UNITED STATES OF AMERICA 

Before the 

COMMODITY FUTURES TRADING COMMISSION 

ALEXANDER TIMOTHY DARRAH CFTC Docket No. 05-R042 

v. 

STEVE DAVID KNOWLES, et al., 

ORDER OF MODIFIED SUMMARY 

AFFIRMANCE 

Steve Knowles appeals from the order of the judgment officer ("JO") on remand from a 

prior Commission opinion and order. 1 We have carefully considered the extensive record and 

the parties' appellate arguments, familiarity with which is presumed. The findings and 

conclusions of the JO on liability are supported by the record, and we therefore adopt them. 

None of the arguments on appeal present important questions of law and policy warranting an 

opinion and order. Nevertheless, we briefly address Knowles' claim that he did not receive 

adequate notice that he was charged with failure to supervise. 

Knowles asserts that the complaint did not specifically allege a failure to supervise, and 

he therefore learned of this charge only when the Commission remanded the case for 

reconsideration of this alternative theory of liability. But so long as a complaint provides a 

simple statement of the facts and a claim for relief, it is sufficient under Commission rules. 

1 The judgment officer's order is at [2012 Transfer Binder] Cornrn. Fut. L. Rep. (CCH) ~ 32,317, 

2012 WL 4715440 (CFTC Sept. 28, 2012; corrected Oct.l, 2012), ("JO Order"). The 

Commission's prior opinion and order is at [2011-12 Transfer Binder] Cornrn. Fut. L. Rep. 

(CCH) ~ 31,923, 2010, WL 5582903 (CFTC Dec. 9, 2010), ("Corn. Op."). The opinion largely 

affirmed the initial decision of an Administrative Law Judge, [2005-2007 Transfer Binder] 

Cornrn. Fut. L. Rep. (CCH) ~ 30,259, 2006 WL 1816445 (June 28, 2006), ("ALJ ID"), except for 

the determination that Knowles and co-respondent Paul Plunkett were liable as controlling 

persons for the fraud of the other respondents, and it remanded the case to the JO to consider 

whether Knowles and Plunkett failed to diligently supervise the other respondents. Plunkett did 

not appeal from the JO's order on remand, and it is final as to him. 17 C.F.R. § 12.210(d) and 

(e). 

1 
There is no requirement that a complaint allege a pmiicular theory of liability, nor any 

prohibition against changing a theory. 17 C.F.R. § 12. 13(b) (reparations complaint must state 

the relevant facts concerning each act or omission at issue, the facts showing how the 

complainant was injured by the conduct at issue and "[i]f known, the specific provisions" of law, 

regulation or order violated); Johnson v. Fleck, [1990-92 Transfer Binder] Comm. Fut. L. Rep. 

(CCH) ,-r 24,757 at 37,499, 1990 WL 294143 (CFTC Nov. 20, 1990), ("focus of the 

Commission's standards for a reparations complaint is the articulation of the factual basis for 

[the dispute] ... rather than the articulation of technical legal claims"); Skinner v. Switzer, 131 

S.Ct. 1289, 1296 (2011) (notice pleading requirements under Federal Rules of Civil Procedure 

do not require plaintiff to plead a particular theory of liability, nor prevent her from later 

changing theory); New York State Electric & Gas v. Sec y of Labor, 88 F.3d 98, 104 (2nd Cir. 

1996) (under liberal rules for administrative pleadings, key question is prejudice, and a pmiy 

normally cannot show prejudice simply because of a change in its opponent's legal theory where 

material facts would be same regardless oftheory). 

Darrah's complaint satisfied these "notice pleading" requirements. It alleged that "no 

business" of the firm could be conducted without Knowles' "active direction and suppoti," that 

Knowles "was in direct control" of the firm and its employees, "directed the conduct of its 

affairs," and was "responsible" for reviewing all employee activities. Complaint ("Compl.") ,-r 8. 

The complaint further alleged that co-respondent traders were under Knowles' direct 

supervision, and that Knowles aided, abetted, allowed and induced their fraudulent acts. Compl. 

,-r 58; see also JO Order, CCH ,-r 32,317 at 71,089 n. 8. These allegations were sufficient to put 

Knowles on notice that his supervision of the traders was at issue. Further, following remand, 

2 
Knowles submitted two affidavits addressing his supervisiOn. JO Order, CCH ~ 32,317 at 

71,090. 

We sua sponte modify the JO's award of damages as to Knowles to subtract Darrah's 

loss of funds invested after March 12, 2003. In our prior opinion, we found that, subsequent to 

that date, Darrah's reliance on the co-respondent traders' fraudulent representations became 

unreasonable. Com. Op., CCH ~ 31,923 at 66,099 ("Darrah became suspicious, but nevertheless 

deposited additional funds [and] [a]s [he][] acknowledged, [] simply threw good money after 

bad."). We further found that there were no churning damages after that date because the corespondents no longer exercised de facto control over Darrah's account. Id. We thus reduced the 

award for damages for fraudulent misrepresentation and churning from $ 1,512,354.48 to $ 

1,292,685.48, with interest to run from June 30, 2003 (when the account was closed) until the 

award was paid in full. I d. at 66,100. 

On remand, the JO awarded Darrah the full amount of his losses as to Knowles and 

Plunkett, reasoning that their failure to supervise in violation of § 166.3 caused losses 

independent ofthe co-respondent traders' misconduct. JO Order, CCH ~ 32,317 at 71,104. The 

JO also ordered interest to run from February 28, 2003, the date that Darrah made his largest, $ 

900,000 deposit, because that was the date of Darrah's largest loss. I d. 

We agree with the JO that failure to supervise is a violation independent of other 

misconduct. See, e.g. In re GNP Commodities, Inc., [1990-1992 Transfer Binder] Comm. Fut. L. 

Rep. (CCH) ~ 25,360 at 39,219 n. 11, 1992 WL 201158 (CFTC Aug. 11, 1992), aff'd in part and 

reversed in part sub nom. Monieson v. CFTC, 996 F.2d 852 (7th Cir. 1993) (violation of 166.3 is 

an "independent and primary violation for which no underlying violation is necessary"); see also 

In re Collins, [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ~27,194 at 45,744, 1997 

3 
WL 761927 (CFTC Dec. 10, 1997) (same). It is well-settled that a violation of§ 166.3 "is 

actionable in reparations," Bunch v. First Comm. Corp., [1992 Transfer Binder] Comm. Fut. L. 

Rep. (CCH) ~ 25,352 at 39,168-69, 1992 WL 190394 (Aug. 5, 1992), and a reparations 

complainant may be awarded damages for that violation. 7 U.S.C. § 18(a)(1)(A). 

While Knowles clearly violated § 166.3 during the entire time period in which Darrah 

invested funds, Darrah failed to take steps after March 12, 2003, after he admittedly became 

suspicious, to prevent further losses. As Darrah acknowledged, he "simply threw good money 

after bad." Com. Op., CCH ~ 31,923 at 66,099. Under these circumstances, we decline to award 

Danah damages for losses after that date. We accordingly reduce the award as to Knowles from 

$ 1,512,354.48 to$ 1,292,685.48. 

We also modify the date from which interest accrues as to Knowles so as to conform to 

our prior opinion involving the co-respondents. Com. Op., CCH ~ 31,923 at 66,100. 

Accordingly, interest shall run from June 30, 2003. Knowles' liability for damages and interest 

shall be joint and several with all co-respondents. 2 

IT IS SO ORDERED. 

By the Commission (Chairman GENSLER and Commissioners CHILTON, O'MALIA and 

WETJEN). 3 

2 As stated above, Plunkett did not appeal from the JO's order awarding $ 1,512,354.48, plus 

interest. Accordingly, he is solely liable for$ 219,669-the difference between$ 1,512,354.48 

and $ 1,292,685.48-plus interest as set forth in the JO's order. Plunkett (and all other 

respondents in this proceeding) remains jointly and severally liable for $ 1 ,292,685.48, plus 

interest as set forth in the Commission's prior order, the JO's order, and herein. 

3 Any appeal of a reparations order must be filed within 15 days of notice of the Commission 

order. See Section 6(c)(11)(B)(ii) of the CEA, 7 U.S.C. § 9 (c)(11)(B)(ii). Any appeal must be 

made to the United States Court of Appeals for the circuit in which the hearing was held. See 

Section 14(e) of the CEA, 7 U.S.C. § 18(e). In addition, 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. See id. 

4 
Meli a D. Jurgens 

Secretary of the Commission 

Commodity Futures Trading Commission 

Dated: December 16, 2013 

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