UNITED STATES OF AMERICA 

Before the 

COMMODITY FUTURES TRADING COMMISSION 

PAUL CONNOLLY, 

Claimant-Appellee, 

v. 

GREGORY COTTER and TRI GLOBAL 

FX, INC., 

Respondents-Appellants. 

) 

) 

) 

) CFTC Docket No. 09-R027 

) 

) 

) OPINION AND ORDER 

) 

) 

) 

) 

Respondents Gregory Cotter ("Cotter") and Tri Global FX, Inc. ("Tri Global") appeal 

from a Judgment Officer's ("JO") initial decision ("ID") awarding $221,909 in damages to 

Claimant Paul Connolly ("Connolly"). The JO held that Cotter and Tri Global (collectively, 

"Respondents") fraudulently induced Connolly to open a managed foreign currency ("forex") 

trading account. Cotter argues that the JO erred because (1) the contracts at issue were rolling 

spot contracts, outside the Commission's jurisdiction during the events at issue; (2) Connolly 

was required to bring his claims in arbitration rather than in CFTC reparations; and (3) Connolly 

failed to mitigate damages and the JO erred in certain findings of fact. We reject each of these 

arguments and therefore affirm. 

BACKGROUND 

Connolly alleges in his complaint that Respondents fraudulently induced him to invest in 

a managed forex trading account with Tri Global. About a year later, over the course of four 

days of trading, Respondents lost the entirety of Connolly's investment. Connolly claims that 

Respondents fraudulently induced him to open a managed foreign currency trading account, then 
deviated from the conservative, loss-limiting strategy with trading safeguards in place, causing 

him to lose the entire value of his account in a four-day period. 

The case was originally assigned to a CFfC Administrative Law Judge ("ALJ"). On July 

25, 2011, the ALJ issued an order stating that the pleadings and other materials were insufficient 

to establish the Commission's jurisdiction over futures transactions. He therefore ordered 

Connolly to brief that issue and supplement the record as necessary to cure that perceived defect. 

In response, Connolly submitted a memorandum arguing that his forex contracts were in fact 

futures, because (1) he never intended to take delivery of the traded currencies; (2) his positions 

were entered at a predetermined price and were offset; and (3) the trading was on margin and 

exclusively undertaken for the purpose of speculating on currency fluctuations. Connolly v. 

Cotter, [2011-2012 Transfer Binder] Comm. Fut. L. Rep. (CCH) ~ 32,021, 67,021, CFTC No. 

09-R027, 2011 WL 4000913, at *2 (CFTC ALJ Aug. 31, 2011). For these reasons, Connolly 

argued that the contracts were futures contracts, citing Bardman v. Global Futures and Forex, 

Ltd., CFfC No. 05-R37, 2006 WL 3478984, at *5 (CFTC Nov. 30, 2006), summarily aff'd, 2010 

WL 1888703, at *l (CFTC Apr. 30, 2010). Id at 67,021 & n.18, *2 & n.18. The ALJ rejected 

Connolly's argument, holding in reliance on CFIC v. Zelener, 373 F.3d 861 (7th Cir. 2004), that 

Connolly's subjective experience was not relevant. Rather, he explained, the determination of 

whether the contracts were futures required "an examination of the overall market in which it is 

traded." Id at 67,021 & n.19, *2 & n.19. 

Although the ALJ had invited Connolly to supplement the record with additional facts, 

Connolly did not do so. The ALJ therefore re-opened discovery and scheduled a hearing for 

January 17, 2012. Before that date arrived, however, the case was reassigned from the ALJ to 

the JO. Sua sponte, the JO issued an order reversing the ALJ's decision that the record did not 

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establish futures jurisdiction. The JO agreed with Connolly that the "economic reality test" 

controls and held that the Commission did have jurisdiction over the transactions at issue. (Tab 

107, Order dated Mar. 14, 2012 (citing Bardman, 2006 WL 3478984, at *6).) The JO therefore 

vacated the ALJ' s hearing order and set the case for a hearing on the merits. Id. 

At the hearing, Connolly testified that in 2007, Tri Global gave him materials including a 

chart of purported client returns. (Tab 123, Transcript of Telephonic Recording ("Hearing Tr.") 

at 108:13-109:2.) The chart indicated that no clients lost more than 25 percent. Id. According 

to the marketing materials, Tri Global utilized stop-losses and risk management software for 

trading, had audited funds, and produced returns in previous years that were consistently high. 

(Tab 118, Ex. 5 at I; Tab 120, Ex. 22; Hearing Tr. at 44:8-11, 54:9-23, 56:7-57:5.) The 

promotional materials also stated that the "goal is to minimize return volatility." (Tab 120, Ex. 

22; Hearing Tr. at 109:9-14.) The materials referred to an account called "Metro," which the 

materials described as "one of our retail managed accounts." (Tab 118, Ex. 5 at 1; Hearing Tr. at 

151:10-15.) Respondents made retail forex trades on Connolly's behalf using a Swiss forex 

dealer called Dukascopy. (Tab 128, Exs. D, N.) Despite Respondents' assurances of measures 

to reduce the trading risk, Connolly's account lost the entirety of its value in a four-day period. 

(Tab 128, Ex. P.) 

Respondent Cotter's own testimony was full of damaging admissions that demonstrated 

he did not describe Tri Global accurately and that Respondents did not follow the volatilityminimizing practices they advertised. First, while Tri Global's marketing materials claimed that 

the "results [were] reviewed by two forex auditing firms," Cotter admitted that he used only one 

accounting firm, and in the audit report the firm explicitly denied having audited or reviewed the 

performance tables. (Hearing Tr. at 168:5-169:19, 171; Tab 118, Ex. 5 at 1.) Second, though Tri 

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Global claimed to have risk-management software with stop-loss protections (Tab 120, Ex. 22; 

Hearing Tr. 178:5-20), Cotter admitted that the protections were at Dukascopy or another 

brokerage firm, and that his own firm did not have independent risk management software 

(Hearing Tr. at 178:24-180:6). Although the marketing materials described Metro as "one of our 

retail managed accounts," Cotter admitted that Metro was their only retail managed account. 

(Tab 118, Ex. 5 at 1; Hearing Tr. at 151: 10-152:2.) Cotter at first testified that an entity called 

TGFX, Inc., which he claimed was a separate company from Tri Global, was actually the one 

responsible for the trades on behalf of Connolly, and Respondents were not. (Tab 128, Ex. A at 

2; Hearing Tr. 131:15-19.) Cotter later admitted, however, that there was no difference between 

TGFX and Tri Global, damaging his credibility. (Hearing Tr. 139:9-24.) 

Based on the record, the JO held that Cotter and Tri Global "recklessly deviated from the 

promised strategy" in violation of section 4o(l)(B) of the Commodity Exchange Act ("CEA"), 7 

U.S.C. § 6o(l)(B), and by that conduct "proximately caused damages totaling $221,909." 

Connolly v. Coller, [2012-2013 Transfer Binder] Comm. Fut. L. Rep. (CCH) ii 32,567, 72,296, 

CFTC No. 09-R27, 2013 WL 1345412, at *1 (CFTC JO Mar. 29, 2013). He found that 

Connolly's testimony "was plausible ... internally consistent, and ... notably more credible and 

convincing than Cotter's testimony." Id. By contrast, "Cotter produced testimony that was 

opaque, evasive and largely unsubstantiated by any reliable documentary evidence." Id. The 

finding of damages was based on the determination that Connolly's account was worth 

£140,036.11 the day before the precipitous losses. On October 20, 2008, the account suffered a 

loss of £10,914.08, bringing its value to £129,122.03. The JO determined that this loss, which 

was significant relative to previous losses, "should have signaled caution," yet Cotter did nothing 

to minimize further losses. Id at 72,301, *9. Accordingly, the account continued its 

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catastrophic losses for the next 3 days, ultimately resulting in a value of -£245.58. 1 The JO 

determined that the loss over the course of the last 3 days -- £129,122.03 -- was attributable to 

the fraud, and based on a historical exchange rate of 1. 7186, was equivalent to a loss of 

$221,909. Id at 72,302, *10. 

STANDARD OF REVIEW 

In a reparations case, we review findings of fact and conclusions of law de novo, giving 

due deference to the JO's credibility determinations. Ahlstedt v. Capitol Commodity Servs., Inc., 

[1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ~ 27,131, 45,290 n.12, CFTC No. 96-

ROS0,1997 WL 458096, at *3 n.12 (CFTC Aug. 12, 1997). 

DISCUSSION 

I. The Commission has jurisdiction over Connolly's claims. 

Respondents raise two threshold issues. First, they argue that this case must be 

dismissed because it is subject to mandatory arbitration. Second, they argue that the CEA as it 

existed at the relevant time did not apply to the trades at issue, because they were in spot 

contracts and not futures. We reject both assertions. 

a. Connolly is not bound to Cotter by an arbitration clause. 

Respondents' claim that this case is subject to mandatory arbitration is meritless because 

it is based on a "Marketplace Trading Agreement" between Connolly and Dukascopy. (Tab 128, 

Ex. C.) Neither Respondent is a party to the agreement, and there is no other indication that 

Connolly agreed to arbitrate disputes that may arise with either of them. Accordingly, 

Respondents cannot invoke the agreement. See EEOC v. Waffle House, Inc., 534 U.S. 279, 289, 

294 (2002) (a contract to arbitrate cannot bind a nonparty or an issue not covered in the 

1 There is no evidence in the record before us that the -£245.58 that was due on the account on October 24, 2008 was 

collected. Accordingly, this amount is not part of the damages calculation. 

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agreement); First Options o/Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) (an arbitration 

contract only governs the disputes that the parties have agreed to submit to arbitration); Granite 

Rock Co. v. Int'/ Bhd. o/Teamsters, 130 S. Ct. 2847, 2862 (2010) (an agreement to arbitrate 

disputes arising out of one issue does not compel arbitration of a different issue). 

b. The CEA covers these transactions because they involved futures 

contracts. 

Respondents contend that the trading at issue fell outside the Commission's jurisdiction 

over futures contracts because they fell within a then-existing exclusion for any "agreement, 

contract, or transaction in ... foreign currency," 7 U.S.C. § 2(c)(l) (2006), and no exception 

applied. That claim is without merit. 

If these trades occurred today, we would not need to determine if they involved futures or 

spots, because the applicable statute would be CEA section 2(c)(2)(C), concerning leveraged, 

margined, or financed retail foreign currency transactions. 7 U.S.C. § 2(c)(2)(C). For contracts 

like Connelly's entered before the enactment of that statute, however, the futures contract versus 

spot contract determination was necessary, and two competing legal theories developed.2 The 

first was a multi-factor test designed to capture the economic reality of the transaction, 

articulated in Bardman v. Global Futures and Forex, Ltd, CFTC No. 05-R37, 2006 WL 

3478984 (CFTC Nov. 30, 2006), summarilyajf'd, 2010 WL 1888703, at *1 (CFTC Apr. 30, 

2010). The second, set forth in CFTC v. Zelener, 373 F.3d 861 (7th Cir. 2004), focused almost 

exclusively on the formal contract terms. We conclude that the choice of tests does not matter 

here because these contracts were futures under either test. 

2 Accordingly, our discussion here applies only to transactions prior to May 22, 2008, the 

effective date of7 U.S.C. § 2(c)(2)(C). 

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Under Bardman, purported spot forex contracts are actually futures if they have the 

"essential characteristics of futures contracts," specifically that ( 1) the contracts involved the 

purchase and sale of foreign currency for future delivery; (2) the prices were determined at the 

time that the parties entered into the contract; (3) the customer primarily used the forex contracts 

to speculate on fluctuations in the value of currency; and ( 4) the forex contracts permitted 

customers to roll-over trades, to close positions through offset, and to trade on margin, and the 

delivery of the underlying currencies was not anticipated. 2006 WL 3478984, at *5. Here, each 

factor is present: (1) the contracts involved the purchase and sale of foreign currency for future 

delivery (Tab 94 at 4); (2) prices were determined when parties entered into each foreign 

currency contract (id.); (3) the customer here used the forex contracts primarily to speculate on 

fluctuations in the value of currency (id.); and (4) the forex contracts permitted customers to roll 

over trades, to close positions through offset, and to trade on margin, and the delivery of the 

underlying currencies was not anticipated. (Id; Tab 97 at pdf p. 23.) Indeed, the account 

documents provided that "no delivery" would ever occur. (Tab 97 at pdf p. 23.) Thus, as the JO 

concluded, these contracts were futures under Bardman. 

The result would be the same under Ze/ener. In that case, the Seventh Circuit held that 

purported spot contracts are not futures if the terms of such contracts contemplate actual 

delivery. 373 F.3d at 869. Here, the contracts contemplated "no delivery." (Tab 97 at pdf p. 

23.) 373 F.3d at 866-67, 869. The court in Zelener also stated that a transaction may be in a 

futures contract if "the seller of the contract promises to sell another contract against which the 

buyer can offset the first contract." 373 F.3d at 868 (citing In re Bybee, 945 F.2d 309, 313 (9th 

Cir. 1991) and CFI'C v. Co Petro Mktg. Grp., Inc., 680 F.2d 573, 580 (9th Cir. 1982)). That is 

the case here because delivery was actually precluded in the account documents and Dukascopy, 

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the dealer (i.e. the seller), promised to create offsets in lieu of delivery. (Tab 97 at pdf p. 23.) 

Thus, even under Ze/ener, the CEA applies. 

II. The JO correctly held that Respondents violated CEA section 4o. 

A claimant under CEA section 4o(l )(B) must prove that a Commodity Pool Operator or 

Commodity Trading Advisor ("CT A") or Associated Person thereof made a misrepresentation or 

omission, that was material, and that proximately caused damages. CFTC v. Heffernan, 245 F. 

Supp. 2d 1276, 1292 (S.D. Ga. 2003); Ho v. Dahmen-Ramirez, [1986-1987 Transfer Binder] 

Comm. Fut. L. Rep. (CCH) ~ 23,221, 32,606-07, CFTC No. R80-1155-81-186, 1986 WL 66148, 

at *4 (CFTC Aug. 19, 1986); CEA section 14(a)(l)(A), 7 U.S.C. § 18(a)(1)(A). A 

misrepresentation or omission is "material" if a reasonable investor would consider it important 

in deciding whether to make an investment. CFTC v. R.J. Fitzgerald & Co., 310 F.3d 1321, 

1328-29 (11th Cir. 2002) (citations omitted). To assess proximate cause, "the Commission looks 

to whether respondents' violative conduct was a substantial factor in bringing about 

complainants' loss and whether the loss was a reasonably probable consequence of respondents' 

conduct." Muniz v. Lassi/a, [1990-1992 Transfer Binder], Comm. Fut. L. Rep. (CCH) ~ 25,225, 

38,650, CFTC No. 87-R395, 1992 WL 10629, at *7 (CFTC Jan. 17, 1992) (internal quotation 

marks and citation omitted). The claimant need not prove that the respondent acted with 

scienter. Messer v. E.F. Hutton & Co., 847 F.2d 673, 677 (11th Cir. 1988); Heffernan, 245 F. 

Supp. 2d at 1292. 

The evidence of fraud or other actionable misrepresentation in this case is 

straightforward. Tri Global was a CTA3 and Cotter was an Associated Person.4 Respondents 

3 Query for Tri Global FX, Broker/Firm Information (BASIC), National Futures Association, 

https://www.nfa.futures.org/BasicNet/Details.aspx?entitvid=M3VzuJvpHgw°/o3d (last visited 

Oct. 24, 2016). 

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made the misrepresentations described above. See supra at 3-4. 5 Some of the misrepresentations 

were material, because, among other reasons, they concerned trading risk, and therefore "go to 

the heart of a customer's investment decision and are therefore material as a matter of law." 

CFTC v. Noble Wealth Data Info. Servs., Inc., 90 F.Supp.2d 676, 686 (D. Md. 2000), aff'd in 

part and vacated in part by CFTC v. Baragosh, 278 F.3d 319, 323 (4th Cir. 2002). The record 

shows that these misrepresentations proximately caused Connolly's losses, because Respondents 

did not have in place the claimed stop-loss protections or risk-management software, without 

which Connolly's account lost almost one hundred percent of its value in just four days. Other 

misrepresentations went to the sophistication of the firm itself. (See, e.g., Hearing Tr. at 168:5-

169:23, 171; Tab 118, Ex. 5 at 1 (misrepresentation about audits); Tab 118, Ex. 5 at l; Hearing 

Tr. at 151:10-152:2 (misrepresentation about number of managed accounts).) It is inferable that 

Connolly would have been less likely to trade through Respondents had he not been misled about 

those facts as well. Individually and in combination, these misrepresentations proximately 

caused Connolly's damages. While Respondents allege that the JO made certain erroneous 

findings of fact (Tab 128 at 5), the facts described above establish all of the necessary elements. 

We also see no basis in the record to disturb the JO's credibility determinations. Accordingly, 

we affirm his holding that Cotter violated CEA section 4o.6 

4 Query for Gregory Cotter, Broker/Firm Information (BASIC), National Futures Association, 

https://www.nfa.futures.org/basicnet/Details.aspx?entityid=%2fu0secf8onI%3d&rn=Y (last 

visited Oct. 24, 2016). 

5 On appeal, Respondents make no argument that Tri Global lacks responsibility for Cotter's 

actions. 

6 Cotter also alleges error because "Connolly failed to produce his trading records prior to this 

period." (Tab 128 at 8). According to Cotter, this prior period of trading could show Connolly's 

appetite for risk. But Connolly's general "appetite" for risk has no relevance to any element of 

section 4o because Cotter made specific misrepresentations that prevented Connolly from 

properly evaluating the risk he was taking. 

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III. Cotter has not demonstrated that Connolly ratified the trades or failed to 

mitigate losses. 

Cotter raises two defenses, ratification and mitigation. (Tab 128 at 5-18.) Both are based 

on the same contentions: that Connolly did not ask that his "trading be suspended or halted" and 

never explained why he did not revoke the power of attorney that allowed Cotter to trade on his 

behalf. (Tab 128 at 6, 14.) Neither defense has any basis. 

A defense of ratification requires the respondent to show that the complainant permitted 

the wrongdoing to recur by allowing subsequent trading. Levine v. Re/co, Inc., [1987-1990 

Transfer Binder] Comm. Fut. L. Rep. (CCH), 24,488, 36,116, CFTC No. 86-R225, 1989 WL 

242009, at *5 (CFTC July 11, 1989). However, the doctrine "has no practical application in the 

context of fraudulent inducement." Id. (citing O'Hey v. Drexel Burnham, Inc., [1984-1986 

Transfer Binder] Comm. Fut. L. Rep. (CCH), 22,754, 31,142, CFTC Nos. R80-1080-81-358, 

81-R52-81-359, 1985 WL 55284, at *3-4 (CFTC Sept. 23, 1985). Moreover, there is no 

evidence that Connolly knew during the four-day period during which he suffered the losses that 

Cotter's representations were false. As to mitigation, we have explained that the duty "does not 

even arise in the context of fraudulent inducement unless the record establishes that the 

defrauded individual has become aware of the material facts about which he was initially 

misled." Id. Again, there is no evidence in this case that Connolly became aware in time to act. 

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CONCLUSION 

For these reasons, the decision of the Judgment Officer is affirmed. 

IT IS SO ORDERED.7 

By the Commission (Chairman MASSAD and Commissioners BOWEN and GIANCARLO). 

Secretary of the Commission 

Commodity Futures Trading Commission 

Dated: December 12, 2016 

7 Under the Commodity Exchange Act, a party may appeal a reparation order of the Commission 

to the United States Court of Appeals for only the circuit in which a hearing was held; if no 

hearing was held, the appeal may be filed in any circuit in which the appellee is located. 7 

U.S.C. §§ 9(1 l)(B), 18(e) (2012). Such an appeal must be filed within 15 days after notice of the 

order and any appeal is not effective unless, within 30 days of the date of the Commission order, 

the appealing party files with the court a bond equal to double the amount of any reparation 

award. Id. § 18( e ). 

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