Office of Proceedings 

In the Matter of 

U.S. COMMODITY FUTURES TRADING COMMISSION 

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

www.cftc.gov 

SYSTEM CAPITAL, LLC, and 

JOSHUAW. WALLACE, 

Registrants. 

) 

) 

) 

) 

) 

) 

CFTC Docket Number: SD 13-02 

______________________ ) 

Before: 

Appearances: 

Introduction 

INITIAL DECISION ON DEFAULT 

Philip V. McGuire, 

Commodity Futures Trading Commission 

Mark A Picard, Esq., Trial Attorney 

Division of Enforcement, Commodity Futures Trading Commission 

140 Broadway, 19th Floor, New York, NY 10005 

This is a proceeding to revoke the registrations of System Capital, LLC ("System 

Capital") and Joshua W. Wallace ("Wallace"), pursuant to Section 8a(2) ofthe 

Commodity Exchange Act ("Act"), 7 U.S.C. §8a(2)(2012), and Commission rules 3.6o(g) 

and 10.93, 17 C.F.R. §§ 3.6o(g) and 10.93 (2013). Wallace, an Oregon resident, is 

registered with the Commission as an associated person with, and listed as the founder, 

sole owner, principal and president of, System Capital, an Oregon limited liability 

company registered with the Commission as a commodity trading advisor. Wall ace also 
is System Capital's designated contact for registration, and enforcement and compliance 

communications from the Commission. 1 

By motion dated September 19, 2013, the Commission's Division of Enforcement 

("Division") has moved for entry of a default judgment against registrants System 

Capital and Wallace, based on the failure of Wallace and System Capital to answer, or 

otherwise to appear or respond to, the Notice of Intent to Revoke Registration Pursuant 

to Sections 8a(2)(C), (D), (E) and (H) of the Commodity Exchange Act, As Amended, 

issued by the Commission on July 11, 2013 ("Notice"). The Notice alleges that Wallace 

and System Capital are subject to statutory disqualification from Commission 

registration based on: 

One, the Order for Entry of Default Judgment, Permanent 

Injunction and Ancillary Equitable Relief Against System Capital, LLC and 

Joshua Wallace, entered on March 14, 2013, by the Honorable Katherine 

B. Forrest of the U.S. District Court for the Southern District of New York, 

in CFI'Cv. System Capital, LLC and Joshua Wallace, Case No. 10 Civ. 

8850 (KBF) ("Default Judgment"). The Default Judgment found that 

System Capital and Wallace had violated Sections 4b(a)(l)(A) and (C), 

4o(l)(A)-(B), and 9(a)(4) of the Commodity Exchange Act, 7 U.S.C. §§ 

6b(a)(l)(A) and (C), 6o(l)(A)-(B), and 13(a)(4); and permanently enjoined 

System Capital and Wallace, in relevant part, from directly or indirectly 

committing any further fraud in violation of Sections 4b(a)(l)(A) and (C), 

4o(l)(A)-(B), and 9(a)(4) ofthe Act, 7 U.S.C. §§ 6b(a)(l)(A) and (C), 

6o(l)(A)-(B), and 13(a)(4). 

Two, the Judgment entered on May 21, 2013, by the Honorable 

Laura Taylor Swain of the U.S. District Court for the Southern District of 

New York, in United States v. Joshua Wallace, Case No. 11 CR 124-01 

(LTS). The Judgment, based on Wallace's guilty plea, convicted Wallace 

of, inter alia, commodities fraud in violation of Sections 40(1) and 9(a)(5) 

of the Act, 7 U.S.C. §§ 6o( 1) and 13(a)(5). The commodities fraud count 

was based on the same underlying facts as charged in CFTC v. System 

Capital, LLC and Joshua Wallace. 

1 National Futures Association ("NFA") records. 

2 
Also on July 11, 2013, the Commission's Proceedings Clerk served the Notice on Wallace 

at his last registered address and his last known address, and served on System Capital 

at its last registered address and in care of Wallace at his last known address. 2 Thus, 

Wallace and System Capital were properly served pursuant to CFTC rule 3.50.3 

Wallace and System Capital did not respond to the Commission's Notice. 

Therefore, on August 20, 2013, I issued a Default Notice finding that Wallace and 

System Capital were in default, and setting deadlines for the Division to file a motion for 

entry of a default judgment and for Wallace and System Capital to file any opposition to 

the Division's motion.4 Subsequently, the Division timely filed a motion for entry of a 

default judgment, and Wallace and System Capital failed to file a response to the Default 

2 Wallace's last listed address with the Commission is: 12250 SW Lansdowne Lane, Tigard, Oregon 97223. The 

Post Office reported the Commission's Notice mailed to this address as "Undeliverable as Addressed." System 

Capital's last listed address with the Commission is: 5200 SW Meadows Road, Suite !50, Lake Oswego, Oregon 

97035. The Post Office reported the Commission's Notice mailed to this address as "Business Closed/Undeliverable 

as Addressed." A copy ofthe Notice was also served on Wallace and System Capital at their then last known 

address: 19420 Marlin A venue, Lake Oswego, Oregon 97035. The Post Office reported the Commission's Notice 

mailed to this address as successfully "Delivered." 3 Pursuant to CFTC rule 3.30(a), 17 C.F.R. § 3.30(a) (20 13), the address of each registrant as submitted on its 

application for registration or as submitted on the biographical supplement shall be deemed to be the address for 

delivery to the registrant for any communications fi·om the Commission, including any summons, complaint, notice 

and other written documents or correspondence, unless the registrant specifies another address for this purpose. 

CFTC rule 3.30(b ), 17 C.F.R. § 3.30(b) (20 13), provides that each registrant, while registered and for two years after 

the termination of registration, must notify the National Futures Association ("NFA") of any change of address, and 

that failure to do so may result in an order of default in any Commission or NFA proceedings. Moreover, pursuant 

to CFTC rule 3.50, 17 C.F.R. § 3.50 (20 13), for purposes of an action for the denial, suspension or revocation of 

registration, service upon a registrant will be sufficient if mailed by registered mail or certified mail return receipt 

requested properly addressed to the registrant at the address shown on his application or any amendment thereto, and 

will be complete upon mailing. 4 In connection with the Criminal Judgment, on May 15, 2013, Wallace was sentenced to 27 months incarceration. 

He was to surrender on or before July 18, 2013 to the Federal Correctional Institution at 27072 Ballston Road, 

Sheridan, Oregon ("FCI Sheridan"). According to the Bureau of Prison's website, Wallace's new address for the 

foreseeable future will be: Registration #73074-065, c/o FCI Sheridan, PO Box 5000, Sheridan, Oregon 97378. 

Thus, the Default Notice was served on System Capital and on Wallace (in his capacity as an individual registrant 

and as System Capital's sole principal and designated contact for registration, and enforcement and compliance, 

communications from the Commission) at Wallace's last known residential address at 19420 Marlin Avenue, Lake 

Oswego, Oregon, and at Wallace's current address at FCl Sheridan. The Post Office confirmed that the Default 

Notice was delivered to both addresses on August 22, 2013. Accordingly, this Initial Decision also will be served 

on System Capital and Wallace at these two viable addresses. 

3 
Notice or to the Division's motion. Accordingly, this matter is ripe for entry of a default 

judgment. 

As a result of their defaults, Wallace and System Capital have waived a hearing on 

all of the issues, and are precluded from introducing evidence of mitigation and 

rehabilitation which is necessary to rebut the strong presumption of unfitness for 

registration created by the findings of fact, conclusions of law, and sanctions in the civil 

Default Judgment and the criminal Judgment. As a result, the well-plead allegations in 

the Notice, as augmented by the evidence produced by the Division, and as 

supplemented by the proposed findings and conclusions in the Division's motion, are 

deemed true and conclusive for purposes of finding that Wallace is statutorily 

disqualified from registration under Sections 8a(2)(C), (D) and (E) of the Commodity 

Exchange Act ("Act"), and that System Capital is statutorily disqualified under Sections 

8a(2)(C), (E) and (H) of the Act, 7 U.S.C. §§ 8a(2)(C), (D), (E), and (H) (2012). 

Thus, as set out below, the Division's motion has been granted, Wallace and System 

Capital have been found to be unfit for registration and statutorily disqualified from 

registration, and the registrations of Wallace and System Capital have been revoked. 

Findings of Fact 

1. System Capital, LLC, an Oregon limited liability company, has been registered 

with the Commission as a commodity trading advisor, pursuant to Section 4m of the 

Ad, 7 U.S.C. § 6m (2012).s 

2. Wallace has been registered with the Commission since March 12, 2009 as an 

associated person of System Capital, pursuant to Section 4k of the Act, 7 U.S. C. § 6k 

5 NFA records, attachment to Jung Affidavit and Ce1iification, Exhibit 5, Division's motion. 

4 
(2012). Wallace is the founder, sole owner, principal and president of System Capital, 

and holds a 10% or more financial interest in System Capital.6 

3. On November 23, 2010, the Commission filed a federal civil injunctive 

complaint against System Capital and Wallace. CFTCv. System Capital, LLC and 

Joshua Wallace, Case No. 10 Civ. 8850 (KBF) (S.D.N.Y. filed November 23, 2010) 

("CFTC v. System Capital'). The complaint alleged, inter alia, that from about 

November 2009 through May 2010, System Capital and Wallace fraudulently solicited, 

or caused to be fraudulently solicited, prospective and actual clients for the purpose of 

trading commodity futures contracts, and, as a result of these fraudulent solicitations, 

System Capital and Wallace retained at least 17 clients, managed approximately $3.5 

million of client funds, and directed the trading of clients' commodity futures accounts; 

and that Wallace, on behalf of himself and System Capital, knowingly provided false 

information and documents to the NF A. 

On March 14, 2013, the District Court in CFTC v. System Capital, entered an 

Order for Entry of Default Judgment, Permanent Injunction and Ancillary Equitable 

Relief against System Capital and Wallace, and found, in relevant part, that System 

Capital and Wallace engaged in fraud by misrepresenting to prospective and actual 

clients, through the use of fraudulent documents and statements, that Defendants had a 

successful history of trading futures contracts and that System Capital had assets under 

management of at least $29 million; and that as a result of these fraudulent 

solicitations, Defendants successfully solicited at least seventeen clients, directed the 

trading of these clients' commodity futures accounts, and managed approximately $3.5 

million of client funds. The Default Judgment also found that Wallace, on behalf of 

6 NF A records, attachment to Jung Affidavit and Cettification, Exhibit 4, Division's motion. 

5 
System Capital and himself, knowingly provided false information and documents to the 

NFA, a futures association registered under the Act acting in furtherance of its official 

duties under the Act. The Default Judgment found that by engaging in this conduct, 

System Capital and Wallace violated Sections 4b(a)(l)(A) and (C), 4o(l)(A)-(B), and 

9(a)(4) ofthe Act, 7 U.S. C.§§ 6b(a)(l)(A) and (C); 6o(l)(A)-(B), and 13(a)(4). 

The Default Judgment permanently enjoined System Capital and Wallace, in 

relevant part, from directly or indirectly committing any further fraud in violation of 

Sections 4b(a)(l )(A) and (C), 4o(l)(A)-(B), and 9(a)(4) of the Act, 7 U.S.C. §§ 6b(a)(l)(A) 

and (C), 6o(l)(A)-(B), and 13(a)(4). 

4· In a federal criminal action in the Southern District of New York, Wallace 

pleaded guilty to and was convicted of, inter alia, commodities fraud in violation of 

Sections 40(1) and 9(a)(5) of the Act, 7 U.S.C. §§ 6o( 1) and 13(a)(5). U.S. v. Wallace, 

No. 11 CR 124 (LTS) (S.D.N.Y. May 21, 2013). The commodities fraud count was based 

on the same underlying facts as charged in CFTC v. System Capital. 

Discussion and Conclusions of Law 

Section 8a(2) presumption of unfitness 

Section 8a(2) of the Act, 7 U.S.C. § 12a(2) (2012), sets out eight grounds for 

denial, suspension or revocation of registration, known customarily as "statutory 

disqualifications." According to the relevant House Agriculture Committee Report, each 

Section 8a(2) disqualification involves a previous formal determination by a court, or 

the Commission or other government agency, that a person or firm has engaged in 

conduct involving "especially grave offenses that are clearly related to a person's [or 

firm's] fitness for registration with the Commission." H.R. report No. 97-565, Part I at 

6 
50 (May 17, 1982). The report further explained that, since each Section 8a(2) 

disqualification is based upon a previous finding or order by a court, or the Commission 

or other governmental body, "whether or not a person is subject to such a 

disqualification generally is readily ascertainable by checking officially maintained 

records." Id. 

In conjunction with the Commission's Part 3 rules, a Section 8a(2) 

disqualification generally operates as a strong presumption that a person or firm is 

conclusively unfit to do business in a relevant registered capacity. The Commission has 

noted that the strong presumption of unfitness for registration under Section 8a(2) of 

the Act rests on the common-sense inference that once an individual or firm has 

undertaken serious wrongdoing - as it has been amply demonstrated here that Wallace 

and System Capital have done - a substantial risk exists that the individual or firm will 

undertake similar wrongdoing in the future. See In re Akar, Comm. Fut. L. Rep. 

,122,297 (CFTC 1986). The strong presumption of unfitness can be rebutted by a 

convincing showing that allowing a person or firm to become or remain registered will 

not pose a risk to the public, including, for example, mitigating circumstances, 

rehabilitation, or close supervision by another registrant. See Commission rules 

3.6o(b)(2)(i) and 3.6o(b)(2)(ii)(A)-(C), 17 C.F.R. §§ 3.6o(b)(2)(i) and 3.6o(b)(2)(ii)(A)-

(C) (2013). By defaulting, Wallace and System Capital have precluded themselves from 

presenting such rebuttal evidence. 

Section 8a(2)(C) oftheAct 

Section 8a(2)(C) of the Act, 7 U.S.C. § 12a(2)(C) (2012), in relevant part, 

authorizes the Commission to revoke the registration of any person "if such person is 

7 
permanently or temporarily enjoined by order, judgment, or decree of any court of 

competent jurisdiction ... including an order entered pursuant to an agreement of 

settlement to which the Commission ... is a party, from ... (i) acting as a futures 

commission merchant, introducing broker, floor broker, t1oor trader, commodity 

trading advisor, commodity pool operator, [or] associated person of any registrant 

under this Act ... or (ii) engaging in or continuing any activity when such activity 

involves ... fraud .... " Here, cause exists for statutory disqualification of Wallace and 

System Capital pursuant to Section 8a(2)(C) because the Default Judgment, which was 

entered by the court for the Southern District of New York, a court of competent 

jurisdiction, permanently enjoined both System Capital and Wallace from committing 

fraud in violation of the Act. 

Section 8a(2)(D) oftheAct 

Section 8a(2)(D) of the Act, 7 U.S.C. § 12a(2)(D) (2012), in relevant part, 

authorizes the Commission to revoke the registration of any person "if such person has 

been convicted within ten years preceding the filing of the application for registration or 

any time thereafter of any felony that (i) involves any transactions or advice concerning 

any contract of sale of a commodity for future delivery ... (ii) arises out of the conduct 

of the business of a ... commodity trading advisor ... [or an] associated person of any 

registrant under this Act... [or] (iii) involves embezzlement, theft, extortion, fraud, 

fraudulent conversion, misappropriation of funds, securities or property, forgery, 

counterfeiting, false pretenses, bribery, or gambling." Here, cause exists for the 

statutory disqualification of Wallace pursuant to Section 8a(2)(D), based on the entry of 

his guilty plea and his conviction for felony involving fraud in connection with the 

8 
operation of System Capital, a commodity trading advisor, and his conduct as an 

associated person of System Capital. 

Section 8a(2)(E) of the Act 

Section 8a(2)(E) of the Act, 7 U.S.C. § 12a(2)(E) (2012), in relevant part, 

authorizes the Commission to revoke the registration of any person "if such person, 

within ten years preceding the filing of the application [for registration] or any time 

thereafter, has been found in a proceeding brought by the Commission ... (i) to have 

violated any provision of this Act ... where such violation involves ... fraud .... " Here, 

cause exists for the statutory disqualification of System Capital and Wallace pursuant to 

Section 8a(2)(E) of the Act, because System Capital and Wallace were each found to 

have violated the Act for conduct involving fraud in CFTC v. System Capital. 

Section 8a(2)(H) of the Act 

Section 8a(2)(H) of the Act, 7 U.S. C. § 12a(2)(H) (2012), in relevant part, 

authorizes the Commission to revoke the registration of any person if "revocation of the 

registration of any principal of such person would be warranted because of a statutory 

disqualification listed in this paragraph." Pursuant to Regulation 3.1(a)(1), 17 C.F.R. 

§ 3.1(a)(1) (2013), if an entity is organized as a limited liability company, "principal" 

includes any director, the president, chief executive officer, the manager, managing 

member or those members vested with the management authority for the entity, any 

person in charge of a principal business unit, division or function subject to regulation 

by the Commission, and any person occupying a similar status or performing similar 

functions, having the power, directly or indirectly, through agreement or otherwise, to 

exercise a controlling influence over the entity's activities that are subject to regulation 

9 
by the Commission. Because Wallace is listed with the Commission as System Capital's 

president and sole principal with a 10% or more financial interest in System Capital, and 

is subject to the revocation of his registration pursuant to Sections 8a(2)(C), (D), and 

(E) of the Act, System Capital's registration is also subject to revocation pursuant to 

Section 8a(2)(H) of the Act. 

ORDER 

Joshua W. Wallace is statutorily disqualified from registration under Sections 

8a(2)(C), (D) and (E) of the Commodity Exchange Act, and System Capital, LLC is 

statutorily disqualified under Sections 8a(2)(C), (E) and (H) of the Commodity 

Exchange Act. Accordingly: one, the Division's motion for entry of a default judgment 

is hereby granted; two, Joshua W. Wallace and System Capital, LLC are found 

conclusively unfit for registration; and three, the registrations of Joshua W. Wallace 

and System Capital, LLC are hereby revoked. 

Dated Dec7:J: 23;y;u 4

-:_ 

Ph~Guire, Judgment Officer 

10