UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

Commodity Futures Trading Commission, )

)

Plaintiff, )

) Case No. 20-3758

vs. )

) Hon. Thomas A. Durkin

)

Long Leaf Trading Group, Inc. et al. )

)

Defendants. )

DEFENDANT JAMES A. DONELSON’S RESPONSE TO COMMODITY FUTURES 

TRADING COMMISSION’S PARTIAL MOTION FOR SUMMARY JUDGMENT

Defendant James A. Donelson ("Donelson”), by his attorneys, James Falvey and Charles 

E. McElvenny, submits the following as his response to Plaintiff Commodity Futures Trading 

Commission’s (“CFTC” or “Commission”) Partial Motion for Summary Judgment (“Motion”):

INTRODUCTION

Plaintiff makes bold claims about the purported strength of its case but its motion relies 

almost exclusively on unsupported conclusions and the mischaracterization of testimony in 

support of summary judgment. The Commission does this for a simple reason - the record does 

not support a finding of liability much less one via dispositive motion. Indeed, the CFTC glosses 

over elements essential to its claims in the face of testimony and affidavits that undermine its 

conclusory findings because an honest review of the record reveals that, although the results 

were unquestionably disappointing and frustrating for Long Leaf’s customers, there are no facts 

that support a finding of fraud. Plaintiff’s other claims are similarly deficient in a summary 

judgment context and the motion should be denied.

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STATEMENT OF FACTS

Defendant’s response to Plaintiff’s statement of facts is set forth in Defendant James A. 

Donelson’s Response to Local Rule 56.1(a)(3) Statement of Undisputed Facts, filed separately. 

(“Donelson Response to Statement of Facts”) Defendant James A. Donelson also filed a separate 

Statement of Additional Facts pursuant to Local Rule 56.1(b)(3)(C). (“Donelson Additional 

Statement of Facts”)

STANDARD

Under Federal Rule of Civil Procedure 56(c), summary judgment is proper “if the 

pleadings, depositions, answers to interrogatories, and admissions on file, together with the 

affidavits, if any, show that there is no genuine issue as to any material fact and that the moving 

party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). In ruling on a motion 

for summary judgment, the court should take all facts and inferences in favor of the nonmoving 

party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) (Judge James F. Holderman 

Opinion, 06 C 2965, dated 10/4/2007, p. 2). The court’s function is not to weigh the evidence to 

determine the truth of the matters asserted, but to determine whether there exists a genuine issue 

for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986) (Judge James F. Holderman 

Opinion, 06 C 2965, dated 10/4/2007, p. 2).

ARGUMENT - COUNTS I-III

A. The CFTC is Not Entitled To Summary Judgment On Count I (Options Fraud)

To establish fraud, the CFTC must prove: (1) that Defendants made a misrepresentation, 

misleading statement, or deceptive omission; (2) with scienter; and (3) the misrepresentation, 

misleading statement, or omission was material.” Commodity Futures Trading Comm'n v. 

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Fintech Inv. Grp., 6:20-cv-652-WWB-EJK, at *1 (M.D. Fla. Dec. 14, 2021) As demonstrated 

below, in this case the CFTC fails to establish a single element.

I. The Commission Fails to Establish a Material, Deceptive Misrepresentation or Omission1

The Commission’s attempt to establish the misrepresentation/omission wisely does not 

argue that Donelson made an affirmative misleading statement (he never did). Rather, Plaintiff 

first submits that Donelson fraudulently omitted to disclose that all of Long Leaf’s customers lost 

money and that this omission, on its own, is sufficient to satisfy the first element of fraud. As 

discussed below, the legal and factual basis for this position is dubious. 

The Motion claims that “Despite his awareness of trading losses, Donelson sought to 

conceal these facts from customers and prospective customers” implying a sinister motive absent 

citation. Motion, p. 5. But context is critical: Donelson had only been at Long Leaf for three 

months at the time of the alleged material omission and he was adopting a new trading program 

that was a departure from the prior model. (Donelson Response to Statement of Facts par. 48) So 

Donelson had no reason to disclose losses that occurred under prior ownership/control and under 

a different trading model, nor does the CFTC submit that Donelson had any duty or other 

obligation to disclose anything. Instead, the Motion focuses on the fact that Donelson instructed 

his APs to say that it was Long Leaf’s policy not to provide information on past performance. 

(Donelson Response to Statement of Facts par. 49) Again, this fact is submitted without context - 

given Donelson’s short time at the firm and the recently adopted strategy under his supervision, 

this is a reasonable directive. In any event, it is unclear how this fact is deceptive on its face and 

CFTC does not bother to explain a connection.

 The Commission does not bother to address materiality in any portion of its Motion. As with the other elements, 1

apparently it hopes the Court will infer it from its conclusory statements. 

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The Commission then cites a single case, Com. Futures Trad. v. R.J. Fitzgerald Co., 310 

F.3d 1321 (11th Cir. 2002) as precedent that the omission of past performance is essentially per 

se deceptive when customers lost money. Com. Futures Trad. v. R.J. Fitzgerald Co. is clearly 

distinguishable, however. In that case the defendants hosted a seminar and paid for a television 

commercial that included a number of affirmative statements (unlike here). And the Court 

considered those statements when commenting on the fact that 95% of the defendants’ customers 

lost money:

“Given the extremely rosy picture for profit potential painted in the 

Seminar and in the Commercial, a reasonable investor surely would want 

to know - before committing money to a broker- that 95% or more of 

RJFCO investors lost money.” Com. Futures Trad. v. R.J. Fitzgerald Co., 

1332.

The Commission offers no argument to extend the Com. Futures Trad. v. R.J. Fitzgerald Co.

analysis to the facts of this case and neglects to cite any other case, let alone one within the last 

twenty years, to support its inference. Most important, Plaintiff fails to explain why the decision 

to not provide information on past performance on this is deceptive or material, either explicitly 

or via the overall message, choosing instead to leave an unsupported conclusion about the import 

of this alleged omission on the Court’s (and Defendant’s) doorstep. 

Plaintiff next argues that the trading histories provided by Long Leaf to customers were 

“false and misleading”. Motion, p. 6. In support, the Commission cites its Statement of Facts 

58-66. However, Donelson’s Response to Statement of Facts denies critical facts and specifically 

contests that any of these cited trades were hypothetical. (Donelson Response to Statement of 

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Facts 58-66, esp. 61 and 66) Where Plaintiff highlights specific trades shown to customers as 

problematic, it doesn’t even attempt to explain why such a showing is misleading, highly 

unreasonable or that Donelson intended to deceive customers or potential customers. Instead, the 

Commission wants the Court to reach legal conclusions based on isolated facts untethered to an 

explanation of how the fact satisfies the first element of fraud. And again, Plaintiff 2

mischaracterizes case law to support its self-serving and conclusory position - in U.S. 

Commodity Futures Trading Comm'n v. Kratville, 796 F.3d 873 (8th Cir. 2015) the defendants 

made affirmative misrepresentations and represented one group of results for another. Id. Those 

facts are nothing like this case where defendants used recent trades to demonstrate what they 

believed was the viability of their model. And, unlike the Commission’s position, there is 

evidence in the record to support it - the only expert testimony in this case explicitly states that 

the trading strategy provided under Donelson’s supervision was viable and it made sense to 

recommend those positions. (Donelson Additional Statement of Facts Par. 1).

Plaintiff’s third attempt to establish a material omission relates to his alleged failure to 

disclose his lack of trading experience. As an initial matter, the cited “undisputed” facts are 

disputed. Donelson Response to Statement of Facts Par. 56-57. Moreover, Plaintiff offers nothing 

to explain why such information is relevant; the only time it asserts that this alleged omission 

was misleading it is unsupported by authority or citation to the record. See Motion, p. 8. Instead, 

Plaintiff employs its preferred tactic of citing a case without clarification or explanation as to 

why and how it applies. See Motion, p. 8.

 The CFTC also contradicts itself on key facts; the email cited by the Commission states that it is from “recent 2

performance” and reflects actual trades, not hypothetical trades as asserted elsewhere by the CFTC. (Donelson 

Response to Statement of Facts 64, 66; Motion p. 7)

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Plaintiff’s fourth and final effort relating to an alleged misrepresentation relates to 

Donelson’s alleged inducement to Long Leaf APs to make false and misleading statements. But 

the facts cited don’t support the Commission’s inference - rather, they make clear that the returns 

showed to customers in this instance were hypothetical and that there was a target range of 

return. (Donelson Response to Statement of Facts Pars. 38-46) It is unclear how a projection that 

is identified as such and the use of the word target, when used in its commonly understood 

manner, can be false and misleading. At the very least the Commission and the Motion don’t 

explain it but rely, yet again, on conclusory language that presumes statements were false or 

misleading without doing any of the work to demonstrate the same.

II. The Commission Fails to Establish Scienter

The Commission also fails to establish scienter and, in fact, doesn’t even attempt to argue 

the point. Indeed, after describing scienter on page 4, the motion literally does not mention it 

substantively again, excepting a convoluted footnote. “For purposes of fraud or deceit in an 

enforcement action, scienter is established if Defendant intended to defraud, manipulate, or 

deceive, or if Defendant's conduct represents an extreme departure from the standards of 

ordinary care.” U.S. Commodity Futures Trading Comm'n v. Kratville, 796 F.3d 873, 893 (8th 

Cir. 2015). In the context of federal securities... scienter is met when Defendant's conduct 

involves "highly unreasonable omissions or misrepresentations . . . that present a danger of 

misleading [customers] which is either known to the Defendant or so obvious that Defendant 

must have been aware of it.” Ziemba v. Cascade Int'l, Inc.,256 F.3d 1194, 1202 (11th Cir. 2001). 

Not once does the Commission explain how Donelson’s conduct arguably meets this standard. 

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Additionally, the testimony of Donelson’s expert, which remains uncontested, discloses a finding 

of scienter. (Donelson Additional Statement of Facts Par. 1)

B. The CFTC is Not Entitled To Summary Judgment On Count II (CTA Fraud)

Long Leaf was not a CTA. Even if this Court finds that Long Leaf was a CTA, Donelson acted 3

in good faith with regard to the trading strategies employed by Long Leaf. (Donelson Additional 

Statement of Facts Par. 1). Because the Commission did nothing but misconstrue statements of 

fact told to prospective customers (supra at p. 6) it has not established that as a controlling 

person Donelson did anything to impute liability to himself.

C. The CFTC is Not Entitled To Summary Judgment On Count III (CTA Fraud)

The Commission does not make a single citation to the record other than a citation to 

Document Number 1. In any case, this portion of the Motion is so unclear that it is near 

impossible to respond. Accordingly, Donelson adopts his arguments above in response.

COUNTS IV-VI

D. Defendants Donelson and Long Leaf Trading were not CTAs

A substantial portion of the CFTC’s motion for summary judgment rests on the argument 

that Mr. Donelson and Long Leaf were Commodity Trading Advisors (“CTA”). Specifically, 4

Counts II (Fraud by a CTA), III (Fraudulent Advertising by a CTA), IV (Failure to Register as a 

 Donelson adopts Section D below and incorporates it via reference. 3

Mr. Donelson is only able to argue that Long Leaf was not a CTA during his tenure at Long Leaf from 4

December 2017 through December 2019 (a total of 25 months). He was not present during the Tim Evans 

ownership of Long Leaf and the records provided to him by Tim Evans were either lacking or nonexistent prior to Mr. Donelson becoming the owner of Long Leaf. That said, Mr. Donelson understands 

that Defendant Jeremy Ruth, who only worked for Tim Evans and not Mr. Donelson, plans to argue that 

Long Leaf was not a CTA during the Evans’ ownership period of Long Leaf, as well, and based on 

arguments that Mr. Donelson raises here. But, again, Mr. Donelson is unable to argue about the status of 

Long Leaf prior to December 2017. Thus, when Mr. Donelson argues in this brief about Long Leaf, he is 

referring to Long Leaf during the period of time when he was the owner.

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CTA), and V (Failure to Provide Required Disclosures for a Trading Program by a CTA) 

(collectively the “CTA Claims”) all require that Mr. Donelson and Long Leaf are CTAs. 

Accordingly, if the Commission is unable to demonstrate that there are no material issues of fact 

regarding whether Mr. Donelson and Long Leaf should have registered as a CTA, which they 

can’t, then the CFTC cannot prevail in its summary judgment motion. Furthermore, if any party 

is entitled to summary judgment on the CTA Claims, it is Mr. Donelson and Long Leaf, as 

described below.

CFTC Regulations Provide an Exemption for trading entities that are registered as 

Introducing Brokers

CFTC Regulation 17 CFR § 4.14(6) (Exemption from registration as a commodity 

trading advisor) provides that:

[A person is not required to register under the Commodity Exchange Act as a 

commodity trading advisor if:]

(6) It is registered under the [Commodity Exchange Act] as an introducing broker 

and the person’s trading advice is solely in connection with its business as an 

introducing broker.

It is undisputed that, at all times during the ownership of Long Leaf Trading by Donelson 

(and prior to Mr. Donelson’s ownership), Long Leaf was registered as an Introducing Broker. Of 

course, simply because an entity registers an Introducing Broker does not mean that they 

automatically are exempted from registering in other capacities or doing other things. So, the 

items below discuss what the Commission and the NFA have clarified are key considerations for 

this analysis. See, e.g., Registration as a CTA, National Futures Association (2018 & 2019) (“All 

registered CTAs who manage or exercise discretion over customer accounts must be NFA 

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Members”)(emphasis added)(attached to this Memorandum and found via the 

Waybackmachine.com)(“NFA CTA Notices”).

Defendants Donelson and Long Leaf Trading did not have customer discretion over trades

The Commodity Exchange Act (“CEA”) and National Futures Association (“NFA”) make 

clear that in order to be a CTA, the entity must have discretion over a customer’s account. 

Sometimes this is accomplished by having customers sign a “Power of Attorney” giving the 

trading company the ability to make trades without contacting the customer. As noted 

immediately above, the NFA, a self-regulatory organization that reports directly to the CFTC 

(and runs all of its rules by the CFTC for approval) has indicated that discretion over an account 

is a key element to determining whether a trading entity must register as a CTA.

Ms. Rebecca Wing, Mr. Donelson’s and Long Leaf’s attorney, provided deposition 

testimony that the primary issue she considered in whether Long Leaf/Mr. Donelson needed to 

register as a CTA was the discretion issue under CFTC regulation 4.14. See, e.g., Rebecca Wing 

Deposition at 50-53, 90-91 (June 17, 2021).

Mr. Donelson and Long Leaf relied on Advice of Counsel for Registration Advice

Ms. Wing also testified that she provided counsel to Mr. Donelson and Long Leaf that the 

proper registration for Long Leaf was as an Introducing Broker. See generally Wing Deposition 

35-48 (June 17, 2021). Furthermore, Ms. Wing informed Mr. Donelson and Long Leaf that they 

did not need to register as a CTA. Id.

The CFTC makes the argument that these “registration issues” are non-scienter or “strict 

liability” offenses and that an advice of counsel defense is not proper. However, Mr. Donelson 

and Long Leaf are not raising the advice of counsel defense as a CTA looking for guidance, but 

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rather are trying to determine if they are a CTA such that the registration rules apply to them at 

all. In other words, the question is whether Long Leaf had to register as a CTA. That is not a 

strict liability question. If, as the CFTC seems to simply assume, Long Leaf was a CTA and was 

trying to determine if it needed to comply with the registration issues, then the strict liability 

standards may apply.

Conclusion as to the Registration Issues

There are a couple take-aways from the CFTC’s arguments regarding Long Leaf’s 

registration as an IB and not a CTA. First, it can be argued that the CFTC is trying to expand its 

jurisdiction by requiring non-CTAs register as a CTA. There is a proper way to do that – as is 

spelled out in the Administrative Procedures Act. But, going back to 2017-2019 and trying to 

apply CTA rules that were not applicable to Long Leaf (and other IBs) via litigation is not the 

proper way to address this land grab by the CFTC.

Lastly, whether the Court agrees or disagrees as to whether Long Leaf and Mr. Donelson 

should have registered as a CTA, it is clear from the Wing testimony, the Advice of Counsel, as 

well as the CFTC regulations under Section 4.14, that material fact issues exist that need to be 

resolved by a jury.

Respectfully submitted,

/s/ James M. Falvey

James M. Falvey 

Falvey Law Office 

200 S. Wacker Drive, Suite 3100 

Chicago, Illinois 60606 

jimfalvey@yahoo.com 

312-404-5839 

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Charlie McElvenny

Charles McElvenny, JD, MSA

Law Office of Charles E. McElvenny

33 N. Dearborn St.

Suite 1000

Chicago, IL 60602

312-291-8330

charlie@cemlawfirm.com

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