Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca3-09-02507/USCOURTS-ca3-09-02507-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 09-2507

 

COMMODITY FUTURES TRADING COMMISSION

v.

WILLIAMS D. PERKINS; TAX ACCOUNTING OFFICE, INC.,

 Appellants

 

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

(D.C. Civil No. 06-cv-04674)

District Judge: Honorable Robert B. Kugler

 

Submitted Under Third Circuit LAR 34.1(a)

June 30, 2010

 

Before: SLOVITER, BARRY and HARDIMAN, Circuit Judges

(Opinion Filed: July 1, 2010)

 

OPINION

 

BARRY, Circuit Judge

This is the second of two actions brought by the Commodity Futures Trading

Commission (“CFTC”) in response to a multi-million dollar investment fraud scheme

Case: 09-2507 Document: 003110202935 Page: 1 Date Filed: 07/01/2010
 We will use the name Tech Traders to refer to four entities that operated in 1

concert: Traders, Inc., Tech Traders, Ltd., Magnum Investments, Ltd., and Magnum

Capital Investments, Ltd. The distinctions between these companies are irrelevant to this

appeal. 

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involving commodity futures trading. In the first case, we affirmed the judgment entered

against the manager of an investment vehicle called Shasta Capital Associates (“Shasta”),

holding that Shasta’s manager, Equity Financial Group LLC (“Equity Group”), was a

“commodity pool operator” (“CPO”) for purposes of the Commodity Exchange Act, 7

U.S.C. § 1, et seq. (“CEA”), even though Shasta did not actually execute any futures

trades and instead forwarded money to another fund—Tech Traders —which executed 1

trades. Commodity Futures Trading Comm’n v. Equity Fin. Group LLC, 572 F.3d 150

(3d Cir. 2009) (“Equity”), cert. denied, Shimer v. Commodity Futures Trading Comm’n,

___ U.S. ___, 130 S.Ct. 1737 (2010). We consider here whether appellant William

Perkins (“Perkins”), the manager of another investment vehicle, Universe Capital

Appreciation, LLC (“Universe”), which also did not execute futures trades, and instead

forwarded investment funds to Shasta (which in turn forwarded the funds to Tech

Traders), was a CPO. 

The issue before us is essentially identical to the one we considered in Equity, and

we respectfully decline Perkins’s emphatic invitation to revisit our recently-established

precedent. The District Court determined that Perkins acted as a CPO. We agree, and

will affirm.

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The District Court had jurisdiction under 7 U.S.C. § 13a-1. We have jurisdiction

under 28 U.S.C. § 1291. Our review of the District Court's grant of summary judgment is

plenary, and we apply the same test the District Court used. Howard Hess Dental Labs.

Inc. v. Dentsply Int’l., Inc., 602 F.3d 237, 246 (3d Cir. 2010). Summary judgment is

appropriate when “the pleadings, the discovery and disclosure materials on file, and any

affidavits show that there is no genuine issue as to any material fact and that the movant

is entitled to judgment as a matter of law.” Id. (citing Fed. R. Civ. P. 56(c)).

Perkins argues that he was not acting as a CPO because Universe did not

participate in “the actual trading itself . . . in the name of the pool entity from a

commodity futures trading account that has been opened at a futures commission

merchant . . . in the name of the pool.” (Perkins Br. at 18.) That argument is unavailing

in light of our opinion in Equity, in which we explained that

the statute does not require a commodity pool operator to execute

commodity futures transactions. The language of the definition lacks an

explicit trading requirement, and the remedial purposes of the statute would

be thwarted if the operator of a fund could avoid the regulatory scheme

simply by investing in another pool rather than trading. If an entity is

engaged in a business in the nature of an investment trust, syndicate, or

similar form of enterprise, and it solicits, accepts, or receives funds for the

purpose of trading, it is a commodity pool operator. The actual trading of

commodity futures is not required. 

572 F.3d at 158.

Perkins offers numerous reasons why he believes we should revisit Equity and

follow Lopez v. Dean Witter Reynolds, Inc., 805 F.2d 880 (9th Cir. 1986), which he

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insists imposes a trading requirement. In Equity, we quoted Lopez’s four-part test (for

determining whether an entity is a commodity pool) and wrote that “[t]he Lopez court

confronted . . . a different legal question” and “did not address whether a commodity pool

operator must itself execute commodity futures transactions.” 572 F.3d at 158. Thus, we

have already considered the specific arguments Perkins raises, and rejected them. 

Perkins nevertheless suggests that we might benefit from “a competent analysis of

the legislative history of the CEA and the expectation of Congress about the direct

involvement in commodity futures trading activity by CPO’s [sic].” (Perkins Br. at 17-18

n.3.) We think our legislative history analysis in Equity was more than satisfactory. 

There, we determined that “[t]he absence of a trading requirement is consistent with the

purposes of the” CEA, explaining that “when Congress defined commodity pool operator,

it sought to regulate the solicitation of funds from customers and potential customers. 

And it intended to protect them from harmful conduct, especially fraudulent solicitation. 

The statute would be undermined if one entity could escape regulation merely by having

another execute its trades.” Equity, 572 F.3d at 157. 

Perkins posits that the District Court’s analysis of Lopez is “a stunning example of

why appellate review is . . . necessary,” (Perkins Br. at 18-19), arguing that Universe

could not have been a commodity pool because the Universe funds did not remain

“combined” in “a single account,” but were instead “periodically transferred from time to

time over a period of more than two years to . . . Shasta which, in turn, periodically wired

Case: 09-2507 Document: 003110202935 Page: 4 Date Filed: 07/01/2010
 For example, Perkins quotes regulations requiring that CPOs provide pool 2

participants with certain information which only the trader is likely to know, like the

“commodity interest positions liquidated,” “unrealized gain or loss in which the pool

engaged,” and the “total amount of all brokerage commissions during the reporting

period.” (Perkins Reply Br. at 4 (emphasis omitted).) 

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the funds . . . to . . . Tech [Traders].” (Id. at 21 (emphasis omitted).) This argument is

without merit. Similar fund transfers took place in Equity, and we made clear that such

transfers do not offend the definition of “commodity pool.” Allowing an investment

manager to circumvent regulation merely by transferring funds from one account to

another does not comport with Congress’s aim of protecting investors. 

In his reply brief, Perkins cites thirty-eight provisions of the CFTC regulations and

argues that our holding in Equity is “in direct conflict with all thirty-eight!” (Reply Br. 2

at 11.) The cited provisions unsurprisingly require CPOs to provide commodity pool

participants with extensive information about the commodity futures trades involving

their money. Perkins reads those provisions as signaling that the CFTC itself interprets

the terms “commodity pool” and “CPO” more narrowly than we did in Equity. However,

as we pointed out in Equity, other CFTC regulations suggest just the opposite. 572 F.3d

at 157 n.13. The conflicting language of those regulations does not change our

conclusion that Congress intended broad definitions of “commodity pool” and “CPO.”

Perkins also contends that Universe is distinguishable from Equity Group in that

Universe was further from the actual trading (twice removed, instead of just once), and so

did not have the character of a commodity pool. Our holding in Equity makes clear that

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the proximity to trading is not an important factor. If the pool is established with the

purpose of trading in commodity futures, then the pool is a commodity pool for CEA

purposes. See Equity, 572 F.3d at 158. 

We reject the other arguments made by Perkins and the Tax Accounting Office,

Inc., without further discussion. We will affirm the judgment of the District Court. 

Case: 09-2507 Document: 003110202935 Page: 6 Date Filed: 07/01/2010