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U.S. Commodity Futures Trading Commission v. OTC Investments LLC

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

January 19, 2018



          Martin Reidinger United States District Judge

         THIS MATTER is before the Court on Defendant Barry C. Taylor's “Motion to Dismiss (with Prejudice) or in the Alternative: Motion for Summary Judgment” [Doc. 59] and Plaintiff U.S. Commodities Futures Trading Commission's Motion for Summary Judgment against Defendant Barry C. Taylor [Doc. 60].


         This civil case arises out of a foreign currency exchange pool operated by the Defendant Barry C. Taylor (“Taylor”) in this District between 2011 and 2015. On April 21, 2015, the Plaintiff U.S. Commodity Futures Trading Commission (“CFTC”) filed a Complaint for Permanent Injunction, Civil Monetary Penalties, and Other Equitable Relief against Taylor and his companies, OTC Investments LLC (“OTC”) and Forex Currency Trade Advisors, LLC (“FCTA”).[1] [Doc. 1]. The Complaint alleges that the Defendants committed fraud in connection with foreign currency exchange transactions, in violation of Section 4b(a)(2)(A) and (C) of the Commodity Exchange Act (“Act”), 7 U.S.C. § 6b(a)(2)(A), (C) and Commission Regulation 5.2(b)(1)-(3), 17 C.F.R. § 5.2b(1)-(3) (“Count I”); that the Defendants committed fraud while acting as commodity pool operators, in violation of Section 4o(1) of the Act, 7 U.S.C. § 6o(1) (“Count II”); and that the Defendants failed to register as commodity pool operators, in violation of Section 4m(1), 7 U.S.C. § 6m(1) (“Count III”). Contemporaneously with the filing of the Complaint, the CFTC moved the Court for an Ex Parte Restraining Order, which the Court granted after oral argument on April 22, 2015. [Doc. 11]. On June 8, 2015, the Court entered an Order of Preliminary Injunction and Other Ancillary Relief against Defendant Taylor. [Doc. 31].

         On January 12, 2016, a criminal Bill Of Information was filed against Taylor in this District, charging him with one count of fraud while acting as a commodity pool operator, in violation of § 4o of the Commodity Exchange Act, 7 U.S.C. § 6o, and one count of concealment money laundering, in violation of 18 U.S.C. § 1956(a)(1)(B)(1). [United States v. Taylor, No. 1:16-cr-00002-MR-DLH-1, Doc. 1]. On that same date, a Plea Agreement and a supporting Factual Basis were filed with the Court. [Id., Docs. 3, 4]. On January 25, 2016, Taylor appeared with counsel before Magistrate Judge Dennis Howell and pleaded guilty to both counts in the Bill of Information.

         The Factual Basis filed in support of the Plea Agreement establishes that Taylor engaged in a fraudulent scheme in violation of the Act to solicit more than $2.1 million from 18 pool participants located in North Carolina, other states within the United States, and Canada, to participate in a commodity pool that traded leveraged or margined retail off-exchange foreign currency contracts, commonly known as “forex.” As part of this illegal scheme, Taylor misappropriated $529, 000 of pool participants' funds to enrich himself and pay his personal expenses, including but not limited to cash withdrawals or direct transfers of pool participants' funds from the Bank accounts held by his corporate entities, OTC and FCTA. Taylor treated pool participants' funds as if they were his own personal funds, spending pool participants' money on personal and living expenses. Additionally, Taylor acted as an unregistered commodity pool operator (“CPO”) by operating and soliciting funds, securities, or property for a pooled investment vehicle that is not an eligible contract participant (“ECP”), as defined by the Act, and that engages in retail forex transactions. At the plea hearing, Taylor signed a certification that the information set forth in the Factual Basis is true and accurate. [Id., Doc. 12].

         On July 5, 2016, this Court sentenced Taylor to a term of 135 months' imprisonment and ordered him to pay restitution to the victims of his criminal offenses in the amount of $2, 195, 244.01.[2] [Id., Doc. 28]. Taylor is currently incarcerated at the Federal Correctional Institution Ashland in Ashland, Kentucky.

         While these civil and criminal proceedings were ongoing, Taylor filed a voluntary Chapter 7 petition in the United States Bankruptcy Court for the Western District of North Carolina, No. 15-20037. [Bankruptcy No. 15-20037, Doc. 1]. On February 29, 2016, that court ordered a bankruptcy discharge as to Taylor. [Id., Doc. 30]. On April 10, 2017, Taylor filed a “Suggestion of Discharge” in this case, wherein he contends that his bankruptcy discharges “any and all debts allegedly owed to the Plaintiff herein.” [Doc. 56 at 1].

         The CFTC now moves for summary judgment with respect to all of the claims asserted against Taylor, as well as for the entry of an order of permanent injunction and the imposition of civil monetary penalties. [Doc. 60]. Taylor, who is proceeding pro se in this matter, seeks a dismissal of the claims against him, or in the alternative, the entry of summary judgment in his favor. [Doc. 59].

         Both parties have responded to the other's motion [Docs. 64, 65, 66]. Having been fully briefed, these matters are ripe for adjudication.


         Summary judgment is proper “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). Thus, summary judgment must be entered “[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party….” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Once the moving party establishes that there are no genuine issues of material fact, the burden shifts to the non-moving party who “must do more than simply show that there is some metaphysical doubt as to material facts.” Id. at 586.

         Under Federal Rule of Civil Procedure 56(c)(1), the nonmoving party may not rely merely upon allegations or denials in its own pleadings but must set forth specific facts showing that there is a genuine issue for trial. To create a genuine issue of material fact, the non-moving party must cite competent, admissible evidence, and there must be sufficient evidence for the jury to return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986). “Where a party ‘fails to properly support an assertion of fact or fails to properly address another party's assertion of fact' in responding to a summary judgment motion, the court is permitted to ‘consider the fact undisputed for purposes of the motion, ' and to ‘grant summary judgment if the motion and supporting materials -- including the facts considered undisputed -- show that the movant is entitled to it.'” S.E.C. v. Farkas, 557 F. App'x 204, 207 (4th Cir. 2014) (quoting Fed.R.Civ.P. 56(e)(2)-(3)); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

         Because Taylor is proceeding pro se, he was advised on or about June 20, 2017, pursuant to Roseboro v. Garrison, 528 F.2d 309 (4th Cir. 1975), that a failure to adequately respond to the CFTC's motion for summary judgment could result in the Court granting the CFTC's motion and entering a judgment against him. [Doc. 62 at 4]. In his response to the CFTC's motion for summary judgment, Taylor does not offer any forecast of evidence or make any effort to dispute the forecast of evidence presented by the CFTC. Because Taylor failed to refute the Plaintiff's forecast of evidence, it is deemed undisputed for the purpose of the present motions. See Fed.R.Civ.P. 56(e)(2).


         A. Taylor's Motion to Dismiss/Motion for Summary Judgment

         Taylor asserts two primary arguments in his motion to dismiss/motion for summary judgment. First, Taylor contends that any indebtedness he owes to the CFTC was discharged in bankruptcy, and that, in any event, only the bankruptcy court is the proper forum to litigate any dischargeability issues. Second, Taylor contends that because he has already been ordered to pay restitution in the criminal action, “any additional judgment in the same amount, or for the same indebtedness . . . violates the rule or doctrine which prohibits a double recovery.” [Doc. 59 at 2].

         1. Nondischargeability of Civil Monetary Penalties

         Under the Bankruptcy Code, a debt is non-dischargeable “to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit and is not compensation for actual pecuniary loss, other than a tax penalty.” 11 U.S.C. § 523(A)(7); see also U.S. Dep't of Housing & Urban Dev. v. Cost Control Mktg. & Sales Mgmt. of Va., Inc., 64 F.3d 920, 927 (4th Cir. 1995) (noting that “discharge in bankruptcy is not intended to be a haven for wrongdoers”). Here, any civil monetary penalty imposed on Taylor by this Court would not be compensation for a pecuniary loss, but would rather be a penalty payable to and for the benefit of the CFTC. Accordingly, any civil monetary penalty imposed by this Court would not be dischargeable in bankruptcy.

         Taylor's argument that only the bankruptcy court could make a determination of dischargeability is also without merit. District courts and bankruptcy courts are both “vested with concurrent jurisdiction over nondischargeability proceedings arising under Bankruptcy Code § 523(a)(7).” Whitehouse v. LaRoche, 277 F.3d 568, 576 (1st Cir. 2002). “Consequently, at their option, creditors seeking a nondischargeability determination need not submit to the jurisdiction of the bankruptcy court, but instead may invoke the jurisdiction of any appropriate nonbankruptcy forum either before or after the bankruptcy proceeding has been closed.” Id. Thus, this Court has concurrent jurisdiction to make a nondischargeability determination under § 523(a)(7) regarding the civil monetary penalty sought by the CFTC. As such, the CFTC was not required to file an objection or take any other affirmative action in the bankruptcy court in order to receive a determination of nondischargeability for its requested civil monetary penalties.

         2. Double Recovery

         Alternatively, Taylor seeks dismissal of the CFTC's action on the grounds that restitution has already been ordered in his criminal prosecution and that granting judgment in favor of the CFTC in this civil action would constitute a “double recovery.”

         Taylor's argument on this point is meritless. While the Court may award restitution in a civil enforcement action brought under the Act, see United States v. Universal Mgmt. Servs., Inc., 191 F.3d 750, 760 (6th Cir. 1999), the CFTC is not seeking civil restitution here. Rather, it is seeking the award of civil monetary penalties. In any event, however, restitution and civil monetary penalties can be - and often are - awarded in the same civil action under the Act. See 7 U.S.C. §§ 13a-1(d)(1)(A), (d)(3)(A). Restitution awards in this context are measured by the amount invested by customers less any refunds given to them by defendants, while civil monetary penalties are based on the amount of monetary gain to defendants as a result of the violative conduct. See CFTC v. PMC Strategy, LLC, No. 3:11cv73, 2013 WL 1349177, at *8 (W.D. N.C. Apr. 3, 2013) (Mullen, J.). As such, the law allows for the imposition of both restitution and criminal monetary penalties for the same conduct.

         For all of these reasons, the Court concludes that Taylor's motion for dismissal of CFTC's action or, in the alternative, for summary judgment must be denied.

         B. CFTC's Motion for Summary Judgment

         The Court now turns to the CFTC's motion for summary judgment. Specifically, the CFTC seeks summary judgment on its claims of fraud (Counts I and II) and its claim for failure to register as a commodity pool operator (Count III). It also seeks the entry of a permanent injunction and the award of civil monetary penalties against Taylor.

         1. ...

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