVICES, LLC, DIVINE STEWARDSHD?, LLC, SAFE HARBOR VENTURES, INC., SAFE HARBOR WEALTH INVESTMENTS, INC., AND SAFE HARBOR WEALTH, INC., AND RELIEF DEFENDANTS BLACK DIAMOND ASSOCIATES, LLC, COATS ESTATE PLANNING SERVICES, INC., COATS WEALTH MANAGEMENT, INC., ECO-GREEN, LLC, THE GALLERY GROUP, LLC, HIGH SOUTH REALTY, LLC, AND SOVEREIGN GRACE, INC.

          ROBERT J. CONRAD, JR. UNITED STATES DISTRICT JUDGE

         On January 13, 2011, the United States Commodity Futures Trading Commission ("CFTC") filed its Complaint in the above-captioned action against Defendants Keith Simmons ("Simmons"), Black Diamond Capital Solutions, L.L.C. ("BDCS"), Black Diamond Holdings L.L.C. ("BDH"), Deanna Salazar ("Salazar"), Life Plus Group, L.L.C. ("LPG"), Bryan Coats ("Coats"), Jonathan Davey ("Davey"), Genesis Wealth Management, LLC ("GWM"), Divine Circulation Services, LLC ("DCS"), Divine Stewardship, LLC ("Divine Stewardship"), Safe Harbor Ventures, Inc. ("SHV"), Safe Harbor Wealth Investments, Inc. ("SHWI"), and Safe Harbor Wealth, Inc. ("SHW"), and Relief Defendants Black Diamond Associates, LLC ("Black Diamond Associates"), Coats Estate Planning Services, Inc. ("Coats Estate"), Coats Wealth Management, Inc. ("Coats Wealth"), Eco-Green, LLC ("Eco-Green"), The Gallery Group, LLC ("Gallery Group") High South Realty, LLC ("High South"), Lawrence Salazar ("L. Salazar"), Shiloh Estate, LLC ("Shiloh"), and Sovereign Grace, Inc. ("Sovereign Grace") seeking injunctive and other equitable relief for violations of the Commodity Exchange Act (the "Act"), 7 U.S.C. §§ 1 et seq. (2012) (Dkt. #1). The Complaint alleges that from at least April 2007, and continuing until the time of the Complaint (the "Relevant Period"), Defendants Simmons, Salazar, Coats, and Davey, acting through the various corporate Defendants, fraudulently solicited and/or accepted at least $35 million from at least 240 individuals or entities for the purported purpose of trading, via the Black Diamond trading platform, a pooled investment in connection with agreements, contracts, or transactions in off-exchange foreign currency ("forex") that are margined or leveraged. Specifically, the CFTC's Complaint charges that Defendants violated 7 U.S.C. §§ 6b(a)(2)(A)-(C) (2012). The Complaint also alleges that Relief Defendants, who are not charged with violations of the Act and/or Regulations, received funds and assets from Defendants to which they hold no legitimate interest or entitlement and which were derived from Defendants' fraudulent and violative acts.

         On February 15, 2011, Defendant GWM and Relief Defendants Coats Estate and Coats Wealth (collectively, the "Coats Entities") through their counsel Joseph Nanny, filed an answer to the CFTC's Complaint (Dkt. # 51). On March 18, 2011, Defendants DCS, Divine Stewardship, SHV, SHW, and SHWI, and Relief Defendant Sovereign Grace (collectively, the "Davey Entities"), through their counsel E. Fitzgerald Parnell, III and Joseph E. Zeszotarski, Jr., filed an answer to the CFTC's Complaint (Dkt. # 70).

         On March 15, 2011, the Court stayed all discovery in this case pending a parallel criminal investigation by the United States (Dkt. #69). During the pendency of the discovery stay, both counsel for the Davey Entities and counsel for the Coats Entities filed motions to withdraw from representing their respective clients (Dkt. #'s 97, 118). The Court granted these motions (Dkt. #'s 98, 125). In its order regarding the Coats Entities, the Court noted that it "expresses no opinion as to the status of Defendants Genesis Wealth Management, LLC, Coats Estate Planning Services, Inc., and Coats Wealth Management, Inc. in this matter; however, to the extent those entities exist and remain defendants in this matter, they are required to immediately retain licensed counsel." (Dkt. #125, at 2.) The Court cited case law for the proposition that corporations may appear in federal court only through licensed counsel. Id.

         On June 24, 2015, upon motion by the CFTC, the Court lifted the discovery stay (Dkt. # 130). With no attorney having appeared on behalf of any of the Coats Entities or the Davey Entities, the CFTC moved for entry of default against the Coats Entities and the Davey Entities on September 19, 2016 (Dkt. #150). The Court granted the CFTC's motion and defaults were entered against the Coats Entities and the Davey Entities on October 24, 2016 (Dkt. #151).

         Relief Defendants Black Diamond Associates, Eco-Green, Gallery Group, and High South (collectively, the "Simmons Entities") were each served with a Summons and the Complaint on January 21, 2011 (Dkt. #'s 38, 41, 42, 43). Pursuant to Federal Rule of Civil Procedure ("Fed. R. Civ. P.") l2(a)(1)(A)(i), the Simmons Entities' Answers were due on or before February 11, 2011. The Simmons Entities failed to respond to the CFTC's within twenty-one (21) days of service. On February 8, 2017, the CFTC moved for entry of default against the Simmons Entities (Dkt. #166). The Court granted the CFTC's motion and defaults were entered against the Simmons Entities on March 29, 2017 (Dkt. #176).

         On May 1, 2017, the CFTC filed & Motion and Supporting Memorandum for Entry of Default Judgment, Permanent Injunction, Restitution, Civil Monetary Penalties, and Ancillary Equitable Relief Against Genesis Wealth Management, LLC, Divine Circulation Services, LLC, Divine Stewardship, LLC, Safe Harbor Ventures, Lnc., Safe Harbor Wealth Investments, Lnc, and Safe Harbor Wealth, Inc., and Relief Defendants Black Diamond Associates, LLC, Coats Estate Planning Services, Inc., Coats Wealth Management, Inc., Eco-Green, LLC, The Gallery Group, LLC, High South Realty, LLC, and Sovereign Grace, Inc. ("Motion and Memorandum") pursuant to Federal Rule of Civil Procedure ("Fed. R. Civ. P.") 55(b). The Court has reviewed the CFTC's Complaint, the allegations of which are well-pleaded and hereby taken as true, the Motion and Memorandum, and the declarations and exhibits filed with the Court, and, being fully advised in the premises, hereby:

         GRANTS the CFTC's Motion, enters the following Findings of Fact and Conclusions of Law relevant to the allegations in the CFTC's Complaint, and issues the following Order for Entry of Default Judgment, Permanent Injunction, Restitution, Civil Monetary Penalties, and Ancillary Equitable Relief Against Defendants Genesis Wealth Management, LLC, Divine Circulation Services, LLC, Divine Stewardship, LLC, Safe Harbor Ventures, Lnc, Safe Harbor Wealth Investments, Inc., and Safe Harbor Wealth, Inc., and Relief Defendants Black Diamond Associates, LLC, Coats Estate Planning Services, Inc., Coats Wealth Management, Inc., Eco-Green, LLC, The Gallery Group, LLC, High South Realty, LLC, and Sovereign Grace, Inc. (hereinafter "Order").

         I.FINDINGS OF FACT[1]

         1. Plaintiff U.S. Commodity Futures Trading Commission is an independent federal regulatory agency charged by Congress with the administration and enforcement of the Act, 7 U.S.C. §§ 1 et seq. (2012), and the Regulations promulgated thereunder, 17 C.F.R. §§ 1.1 etseq. (2016).

         2 Defendant Genesis Wealth Management, L.L.C. ("GWM") is a Delaware Limited Liability Company organized in 2008. GWM is wholly owned by Coats and is the general partner of Genesis Wealth Partners LP ("GWP"), a Delaware Limited Partnership.

         3. Defendant Divine Circulation Services, L.L.C. is an Ohio Limited Liability Company formed in 2007. During the Relevant Period, DCS had its principal place of business at 35 South Park Place, Suite 10, Newark, Ohio 43055. DCS is wholly owned by Safe Harbor Ventures, Inc.

         4. Defendant Safe Harbor Ventures, Inc. is a Delaware corporation formed in 2005. During the Relevant Period, SHV had its principal place of business at 35 South Park Place, Suite 10, Newark, Ohio 43055. SHV is owned by Shari Davey, the wife of Davey.

         5. Defendant Safe Harbor Wealth Investments, Inc. is an Ohio corporation formed in 2001. During the Relevant Period, SHWII had its principal place of business at 35 South Park Place, Suite 10, Newark, Ohio 43055.

         6. Defendant Divine Stewardship, L.L.C., is an Ohio corporation formed in May 2009. During the Relevant Period, Divine Stewardship had its principal place of business at 35 South Park Place, Suite 10, Newark, Ohio 43055.

         7. Defendant Safe Harbor Wealth, Inc. is an Ohio corporation formed in 2000. During the Relevant Period, SHW had its principal place of business at 35 South Park Place, Suite 10, Newark, Ohio 43055. SHW is a public accounting firm licensed in the State of Ohio.

         8. Relief Defendant Black Diamond Associates, L.L.C. is a North Carolina Limited Liability Company formed in January 2008. During the Relevant Period, BDA had a principal place of business at 522 S. Main Street, West Jefferson, North Carolina 28640.

         9. Relief Defendant Eco-Green, L.L.C. is a North Carolina Limited Liability Company formed in May 2008. During the Relevant Period, Eco-Green had its principal place of business at 19 E. Ashe St., West Jefferson, North Carolina 28694.

         10. Relief Defendant The Gallery Group, L.L.C. is a North Carolina Limited Liability Company formed in June 2008. During the Relevant Period, The Gallery Group had a registered office address of 230 Hice Avenue, West Jefferson, North Carolina 28694.

         11. Relief Defendant High South Realty, L.L.C. is a North Carolina Limited Liability Company formed in May 2007. During the Relevant Period, High South Realty had a principal place of business at 522 S. Main Street, West Jefferson, North Carolina 28640.

         12. Relief Defendant Coats Estate Planning Services, Inc. is a North Carolina corporation formed in 2004.

         13. Relief Defendant Coats Wealth Management, Inc. is a North Carolina corporation formed in 2008.

         14. Relief Defendant Sovereign Grace, Inc. is a Belize International Business Company and was the owner and sole member of Shiloh Estate until January 2010. Davey is the beneficial owner of Sovereign Grace.

         A. Defendants Fraudulently Solicited Customers to Trade Forex through Black Diamond

         15. During the relevant period, Simmons, Salazar, Coats, and Davey, acting through the various corporate defendants, including the Defaulted Defendants, orchestrated a forex "Ponzi" style scheme by fraudulently solicited and/or accepting at least $35 million from at least 240 individuals or entities for the purported purpose of trading, via the Black Diamond trading platform, a pooled investment in connection with agreements, contracts, or transactions in off-exchange foreign currency ("forex") that are margined or leveraged. At least some of Defendants' customers, if not all, were individuals who each had total assets of less than $5 million.

         16. Simmons first solicited Salazar to invest in forex through BDCS in April 2007, and subsequently entered into a joint venture with Salazar whereby she, acting through her company Life Plus, would market forex trading through BDCS to her customers. Simmons and Salazar would then split equally the joint venture's share of profits achieved by any new customers brought to BDCS by Salazar. Simmons and Salazar subsequently solicited Coats to invest in forex through BDCS in October 2007, and then entered into a three-way joint venture with Coats whereby he, acting through his company Coats Estate, would market forex trading through BDCS to his customers. Simmons, Salazar, and Coats would then split in equal thirds the new joint venture's share of profits achieved by any new customers brought to BDCS by Coats. According to the Simmons-Salazar-Coats joint venture agreement, the joint venture was to be conducted under the name BDCS; but later Simmons, Salazar, and Coats changed the name to BD Holdings. Regardless, Simmons, Salazar, and Coats continued to use the names, BDCS, BD Holdings, and Black Diamond interchangeably in their forex materials, solicitations, and communications with customers.

         17. Simmons, Salazar, and Coats jointly developed Black Diamond solicitation materials and provided them to the persons and entities they solicited. The Black Diamond solicitation materials used by Simmons, Salazar, and Coats claimed that Black Diamond offered customers exclusive access to an automatic computerized trading system created by a group of software developers to trade forex, that the system had been trading forex for over 36 months, and that every month had exceeded the target of four percent gain per month. One version of the materials purported to show an actual three year trading history with consistently positive monthly returns, often in excess often percent, and a three year balance reflecting results of $194, 340.37 on an initial $5, 000 investment.

         18. The Black Diamond solicitation materials assured customers that the risk of trading forex through Black Diamond was limited because automatic stop loss mechanisms would kick in should a customer's account ever drop ten percent (or, in some later versions, twenty percent) and would prevent any further trading without specific instructions from the customer. In addition, the materials assured customers that Black Diamond had no right to deplete or withdraw customer funds at any time other than for the purpose of engaging in actual trading.

         19. To expand the reach of the Black Diamond scheme even farther, Salazar entered into "Co-Facilitator Agreements" with certain of her customers. These agreements authorized others - so-called "Facilitators" - to solicit customers to trade forex through BDCS in exchange for a marketing service fee. If a Facilitator successfully solicited a customer to trade through BDCS, then Simmons and Salazar would further divide their portion of the customer's trading profits with the referring Facilitator. As a result of these Co-Faciliator agreements, the Black Diamond fraudulent scheme was extended to numerous individuals/entities across California, Colorado, Texas, and other states.

         20. In addition to the Black Diamond solicitation material described above, Salazar, directly or through her Facilitators, provided customers with a one-page trading agreement to sign ("Black Diamond/Life Plus Membership Agreement"). The trading agreement provided that customers would participate with both BDCS and Life Plus in a forex trading account held by BDCS at a third party brokerage, and provided for a percentage split that varied by customer (usually ranging from 50/50 to 60/40) of net profits between the account holder and Black Diamond/Life Plus.

         21. Coats initially solicited customers as a Facilitator for Salazar pursuant to the Simmons-Salazar joint venture. By December 2007, after the Simmons-Salazar-Coats joint venture was formed, Coats began soliciting customers to trade forex through Black Diamond pursuant to the joint venture agreement. By June 2008, Coats established his own hedge fund, Genesis Wealth Partners LP ("GWP"), with GWM as its general partner, to be the vehicle through which he solicited customers for Black Diamond. Coats's existing customers became limited partners of GWP. GWM earned management fees for its administration of GWP; these fees were often deposited into bank accounts in the name of Coats Wealth controlled by Coats. While GWP had its own trading accounts with Black Diamond, Coats also maintained a trading account in the name of Coats Estate, Inc. in order to collect his profit share under the joint venture agreement.

         22. For his customers, Coats used the Black Diamond/Life Plus Membership Agreement, amended to reflect that customers were entering into a forex trading agreement with Black Diamond, Life Plus and Coats Estate, Inc., calling the three entities "BDFG" (the "BDFG Membership Agreement"). No such company named BDFG existed; however, upon information and belief, BDFG was intended by Simmons, Salazar, and Coats in these agreements to mean the joint venture that was later formally incorporated as BD Holdings. Most, if not all, of Coats' customers signed the BDFG Membership Agreement. Coats also signed those agreements representing that he was an officer of the so-called BDFG. Many, if not most, of Coats' customers also completed an account information form wherein Coats's name appeared on the signature line identifying himself as an officer of BDFG.

         23. In December 2007, Coats solicited Defendant Davey to open a forex trading account with Black Diamond on behalf of the customers of his fund Divine Ltd. Davey signed the BDFG Membership Agreement and began sending Divine Ltd. funds to Black Diamond. Coats also recruited individuals to create and manage "Hedge Funds" in order to solicit additional customers for the Black Diamond scheme. As a result of these Hedge Funds, the Black Diamond fraudulent scheme was extended to numerous individuals/entities across the United States.

         B. Defendants Misappropriated Customer Funds

         24. Coats initially had his GWP customers and some of the Hedge Funds send their funds directly to bank accounts in the name of BDCS controlled by Simmons. By early 2009, however, Davey had become the "third party administrator" of GWP and the Hedge Funds' accounts with Black Diamond. To carry out this role, Davey utilized a system of interrelated companies, namely DCS, SHV, SHWI, Divine Stewardship, and SHW, which operated as a common enterprise (the "Davey Common Enterprise"). The various entities comprising the Davey Common Enterprise operated out of the same location, 35 South Park Place, Suite 10, Newark, Ohio, 43055, at times commingled funds, shared officers and owners, and were under common control. Once Davey became the third party administrator, Coats instructed that all funds from GWP, DCS, and the Hedge Funds be sent to Black Diamond through various bank accounts controlled by the Davey Common Enterprise. SHV wholly owned DCS and managed, through DCS, the bank account responsible for sending customer funds, including those funds of Divine Ltd., GWP, and the other Hedge Funds, to Black Diamond. SHWI and/or Divine Stewardship provided administrative services to SHV in the management of the funds flowing through the Davey Common Enterprise to Black Diamond. SHW provided accounting services for the Davey Common Enterprise in its movement of funds to Black Diamond.

         25. Simmons never engaged in any trading of forex on behalf of Black Diamond customers. In fact, the so-called system developers and the Black Diamond trading platform never existed. Instead of investing customer funds into a forex trading platform operated by Black Diamond as promised, Simmons misappropriated those funds to pay purported profits or return principal to Black Diamond customers. ...


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