CFTC Ex. 

Case: 1:20-cv-03758 Document #: 82-3 Filed: 11/05/21 Page 1 of 51 PageID #:1858
Long Leaf Trading Group

Donelson, James 2021-06-24

6/24/2021 9:09 AM

Condensed Transcript

Prepared by:

Ashley Burden

CFTC

Wednesday, November 3, 2021

Case: 1:20-cv-03758 Document #: 82-3 Filed: 11/05/21 Page 2 of 51 PageID #:1859
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1 IN THE UNITED STATES DISTRICT COURT

 NORTHERN DISTRICT OF ILLINOIS

2 EASTERN DIVISION

3 COMMODITY FUTURES TRADING )

 COMMISSION, )

4 )

 Plaintiff, )

5 )

 vs. ) No. 20 C 3758

6 )

 LONG LEAF TRADING GROUP, )

7 INC., et al., )

 )

8 Defendants. )

9

10

11 The remote 30(b)(6) deposition

12 of JAMES A. DONELSON, called by the Plaintiff for

13 examination, pursuant to subpoena and pursuant to

14 the Federal Rules of Civil Procedure for the United

15 States District Courts pertaining to the taking of

16 depositions, taken before Mary Maslowski, Certified

17 Shorthand Reporter and Notary Public within and

18 for the County of Cook and State of Illinois with

19 the witness located in Aurora, Illinois, commencing

20 at the hour of 9:09 o'clock on June 24, 2021.

21

22

23

24

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1 A P P E A R A N C E S:

2

 (Appearing via videoconference)

3 MR. JOSEPH C. PLATT, Trial Attorney

 MS. ELIZABETH M. STREIT, Trial Team Leader

4 MR. JOSEPH J. PATRICK, Senior Investigator

 U.S. COMMODITY FUTURES TRADING COMMISSION

5 DIVISION OF ENFORCEMENT

 525 West Monroe Street, Suite 1100

6 Chicago, Illinois 60661

 (312) 596-0700

7 jplatt@cftc.gov

 estreit@cftc gov

8 jpatrick@cftc.gov

9 On behalf of the U.S. Commodity

 Futures Trading Commission;

10

 (Appearing via videoconference)

11 FALVEY LAW OFFICE

 BY MR. JAMES M. FALVEY

12 200 Sou h Wacker Drive, Suite 3100

 Chicago, Illinois 60606

13 (312) 404-5839

 jimfalvey@yahoo.com

14

 On behalf of Long Leaf Trading Group,

15 Inc., and James A. Donelson;

16 (Appearing via videoconference)

 MR. JEREMY RUTH

17

 Appearing Pro Se.

18

19

20 A L S O P R E S E N T:

21 MS. LAUREN STAPLETON, CFTC Intern (Remotely)

22

23 CSR License No. 084-003278.

24

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1 I N D E X

 WITNESS DX CX _RDX RCX

2

 JAMES A. DONELSON

3

 By Mr. Platt 4

4

5 E X H I B I T S

 CFTC EXHIBIT MARKED FOR ID

6

 No. 490 Amended Notice 10

7 No. 491 2/21/18 Email Chain 55

 No. 492 New Opener Calendar Invite 57

8 No. 493 Adams Termination Emails 65

 No. 494 5/21/19 4g Request 72

9 No. 495 8/21/20 CFTC RFP 76

 No. 496 5/21/18 Tier 2 Demo Set 86

10 No. 497 4/24/18 Trade Rems 118

 No. 498 LL Response CFTC First Set 123

11 of Requests for Admission

 No. 499 6/25/19 Trade Rem 136

12 No. 500 5/3/2018 Gecas Email 141

 No. 501 10/21/19 Hatz Email 146

13 No. 502 4/4/19 Detail for Trade 151

 No. 503 1/31/18 Trade Recap 158

14 No. 504 Andrew Nelson NFA BASIC 178

 No. 505 1/25/18 NFA Response 179

15 No. 506 2019 Excel Tracking Data 187

16

17

18

19

20

21

22

23

24

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1 JAMES A. DONELSON,

2 called as a witness herein, having been first duly

3 sworn, was examined and testified as follows:

4 DIRECT EXAMINATION

5 BY MR. PLATT:

6 Q My name is Joseph Platt and I'm

7 a trial attorney at the CFTC. I'm joined today by

8 Beth Streit, who's the chief trial attorney, Joseph

9 Patrick, who's a futures trading investigator, a

10 law student intern, Lauren Stapleton, from the CFTC.

11 I also see that Jeremy Ruth, who's a defendant in

12 this action, is present and Mr. Donelson, who's the

13 witness for Long Leaf Trading. And, Mr. Donelson,

14 are you represented -- or is Long Leaf Trading

15 represented by counsel today?

16 A Yes, it is.

17 Q And that's Mr. Falvey, who's sitting

18 beside you?

19 A Correct.

20 Q This deposition's being conducted

21 pursuant to Federal Rules of Civil Procedure and

22 the local rules for the U.S. District Court for the

23 Northern District of Illinois and we're proceeding

24 by videoconference today. Mr. Donelson, do you

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1 agree to proceed in this manner today based on the

2 Coronavirus travel restrictions?

3 A I agree.

4 Q You've given a couple depositions

5 in this action and testimony. We'll just go over

6 the rules of the road very briefly. Let's do our

7 best not to talk over one another. I'll do my best

8 to let you finish answering your questions before

9 I ask -- finish answering my questions before I ask

10 another one, and I'll just ask that you let me

11 answer my question before you -- ask my question

12 before you answer, is that okay?

13 A Agreed.

14 Q And two other items based on yesterday.

15 Please do your best to speak and answer audibly

16 and also, you know, project your voice so that the

17 court reporter is able to pick up your answers,

18 okay?

19 A I will try, and please tell me if it's

20 not coming through clearly.

21 Q Yeah, will do. Thank you. And

22 if any of my questions today are unclear or

23 unintelligible, please let me know and I'll do

24 my best to ask a question that makes more sense,

Page 6

1 okay?

2 A Okay.

3 Q Mr. Donelson, can you please describe

4 your work history going back ten years or so?

5 A For -- obviously I worked at Long Leaf

6 Trading for two years. Before that I was doing

7 mostly consulting after I left Jump Trading. At

8 Jump Trading I was the global controller responsible

9 for the financials, doing some of the FinOP work for

10 the broker-dealers. Also they had a CV registered

11 firm. And before that I worked for KCG, which was

12 the merger of Getco and Knight Capital. I worked

13 for Getco before the merger. I was involved with

14 the merger. Mostly did business development,

15 taxes, finance at Getco, opened up most of their

16 international operations.

17 Q And you started at Long Leaf Trading

18 in approximately December of 2017. Does that sound

19 right?

20 A That is correct.

21 Q When did you stop working at Jump Trading

22 as their global controller?

23 A I want to say June 2016.

24 Q And when did you leave the KCG/Getco

Page 7

1 conglomerate?

2 A I left that in June of 2014.

3 Q Why did you leave Jump Trading?

4 A When or --

5 Q Why, why.

6 A I had gone into short-term disability

7 and basically couldn't return. I had torn up a

8 shoulder and the commute was just too much for me.

9 Q What was the nature of the consulting

10 business that you did between Jump Trading and

11 Long Leaf Trading?

12 A One is the development of middle

13 office software that does trade reconciliation,

14 accounting. That's ongoing. Also did consulting

15 for a couple manufacturing firms developing cost

16 accounting models for them, things like that.

17 Q What is the National Futures Association?

18 A It is a self-regulated -- a self-regulation

19 organization overseeing the futures industry.

20 Q Commonly abbreviated the NFA. What

21 is the NFA's role with respect to regulating the

22 futures industry? I think you just said it, but

23 if you could just expand on your answer.

24 A They do -- I'm trying to get the

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1 words right. They are in charge of all their

2 member firms reviewing compliance, some finance,

3 trading, et cetera, but it's only for their member

4 firms.

5 Q Do you have an understanding that the

6 NFA handles registration of entities and entities

7 that are required to be registered in the futures

8 industry?

9 A Correct. Yeah, I do understand that.

10 Q Do you know what NFA BASIC is?

11 A Yes. It's an online system where

12 you can look up a person, a company, see any --

13 where they're registered, any regulatory issues

14 that they've had, so on and so forth.

15 Q Did you know about NFA BASIC before you

16 owned Long Leaf Trading?

17 A Yes.

18 Q I understand that you became the

19 principal of Long Leaf Trading in approximately

20 December '17 via a stock purchase agreement. Does

21 that sound right?

22 A That is correct.

23 Q Who was the principal of Long Leaf

24 Trading Group before you bought the company?

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1 A Timothy Evans.

2 Q Did you know Mr. Evans before

3 you entered into the stock purchase agreement

4 with him?

5 A No, I did not.

6 Q What's your understanding of the date

7 on which Long Leaf began operations?

8 A The company itself? I don't -- I think

9 it was 2009 or 2010.

10 Q Are you aware of any other entities

11 or individuals who have held an ownership stake

12 in Long Leaf Trading at any time other than you

13 or Mr. Evans?

14 A No, I'm not aware of any.

15 Q For purposes of this deposition,

16 Mr. Donelson, can we agree that the Evans era

17 means things that happened at Long Leaf Trading

18 before December 1, 2017 and the Donelson era means

19 things that happened at Long Leaf Trading after

20 December 1, 2017? Does that sound reasonable?

21 A I can agree to that.

22 Q Yesterday Mr. Burden sent you documents

23 ahead of time so you could click through it -- click

24 through them.

Page 10

1 A Yeah.

2 Q I'm going to show you exhibits by sharing

3 my screen with you.

4 A Okay.

5 Q So I want to make sure that you can

6 read them legibly when I share them. I'm going

7 to share with you a document that I'm going to mark

8 as CFTC Exhibit 490.

9 (Whereupon CFTC Exhibit No. 490

10 was marked for identification.)

11 Q Please let me know when you're able

12 to see this document.

13 A We can see it now.

14 Q Is it legible on your screen? Can you

15 read the words?

16 A It is legible. It's small but it's

17 legible.

18 MR. FALVEY: Do you need your glasses?

19 THE WITNESS: I'm trying to see if it

20 helps or hurts.

21 A I can read it.

22 BY MR. PLATT:

23 Q Thank you. Do you recognize this

24 document as the CFTC's deposition notice regarding

Page 11

1 Long Leaf Trading in this action?

2 A Yes.

3 Q Have you seen this document before?

4 A Yes, I have.

5 Q I'm going to scroll to pages 3 and 4

6 o f Exhibit 490. There's a heading Rider to Notice

7 of Deposition of Defendant Long Leaf Trading Group.

8 Do you see that?

9 A Yes.

10 Q And then there's a list of 21 topics.

11 I've scrolled through them quickly. If as we

12 proceed today you'd like me to focus on particular

13 parts of documents, please don't hesitate to ask me

14 to move the document around or manipulate it so you

15 can see a particular portion. But do you see there

16 are 21 topics listed on this rider to the Long Leaf

17 deposition notice?

18 A Yes, I do.

19 Q I should have asked you this at the

20 outset, Mr. Donelson. I assume you consent to

21 testify on Long Leaf Trading's behalf today, is

22 that right?

23 A I do.

24 Q I've had a series of discussions

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1 with your attorney Mr. Falvey about the scope

2 of this deposition, and the notice -- I'll put

3 it back up on the screen -- do you see where it

4 says, "The relevant period of the CFTC's examination

5 of Long Leaf Trading is 2015 through the present"?

6 A Yeah, I see it.

7 Q So Mr. Falvey has represented

8 to me a couple times that you do not have

9 the ability to answer questions concerning the

10 majority of the topics listed in Exhibit 490 t o

11 the extent they occurred during the Evans era. Is

12 that consistent with your understanding generally?

13 A Yes.

14 Q Is it true that you're not able

15 to obtain information that's reasonably available

16 to Long Leaf Trading to answer questions about the

17 Evans era?

18 A I can obtain the materials. However,

19 I have no way to authenticate them one way or the

20 other, and I have provided all the information that

21 was available to me. It's just if there's anything

22 specific about a situation, I wasn't there. I

23 don't -- I would only have secondhand information

24 at best.

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1 Q Just so I understand your testimony,

2 you have available to you the documents and

3 information that Long Leaf possessed at the time

4 you bought the firm but because you weren't present

5 at the firm during the Evans era, you may not be

6 able to answer questions about that time period.

7 Is that generally right?

8 A That is correct.

9 Q Mr. Donelson, are you able to testify

10 about Long Leaf Trading's discovery responses in

11 this action?

12 A Yes, I am.

13 Q Can you testify about the documents

14 that Long Leaf Trading has produced to the CFTC

15 both during the investigative phase and during the

16 litigation?

17 A Yes.

18 Q Are you able to testify about

19 Long Leaf Trading's ownership and organizational

20 structure? Is this a topic where you can testify

21 about the Donelson era but you cannot testify about

22 the Evans era?

23 A Yes.

24 Q Item 4 is compensation paid to Long

Page 14

1 Leaf Trading employees and principals. Are

2 you able to testify about information known or

3 reasonably available to Long Leaf Trading concerning

4 the Evans era?

5 A Yes.

6 Q So for compensation you are able to testify

7 about the Evans era?

8 A I have the records of what the compensation

9 was and have provided them to the CFTC.

10 Q Item 5, the operation of Long Leaf

11 Trading's trading program, are you able to testify

12 about information known or reasonably available to

13 Long Leaf Trading concerning the Evans era?

14 A No, not during the Evans era. I'm --

15 wait. Can I ask a question here? Can you please

16 define what operation of the trading program

17 entails?

18 Q You understand that Long Leaf Trading

19 sold a trading program to its customers, right?

20 A Yes.

21 Q What kinds of business activities went

22 into the trading program?

23 A I just don't know how to answer this

24 question.

Page 15

1 Q Okay. Let me ask you some questions

2 and see if we can drill down on how to --

3 A Okay.

4 Q -- how to scope this topic. Long

5 Leaf Trading's trading program involves trading

6 recommendations, right?

7 A Correct.

8 Q Long Leaf Trading came up with those

9 trading recommendations?

10 A I assume during the Evans era. I don't

11 have actual proof that he created them.

12 Q Someone designed trades?

13 A Someone designed trades, yes.

14 Q Those trading recommendations were

15 disseminated to customers, right?

16 A Correct.

17 Q Customers may or may not have executed

18 those trades, right?

19 A Correct.

20 Q The trades either made money or lost

21 money, right?

22 A Correct.

23 Q Long Leaf Trading interacted with

24 customers about the trading recommendations,

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1 right?

2 A Correct.

3 Q Long Leaf Trading, you know, solicited

4 customers to participate in the trading program,

5 is that right?

6 A That is correct.

7 Q I think those are the kinds of

8 topics that I think about when I use the term the

9 operation of Long Leaf Trading's trading program.

10 It's a broad term.

11 A Okay. I --

12 Q So with that in mind, are you as Long

13 Leaf's witness able to testify about information

14 known or reasonably available to Long Leaf Trading

15 concerning the Evans era?

16 A Yes.

17 Q And is this -- for Topic 5, is this

18 consistent with your answer earlier where you said

19 that you had the documents available to you and you

20 could go read documents that existed but you didn't

21 have firsthand knowledge?

22 A Correct.

23 Q Okay. Are you able to testify --

24 on Item 6 are you able to testify about the manner

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1 by which Long Leaf Trading developed trading

2 recommendations --

3 A No.

4 Q -- during the Evans era?

5 A No, I do not have any documentation of

6 how he developed the trades.

7 Q Item 7, are you able to testify about the

8 records that Long Leaf maintains regarding trading

9 recommendations during the Evans era?

10 A Yes.

11 Q Are you able to testify about the --

12 and continuing on Item 7, you're able to testify

13 about records Long Leaf Trading maintained during

14 the Evans era concerning the performance of the

15 trading recommendations?

16 A Not really. There was no records of those

17 performance by trading recommendation.

18 Q Okay. We'll come back to that topic

19 just to see what you're able to testify about and

20 what you aren't.

21 A Okay.

22 Q Are you able to testify about

23 the performance of accounts of customers that

24 participated in the Long Leaf Trading program during

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1 the Evans era?

2 A Yes, I have those. Those are the records.

3 Q Are you able to testify about the

4 commissions and fees charged to customers during

5 the Evans era?

6 A Yes, I have those records.

7 Q Able to testify about Long Leaf Trading's

8 accounts that it received from Gain Capital during

9 the Evans era?

10 A Yes, I have those records.

11 Q Are you able to testify about customer

12 complaints received by Long Leaf Trading during the

13 Evans era?

14 A I didn't have firsthand knowledge of

15 those complaints. I have the complaint log, but

16 that's -- that is an ongoing record that we kept.

17 Q Other than the complaint log, which

18 I think reflected three customer complaints, do

19 you have information concerning customer complaints

20 received by Long Leaf Trading during the Evans era?

21 A No.

22 Q Are you able to testify about

23 information known or reasonably available to

24 Long Leaf Trading concerning information provided

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1 by Long Leaf to customers about their account

2 statements, balances and performance of the trading

3 system during the Evans era?

4 A To the extent that they're in the records,

5 yes.

6 Q Are you able to testify about Long Leaf

7 Trading's supervision of its associated persons

8 during the Evans era?

9 A No, I don't -- very little HR records

10 were kept.

11 Q Are you able to testify on Topic 15 about

12 Long Leaf Trading's solicitations of prospective

13 customers during the Evans era?

14 A Only to the extent of the records.

15 Q Item 16 on Exhibit 490, are you

16 able to testify about information provided to

17 Long Leaf Trading's prospective customers regarding

18 the performance of the trading program during the

19 Evans era?

20 A Only to the extent of the records.

21 Q Mr. Donelson, on a couple of these

22 topics you've repeated your answer as you can

23 testify about Long Leaf's information during the

24 Evans era only to the extent of the records.

Page 20

1 Can you please clarify what that means?

2 A I can verify that the document is --

3 when I say the document, I may know nothing about

4 the conversation or anything around it. I can't

5 add much color around whatever that is.

6 Q Is it correct to say that to the

7 extent there are documents or information that

8 you received -- strike that question.

9 Is it fair to say that the

10 extent of your ability to testify on Long Leaf

11 Trading's behalf concerning the Evans era when

12 you say only to the extent of the records, is to

13 provide information concerning that you received

14 the documents or information in connection with

15 the stock purchase agreement by which you bought

16 Long Leaf Trading?

17 A Yes.

18 Q That's helpful. Thank you. I'm

19 going to share what's been previously marked as

20 CFTC Exhibit 62. Do you see the stock purchase

21 agreement by which you purchased Long Leaf Trading?

22 Are you able to read that on your screen?

23 A Yes.

24 Q So as of December 1, 2017 Donelson

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1 Enterprises controlled all the issued and

2 outstanding stock of Long Leaf Trading, is that

3 accurate?

4 A That is correct.

5 Q Has Long Leaf Trading ever made any

6 capital distributions to Donelson Enterprises?

7 A No.

8 Q Has Long Leaf Trading ever made any

9 capital distributions to any person or entity

10 since you've owned the company?

11 A No.

12 Q Has Long Leaf Trading ever transferred

13 any other thing of value to Donelson Enterprises

14 since you owned the company?

15 A It paid a management fee from Long

16 Leaf Trading to Donelson Enterprises to pay for

17 the SBA loan.

18 Q How much did Long Leaf Trading

19 pay to Donelson Enterprises as part of this --

20 in connection with the management fees you were

21 just describing?

22 A In total over time or on a monthly basis?

23 Q Both, please. How much in total and

24 then how frequently and how much on a recurring

Page 22

1 basis.

2 A It would transfer $16,000 a month

3 for management fees. It did that through -- let

4 me write some quick math here.

5 Q Sure.

6 A I don't have this pulled up in front

7 of me.

8 MR. FALVEY: This is something kids

9 don't do anymore, Jody, actually write

10 arithmetic.

11 A As a ballpark figure it would be about

12 $240,000 over about 15 months, and it transferred

13 money to Long -- from Long Leaf Trading to cover

14 the SBA loan and any insurances that I had at the

15 Donelson Enterprises level.

16 BY MR. PLATT:

17 Q Those $16,000 monthly transfers,

18 is that -- are those the only transfers that

19 Long Leaf Trading ever made to either Donelson

20 Enterprises or you?

21 A They would not make it to me because Long

22 Leaf Trading was only owned by Donelson Enterprises.

23 Any distributions to me would have been considered

24 wage.

Page 23

1 Q And what wages did you earn when you

2 owned Long Leaf Trading?

3 A I didn't get -- I didn't pay myself

4 for a very long period of time. So, I mean, it

5 would be in my tax return, but I think in 2018

6 it was maybe $100,000 and in 2019 I want to say

7 $50,000. I'd have to check the exact numbers,

8 but that's ballpark.

9 Q And that was your total compensation

10 from Long Leaf Trading during those two years

11 approximately?

12 A Approximately, yes.

13 Q I just want to click back to Exhibit 62

14 briefly. I'm going to scroll through -- I know

15 you've seen this document before. I'm going to go

16 to page 11. Actually, I'm going to go to page 10.

17 There's Item 4 titled Consideration.

18 A Yes.

19 Q And on paragraph 4.1, little B, it says,

20 "At the time of Closing, Purchaser will pay Seller

21 an upfront purchase price of $1.475 million," and

22 that's in addition to the $25,000 earnest money

23 that's reflected in little A. Was that the extent

24 of the consideration that Donelson Enterprises

Page 24

1 paid Timothy Evans to control all the issued

2 and outstanding stock of Long Leaf Trading?

3 A Yes, it was.

4 Q How did Donelson Enterprises come up

5 with the $1.5 million?

6 A It took out an SBA loan through

7 Huntington Bank and also put in money from my

8 401(k).

9 Q What was roughly the breakdown between

10 the SBA loan and the money that you put in from

11 your own assets?

12 A My own assets were -- once again, I've

13 got to do some math. My own assets were 325,000,

14 and the loan was 1.265 because there was working

15 capital included in that.

16 Q On page 11 under Part V, which is titled

17 Operation of the Business, paragraph 5.4 is titled

18 Assets. Did those assets include all of Long Leaf

19 Trading's books and records?

20 A Yes, it does. I'm not sure -- I'm not

21 sure it's covered in that document -- or that line,

22 though. There --

23 Q Okay, that's helpful. Even if

24 it's not covered in paragraph 5.4 of the stock

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1 purchase agreement, your understanding is that

2 this document contemplates the transfer of all

3 of Long Leaf Trading's assets from Timothy Evans

4 to Donelson Enterprises?

5 A Yes.

6 Q That includes all their email records,

7 telephone recordings --

8 A Yes.

9 Q -- and other items? When did Long Leaf

10 Trading cease operations?

11 A December 2019.

12 Q Does Long Leaf Trading currently

13 hold any assets?

14 A The only assets it has is a very

15 small amount in a bank account and a receivable

16 from Tim Evans.

17 Q Is the receivable from Tim Evans --

18 or I should just ask you what is the receivable

19 from Tim Evans that you're describing?

20 A It relates to settlements, taxes

21 due that he owes the company to pay based on this

22 agreement.

23 Q What is -- what is the amount of the

24 receivable that you believe Timothy Evans owes

Page 26

1 Long Leaf Trading?

2 A Around $84,000.

3 Q You said that Long Leaf Trading

4 ceased operations in December of 2019. At that

5 time did Long Leaf Trading hold any assets other

6 than the small amount of cash you just described

7 and the $84,000 receivable from Timothy Evans?

8 A It held computers, probably five of them,

9 but no other assets.

10 Q Just the physical plant, physical working

11 stuff?

12 A Yeah, and we have had to remove

13 all of the hard drives of those computers, so

14 they're pretty much useless and storing of books

15 and records.

16 Q When you owned the company, Long

17 Leaf's primary business involved recommending

18 option trades to retail customers, is that right?

19 A Yes.

20 Q What about the Evans era, do you know

21 what Long Leaf's primary business was during the

22 Evans era?

23 A Based on the records during the time

24 period you're talking about, the primary business

Page 27

1 was as you said. They also had a lot of other --

2 and we had them too -- of self-traders, people who

3 would just trade on their own.

4 Q During the Evans era do you know the

5 breakdown in revenue between commissions associated

6 with self-traders and commissions associated with

7 the Time Means Money program?

8 A As I testified yesterday, I think

9 it's around 10 percent came from self-traders,

10 90 percent came from -- of the commissions that

11 came from Gain, 90 percent came out of the program,

12 and then you also had commissions from a CFD

13 dealer (inaudible) where he had introduced

14 a customer.

15 Q And for the CFD dealer, what proportion

16 of Long Leaf Trading's revenue during the Evans era

17 did that account for, do you know?

18 A I think it started -- it started

19 in 2016, and I would say in 2017 it was probably

20 a couple hundred thousand dollars in commissions.

21 Q And what's the total pie? I'd

22 like to compare the couple hundred thousand

23 dollars commissions to --

24 A Well, if you took the total commissions

Page 28

1 of the year and deducted the 200,000, the rest of

2 that all comes from Gain.

3 Q And do you know what that amount is?

4 A If you don't mind, if I can open up --

5 I could look at the financial records because I have

6 them.

7 Q Let's not do that for now because --

8 A I don't know the exact number, but it

9 was a couple million dollars of revenue, I mean,

10 a ballpark number, a couple million dollars of

11 revenue; $200,000 of it was coming from the CFD

12 and the other 1.8 million was coming from Gain.

13 So 90 percent of that would be kind of the ballpark

14 number.

15 Q Okay. So sticking with the ballpark --

16 and I understand that you don't have the data stored

17 in your brain -- for the Evans era, including all

18 the revenue sources, what is your best estimate for

19 the revenue associated with the trading program,

20 like 85 percent?

21 A Probably 85 percent in 2017, and then

22 2016 and 2015 would be -- almost 100 percent would

23 be -- I mean, about 90 percent in those two years.

24 Q Thank you. And moving forward in

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1 time to your ownership, Long Leaf Trading's revenue

2 was entirely based on commissions it received,

3 is that right?

4 A I'm sorry. I didn't catch the second

5 word.

6 Q Let me ask it a different way.

7 Did Long Leaf -- when you owned the company, did

8 Long Leaf Trading have any sources of revenue other

9 than commissions associated with options trading?

10 A Yes. For a short period of time we --

11 the CFD dealer revenues came in, but they ended in

12 February of 2018.

13 Q After February of 2018 did Long Leaf

14 Trading have any other sources of revenue other

15 than commissions associated with options trading?

16 A Yes, it still had revenue associated

17 with self-traders who were trading futures options.

18 We weren't providing any information -- we weren't

19 providing any recommendations to them.

20 Q How long did Long Leaf continue to

21 have self-trading customers when you owned the

22 company?

23 A Until we were -- we became a guaranteed

24 introducing broker because we could not have two

Page 30

1 clearing firms.

2 Q Remind me when you switched to Cunningham

3 approximately?

4 A We switched to Cunningham in August

5 of 2018. However, we did not become a guaranteed

6 introducing broker until March of 2019.

7 Q So for the period December 2017

8 through February 2018 -- strike that. Let me

9 back up. Is it fair to say that the majority of

10 Long Leaf Trading's revenue when you owned the

11 company came from commissions associated with the

12 trading program?

13 A That is true.

14 Q From December 2017 through February

15 2018 what proportion of Long Leaf Trading's revenue

16 came from commissions associated with the trading

17 program?

18 A 90 percent.

19 Q Between March of 2018 and the date

20 on which Long Leaf became a guaranteed introducing

21 broker, what proportion of Long Leaf Trading's

22 revenue was associated with commissions connected

23 to the trading program?

24 A Still 90 percent. We kept all of our

Page 31

1 self-traders at Gain.

2 Q So the fact that the CFD dealer dropped

3 out didn't have a material impact on the revenue

4 breakdown?

5 A It dropped out in early of 2018. I think

6 the last month was February.

7 Q Right. So --

8 A It didn't have a material impact past

9 that point.

10 Q That's helpful. I think I may have

11 misstated my question. I meant to ask between

12 March of 2018 and the date on which Long Leaf

13 Trading became a guaranteed introducing broker,

14 what is the proportion of Long Leaf Trading's

15 revenue that was associated with commissions

16 from the trading program?

17 A Like I said, 90 percent is an estimate,

18 yeah.

19 Q Okay. And then after Long Leaf Trading

20 became a guaranteed introducing broker, was all of

21 its revenue associated with the trading program?

22 A Yes, it was.

23 Q When you owned the company, Mr. Donelson,

24 there was a staff of brokers at Long Leaf Trading,

Page 32

1 correct?

2 A Correct.

3 Q How many brokers worked at Long Leaf?

4 A Twelve.

5 Q Did that change over time?

6 A Yes.

7 Q Describe how it changed over time.

8 A We let people go through either

9 financial or people -- some people left. We

10 brought on only two brokers during that time.

11 One left, and I can't even remember his name,

12 but he came on, he got qualified, and then his

13 wife worked for Morgan Stanley and didn't want him

14 working in the same industry so he had to leave.

15 But usually it was a question of money, how much

16 money we were making and whether we could continue

17 to pay people and were they performing.

18 Q Is it fair to summarize the broker

19 staff at Long Leaf Trading as being up to 12 in

20 2018 and no more than 3 in 2019?

21 A That is correct.

22 Q What about the Evans era, how many

23 brokers worked at Long Leaf during the Evans era

24 or is that a topic that you can't really speak to?

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1 A I would have to put together at any

2 one point in time how many people were there, but

3 they went through a lot of brokers.

4 Q Okay. So it's a topic that's listed

5 on the notice. So we provided notice that we're

6 going to ask questions about the operation of the

7 trading program. So, you know, if your answer is,

8 you know, I would have to go do more work to figure

9 it out, that's fair. But it sounds like you're not

10 prepared to answer that question today, right?

11 A On the operation, how it actually

12 worked, I can give you how it was described to

13 me but I can't -- the specifics about this trade or

14 that trade, I wouldn't have any firsthand knowledge

15 of it.

16 Q I'm asking about the broker staff

17 and how many brokers worked at Long Leaf during

18 the Evans era and did that change over time. Do you

19 have that --

20 A It definitely changed over time.

21 I can't tell you what the maximum was or the

22 minimum was, but I have a record of all the brokers

23 that ever worked there and when they started and

24 when they ended.

Page 34

1 Q What were the brokers' duties during the

2 time period you owned the company?

3 A They were to solicit new customers,

4 manage their current customers, write trading

5 recommendations. That was their primary duties.

6 And we would also have them do some research, market

7 research for us in terms of what is going on in this

8 market or what is going on in that market.

9 Q Just so I understand then, Long Leaf

10 brokers during the time you owned the company

11 solicited customers to open new accounts, right?

12 A Correct.

13 Q And they disseminated trading

14 recommendations to solicit orders from existing

15 customers, right?

16 A Correct.

17 Q And that's probably like 98 percent

18 of their daily duties, is that fair?

19 A Yeah, a very high proportion of their

20 duties.

21 Q What about during the Evans era,

22 what did the brokers spend their days doing during

23 the Evans era?

24 A From the phone records and everything

Page 35

1 else, it was very similar.

2 Q During the Evans era which brokers were

3 responsible for disseminating trade recommendations

4 to customers?

5 A Are you talking about specific names or

6 are you talking about as a general class of people?

7 I'm just clarifying.

8 Q I'd like you to identify the Long

9 Leaf brokers during the Evans era who disseminated

10 trading recommendations to customers. And if that's

11 information that you don't know, that's an

12 acceptable answer.

13 A I don't know that I would know all of

14 them but James Leeney, Vince -- I can't remember

15 his last name, Jeremy Ruth. I have the list based

16 on the trading data that I have who the account was

17 assigned to at that time. So I can pull that up

18 of who would send those up --

19 Q How would you know about -- how

20 would you know which brokers disseminated trading

21 recommendations during the Evans era? What would

22 be your source of knowledge?

23 A The Gain system has a broker code

24 assigned to each customer, so it would tell me

Page 36

1 which broker was in charge of that customer.

2 Q Are you assuming that Long Leaf

3 Trading operated in the same way during the Evans

4 era as it did during the Donelson era in that each

5 broker disseminated all the trading recommendations

6 for their assigned customers?

7 A I'm making that assumption, yes.

8 Q Do you know if that's actually true?

9 A 100 percent, no, but I would say I'm fairly

10 certain that that's the way it worked.

11 Q Do you think it worked that way for

12 the entire Evans Time Means Money period, so May

13 of 2015 through November of 2017?

14 A Yes, I'm fairly certain that's the way

15 it worked.

16 Q And other than the broker code

17 on the Gain records, what's the basis of your

18 understanding? What are you basing your assumption

19 on?

20 A There are email records, there are other

21 records of this person sending this recommendation

22 to this individual, which concurs with what the Gain

23 record says.

24 Q So email records and you said other

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1 records. What kinds of other records?

2 A Phone records where somebody would

3 call them. The only times -- and why I say I'm

4 fairly certain is should a broker leave and they

5 reassign the account, sometimes the timing between

6 what happens with the Gain code and who's doing that

7 may not be in sync.

8 Q Did you review Long Leaf broker emails

9 from the Evans era to determine that the brokers

10 transmitted trading recommendations to customers?

11 A I did. The primary record, though,

12 is -- was sent through the CRM system, which did

13 not store it in the email system, but you could

14 bring up what was sent through that system. That's

15 when I say the other records.

16 Q Can you explain what information

17 in the CRM system leads you to believe that during

18 the Evans era the broker associated with the Gain

19 code disseminated the trading recommendations to

20 their respective customers? This may sound like

21 a really dumb question, but I'm drilling down on

22 what's the information in the system.

23 A The CRM system had an email system --

24 an email capability in it. They would set up

Page 38

1 the recommendation in that system. They would

2 assign, you know, this would send this email to this

3 customer about this recommendation, and it's stored

4 as an email -- it's not stored as an email record.

5 It's stored as a log record. I know I'm getting a

6 little wonky here, but that's -- it's not a simple

7 I can total it up and here's what it says. It's

8 this person sent it to this person at this point

9 in time.

10 Q That's very helpful. And the CRM log

11 information, does it include data or information

12 about what the content of the body of the email is?

13 A It refers to the template that was

14 being used. However, since he would use the same

15 template over and over, it wouldn't necessarily --

16 this is why I stopped using it. It would bring

17 up the latest recommendation, even if it was sent

18 two years ago.

19 Q And what is the template associated

20 with the trading recommendations that was in use

21 during the Evans era?

22 A It's -- you'll see in emails that were

23 returned to the -- so if a customer agreed to the

24 trade via email, you would see the actual email that

Page 39

1 went out, the blasted email. That's how I

2 triangulate the --

3 Q That's helpful.

4 A But if they got this -- if they got the

5 approval over the phone, I wouldn't see that for

6 that specific person. Plus we had the trade sheets

7 that mark who -- that's also the stamped approvals.

8 I'm not using the right words, but for each trade

9 there would be a trade stamped copy that said this

10 person agreed to it and time stamped here.

11 Q Got it. So I just want to circle back to

12 the CRM record -- the CRM log you're referencing.

13 Did each broker have specific records that were

14 associated with emails that were disseminated from

15 their accounts?

16 A Yes.

17 Q Okay. So --

18 A They were assigned -- the lead name was

19 assigned to an individual.

20 Q So, for example, you could look at James

21 Leeney's CRM information and see that he transmitted

22 an email to customers in the form of the template

23 that you recognize as the trading recommendation

24 during the Evans era?

Page 40

1 A Correct.

2 Q And do you remember seeing that information

3 for James Leeney?

4 A Yes.

5 Q What about Jeremy Ruth?

6 A Yes.

7 Q During the Evans era did Long Leaf Trading

8 disseminate results of trades to customers?

9 A I don't have -- I don't have any

10 records of them in a broad sense sending out

11 results of trades.

12 Q What about in specific or one-off

13 cases, are you aware of any of those instances?

14 A I have -- yeah, I have seen records

15 where they talk about how a specific trade did or

16 another trade did but not any type of historical

17 record of here's how every trade did within a

18 certain customer's account, nor have I found any

19 record that they kept that.

20 Q To clarify your last statement,

21 you're not aware of any records maintained by

22 Long Leaf tracking the performance of their trading

23 recommendations?

24 A Correct.

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1 Q When you bought the company -- strike

2 that. I'll come back to it later. I think I've

3 asked you this, Mr. Donelson, but I'm going to

4 ask it again. I apologize. You testified that

5 during your ownership, Long Leaf brokers' primary

6 duties, 90 percent of their day was spent soliciting

7 new customers or disseminating and dealing with

8 trading recommendations. Was that breakdown similar

9 for the Evans era?

10 A I can't really say. I wasn't there

11 when all Evans records and phone records and --

12 Q I understand. When you owned the company,

13 describe the process by which Long Leaf solicited

14 prospective customers.

15 A There was a -- you had openers who

16 would basically call and the target was 200 calls

17 a day, just realizing that 200 calls doesn't mean

18 you talked to 200 people. The pickup rate was

19 really low, you know, probably under 5 percent or

20 lower. Then they would set up a time for them to

21 do a demo. So they would talk to them and say,

22 you know, don't take much time but would you like

23 to learn more. Then they would -- then the opener

24 would perform the demo, which is an introduction

Page 42

1 to the program, and set a custom. And that

2 would really get into more details about the

3 trading, more details about the program. And

4 then a closer would then do the custom, which

5 may or may not include a Power Point presentation

6 depending on the actual individual that they're

7 talking with. Then that would -- if they joined the

8 company, then they would set a time to go through

9 the application, which was a Gain application at

10 first, which was done all online, and then we'd set

11 up the funding and the funding would come to Gain

12 eventually. That was kind of the solicitation

13 process.

14 Q And was that process the same across

15 the approximately two years that you owned the

16 company?

17 A We changed that to get from the

18 multiple phone calls with multiple people involved,

19 and we also set up that the funding would be done

20 through a central person and not done through each

21 and every broker.

22 Q When did this change to get away from

23 multiple phone calls take place?

24 A I would say late summer 2018.

Page 43

1 Q And after --

2 A Yeah.

3 Q So after approximately summer of 2018,

4 how was the sales process different?

5 A We were combining some of the what

6 we called the demo and the custom into more of

7 a broader conversation and also would try to see

8 if they wanted to stay on the line and talk to a

9 senior broker, Scott Gecas, regarding questions

10 about options and things like that which were more

11 technical in nature so that we could get into --

12 my concern was always the first presentation didn't

13 tell you much of anything. It just -- it wasn't

14 robust enough.

15 Q Was there still an opener who would

16 then sort of set that second call after that late

17 summer of 2018 time period?

18 A There were a few because that would

19 usually be the role of somebody new to the company.

20 So we wouldn't throw them into the deep end right

21 away.

22 Q How about like in 2019 when there

23 was just three brokers and yourself, how did the

24 solicitation process work in 2019?

Page 44

1 A They would still do the calling obviously,

2 but we had changed to a new CRM which allowed us to

3 be more targeted about who we would call. The lead

4 information did not have any demographic information

5 in it. It was just merely a phone number, an email

6 address and a name. However, the system could check

7 if that's a valid email address, if that's a valid

8 phone number, and so they would have a shorter list

9 of people to call on a daily basis. But they would

10 do the opening of calling them, a very short

11 introduction and then setting up a time to go

12 through the presentation. They would not do the

13 presentation on the first call.

14 Q Understood. And during these multistep --

15 during these multiple steps in the sales process

16 at Long Leaf Trading when you owned the company,

17 the brokers were instructed to follow scripts,

18 is that right?

19 A They were not instructed to follow

20 scripts. I didn't even know about the scripts

21 until April of 2018.

22 Q So before April of 2018 how did the

23 brokers know what to say?

24 A Well, they had a script that I did

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1 not have, but they were going through and using

2 that script.

3 Q And sometime in April of 2018 you

4 became aware of the script that the brokers were

5 following, right?

6 A Correct.

7 Q Who wrote that script?

8 A It was a script that was there in

9 place before I bought the firm. I don't know

10 who -- I assume Tim Evans wrote it, but I don't

11 know who exactly wrote it. I was told Jeremy Ruth

12 wrote it, but that's -- that's all I know.

13 Q Who told you Jeremy Ruth wrote the scripts?

14 A A couple of the existing brokers that

15 were there prior to. I think James Hatzigiannis

16 might have told me that, but I do not have like who

17 actually authored it.

18 Q And then in April 2018 you discovered

19 that these scripts existed and that's what the

20 brokers were following on their --

21 A Yeah.

22 Q -- on the multiple steps in the sales

23 process. And I understand that there came a time

24 when the solicitation materials were revised

Page 46

1 at Long Leaf Trading. Were there new scripts

2 or talking points that were used by the brokers

3 after April of 2018 at some point?

4 A Yes, yes, there was.

5 Q And who wrote any revised solicitation

6 materials?

7 A On the talking points it would have

8 been me.

9 Q Did anybody else play a role in any of

10 the revisions of Long Leaf Trading's solicitation

11 materials after --

12 A I had Andrew Nelson helping me,

13 but I also had the brokers helping me with do

14 you say it this way, do you say it that way. I'm

15 not a salesperson, so trying to make sure that it --

16 how that should work.

17 MR. FALVEY: Let Jody finish his questions.

18 THE WITNESS: Oh, I'm sorry.

19 BY MR. PLATT:

20 Q So it sounds like it was a team effort

21 to revise the solicitation materials at some time

22 after April of 2018. Mr. Nelson was involved, the

23 other brokers were involved and you were involved,

24 is that fair?

Page 47

1 A Correct.

2 Q During the Evans era did the brokers

3 also follow scripts for the multiple steps? This

4 is another one, Mr. Donelson, if you don't know,

5 then that's your answer.

6 A I wasn't there. I don't know, other than

7 from phone records.

8 Q Well, did you ever review phone

9 records and come to an understanding that the

10 Long Leaf brokers were following scripts from the

11 Evans era?

12 A For the time period I listened to them,

13 yeah, and that was 2017.

14 Q And in 2017 were the brokers following

15 the same script that they followed after you became

16 the owner of the company in 2018?

17 A I really don't remember if it's the exact

18 same record or not.

19 Q Is it similar?

20 A I would say it is similar.

21 Q And that's based on your review

22 of recorded phone calls and your awareness of what

23 the script was in April of 2018, right?

24 A Right, yes.

Page 48

1 Q Just to summarize that testimony,

2 your understanding is that before you bought the

3 company in 2017, Long Leaf brokers followed the

4 same scripts and solicitation materials that they

5 followed through at least April of 2018, is that

6 accurate?

7 A I would say similar. I don't know if

8 they're exactly the same.

9 Q Materially the same?

10 A I would say materially the same.

11 Q Okay, thank you.

12 MR. FALVEY: Hey, Jody, if you get

13 to a breaking point, you know, I -- sorry,

14 but I need to use the rest room.

15 MR. PLATT: Yeah, let's take five.

16 And just in the interest of not going until --

17 let's go off the record.

18 (Discussion off the record.)

19 (Whereupon a recess was taken from

20 10:17 a.m., to 10:25 a.m., after

21 which the following proceedings

22 were had:)

23 Q Mr. Donelson, when you owned the

24 company -- this may seem like an overly simple

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1 question -- Long Leaf Trading solicited members of

2 the general public to open accounts and participate

3 in Long Leaf's trading program, right?

4 A Yes.

5 Q Is the same true for the Evans era?

6 A Can you ask the question again so that

7 I'm clear? I'm sorry.

8 Q Sure. During the Evans era did Long

9 Leaf solicit members of the general public to open

10 accounts and participate in Long Leaf's trading

11 program?

12 A Yes.

13 Q During the time period that you

14 owned the company, Mr. Donelson, Long Leaf came

15 up with its own trading recommendations for the

16 trading program inhouse, right?

17 A Yes, except for one month.

18 Q What month was that?

19 A January of 20 -- no, December of 2017

20 where we employed a Series 3 broker to provide the

21 recommendations.

22 Q What was the name of that individual?

23 A Jim Barrett.

24 Q Can you spell the last name, please.

Page 50

1 A B-a-r-r-e-t-t.

2 Q You said you employed Mr. Barrett.

3 Did you pay him a salary or a consulting fee for

4 that time period?

5 A I just paid him a fee. I did not --

6 he was not an employee. He was a consultant.

7 Q Like an independent contractor, is that

8 fair?

9 A Correct.

10 Q How did you come to hire or contract

11 with Mr. Barrett in December of 2017 to design the

12 trading recommendations?

13 A Mr. Evans knew him from previous

14 roles. He is a trader for another firm and had

15 multiple conversations with him to develop the

16 trades.

17 Q Did Jim Barrett develop trading

18 recommendations for Long Leaf Trading during

19 the Evans era?

20 A I don't know.

21 Q Why didn't Long Leaf Trading continue

22 to contract with Jim Barrett after December of 2017

23 to develop trading recommendations?

24 A We were moving to a different trade that

Page 51

1 he was not comfortable providing recommendations on.

2 Q Did Barrett design iron condors?

3 A I think so. It was the trades that

4 were placed in December of 2017. I think there

5 was an iron condor. There's an iron butterfly.

6 They were credit spreads.

7 Q And when you say that Long Leaf

8 wanted to move to strategies that Barrett was

9 not comfortable with, what are you describing?

10 What changed?

11 A Going from credit spreads to debit

12 spreads, broken wing butterflies, broken wing

13 condors, volatility swaps, those type of trades.

14 Q Was Jim Barrett providing trading

15 recommendations to any other companies during

16 December of 2017 that you know of?

17 A None that I know of.

18 Q What was he doing during that time

19 period? Was he just an independent contractor out

20 in the world?

21 A He was an independent contractor working

22 for another introducing broker.

23 Q Which introducing broker did he work for?

24 A I would have to look that up. I knew

Page 52

1 it at one time.

2 Q Did he design multi-legged options trades

3 during December 2017 for that other introducing

4 broker?

5 A I do not know. He did not tell me.

6 Q What is your understanding of the nature

7 of Jim Barrett's professional duties in or around

8 December 2017 other than designing trades, trades

9 for Long Leaf?

10 A He was working as an AP of a separate

11 firm -- I'm sorry. I can't remember the name of

12 it -- and providing trading recommendations or

13 trading for that firm.

14 Q But it sounds like you actually don't know

15 what he was doing at the other firm?

16 A Not specifically, no.

17 Q During the Evans era did Long

18 Leaf Trading design its trading recommendations

19 inhouse?

20 A I believe so. I don't -- can't be certain.

21 Q What's your belief based on?

22 A I don't see any payments in the records

23 to any third party that I didn't recognize.

24 Q You're not aware of any payments that Long

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Page 53

1 Leaf made to any service providers to compensate

2 them for providing trading recommendations?

3 A Correct.

4 Q During the Evans era?

5 A Correct.

6 Q Do you know who at Long Leaf Trading

7 was responsible for designing the trades in the

8 trading program during the Evans era?

9 A Timothy Evans.

10 Q What's that belief based on?

11 A That's what he told me.

12 Q Anyone else besides Evans participate

13 in designing the recommended trades during the Evans

14 era that you're aware of?

15 A Not that I'm aware of.

16 Q When you owned the company, it was

17 the brokers' duties -- it was among the brokers'

18 duties to disseminate the trading recommendations

19 to customers, right?

20 A Correct.

21 Q And they did that by email, is that

22 correct?

23 A Correct.

24 Q Any other methods of disseminating

Page 54

1 the trading recommendations during your ownership

2 of the company besides email?

3 A In the first month we used the

4 CRM system that I described earlier, and then

5 we ceased using it and went to sending PDFs via

6 email.

7 Q And the CRMs that you're describing,

8 that also was an email functionality, is that --

9 am I remembering your testimony correctly?

10 A Yes, it does have one but it -- yes.

11 Q And for sending out the trading

12 recommendations through the CRM, those would have

13 been sent by email, right?

14 A Yes, they're sent through email. Yeah,

15 they are an email.

16 Q What about during the Evans era,

17 how did Long Leaf Trading communicate its trading

18 recommendations to customers?

19 A I really can't be certain how they did it.

20 Q Okay, that's fair. Mr. Donelson,

21 do you have an understanding of whether NFA rules

22 require APs of introducing brokers to be supervised

23 with respect to their solicitation of customers and

24 customer orders?

Page 55

1 A Yes, I am.

2 Q You're aware that APs are required to

3 be supervised?

4 A Yes, I am.

5 MR. PLATT: I'm going to show you

6 a document that I'm going to mark as CFTC

7 Exhibit 491.

8 (Whereupon CFTC Exhibit No. 491

9 was marked for identification.)

10 Q Do you recognize this as an email

11 chain between you and Tim Evans on or around

12 February 21, 2018? The subject line is Update to

13 NFA Registration. Do you see that, Mr. Donelson?

14 A Yes, I do.

15 Q I'm going to scroll down to the first

16 few emails in the chain. The email chain starts

17 at the bottom in chronological order. You write,

18 "Tim, I want to update the NFA info this week. Let

19 me know when you have time," and Tim responds, "I

20 think you may need the Series 3 to take on all those

21 positions. Do you have an exam scheduled?" And

22 then you write back, "I spoke with Becky yesterday

23 and have a pretty good idea of what I can and cannot

24 do until I have a Series 3." Who is Becky? Is that

Page 56

1 Ms. Wing?

2 A That is Ms. Wing.

3 Q And what is a Series 3?

4 A Series 3 is a test that you have to pass

5 to become an AP. It covers the futures trading,

6 compliance.

7 Q And AP stands for associated person, right?

8 A That is correct.

9 Q What do you recall about what Ms. Wing

10 told you about what you can or -- what you could or

11 could not do without a Series 3 license?

12 A I could not solicit clients. That

13 was -- that's what I remember, nor could I manage

14 or supervise APs.

15 Q Yesterday I think you testified

16 that from February 2018 onward you were the

17 chief compliance officer of Long Leaf Trading and

18 that Brian Adams and Scott Gecas each performed

19 compliance and supervisory tasks, is that right?

20 A That is correct.

21 Q Between December 2017 and June 2018,

22 right, so the first approximately six months you

23 owned the company, did you meet with newly hired

24 brokers to discuss your expectations for them and

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1 the goals and the company's sales processes?

2 A I don't believe we hired anybody in that

3 time frame.

4 Q So I'm asking a slightly different

5 question than whether Long Leaf Trading hired

6 anyone during that time frame. I'm asking if there

7 was a newly hired employee around that time, so

8 maybe hired in November or October of 2017, did you

9 meet with them to discuss expectations, goals and

10 the company's sales processes?

11 A I met with each one to talk about

12 my vision of where the company will go, but I and

13 them would develop the goals.

14 Q Is that a no, you did not meet with newly

15 hired brokers to discuss expectations, goals and the

16 company's sales processes between December 2017 and

17 June 2018?

18 A No.

19 MR. PLATT: I'm going to show you what

20 I'm marking as CFTC Exhibit 492.

21 (Whereupon CFTC Exhibit No. 492

22 was marked for identification.)

23 Q Mr. Donelson, can you see

24 Exhibit 492? It's a calendar invitation from

Page 58

1 you to four recipients, Ryan Dillman, Chris Janyk,

2 Alexander Stemper and Shawn Mooney dated January 5,

3 2018. Do you see that?

4 A Yes.

5 Q The subject is New Opener Meeting, right?

6 A Yeah, yes.

7 Q And the comments in the calendar

8 invitation reads, "Discuss expectations and goals.

9 New Process for next two weeks." Do you see that?

10 A Yes.

11 Q Did you attend this meeting?

12 A Yes.

13 Q Between December 2017 and June

14 of 2018 did you meet with the Long Leaf broker

15 staff to engage the brokers on sales targets, data

16 quality improvements and training?

17 A Yes.

18 Q What does it mean to engage the brokers

19 on training?

20 A It was more of what training they felt

21 they needed in addition to what's being provided.

22 Q Training with respect to what topics?

23 A Pretty much anything to do with the

24 sales process. In other words, if you're new,

Page 59

1 are you -- what things do you need to be trained on.

2 Q Including how to run through the sales

3 process?

4 A That would be part of it.

5 Q I'm going to go back to 492 for

6 a second. This is the invitation to Dillman,

7 Janyk, Stemper and Mooney for the new opener

8 meeting. These attendees, Mr. Donelson, these

9 are newly hired Long Leaf brokers, right, as of

10 that date?

11 A They were hired in October of last year --

12 of the year before.

13 Q So would you disagree with categorizing

14 them as recent hires?

15 A Yeah, I would -- are they recent hires,

16 yes. Are they brand new hires, no.

17 Q Okay. And they're brokers, correct?

18 A They're APs, yes.

19 Q What expectations and goals did you

20 discuss with these four APs who were hired three

21 months before this meeting was scheduled to take

22 place?

23 A I'm sorry. Three months before what?

24 Q These four APs were recipients of your

Page 60

1 meeting invitation. I think you testified that

2 they were hired around October 2017?

3 A Yes, I believe so.

4 Q And one of the agenda items that you

5 wrote is discuss expectations and goals, correct?

6 A Correct.

7 Q What expectations and goals did you

8 discuss with these four brokers at the new opener

9 meeting that occurred on Friday, January 5, 2018?

10 A Basically what my overall expectations

11 for all employees are and also to engage them in

12 understanding, given the goals that I inherited,

13 whether those are the right goals. This was me

14 engaging all employees in these type of

15 conversations when I first got there.

16 Q That's helpful. And what goals did

17 you describe to your broker staff around January

18 of 2018?

19 A The goals that were -- at that time

20 were X number of calls, X number of this, X number

21 of that. And I was trying to understand what gets

22 in the way of achieving those goals, are those

23 realistic goals, are they -- do they lead to what

24 we're trying to get done.

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1 Q And what were you trying to get done?

2 A Well, obviously you want to bring

3 in more clients. However, there's multiple ways

4 to do that, and the method I saw was just grinding,

5 grinding, grinding through hundreds and hundreds

6 of names that didn't seem to be overly productive

7 as I'm trying to understand the processes of the

8 firm.

9 Q And so what were the goals that

10 you communicated to your broker staff at this

11 new opener meeting? Was it more like rather than

12 grinding through calls, for each call you can maybe

13 take more care to describe the trading program?

14 Like what -- I don't understand what the shift was.

15 A One of the things that came out

16 of that meeting is better data around the lead

17 list and I -- there was a lot of data cleanup that

18 needed to be in there. They would get redundant

19 names, they would get names for people outside

20 of the United States, and it just gets in the way

21 of the process.

22 Q What about this next agenda item,

23 new process for next two weeks? Do you remember

24 what that was?

Page 62

1 A We were introducing the shift from

2 the broker doing the funding and application calls

3 to an individual -- a separate individual doing

4 that.

5 Q And at this new opener meeting you

6 described the new process and how it would work

7 to the new brokers, is that fair?

8 A Correct.

9 Q Between December 2017 and June of 2018

10 did you conduct individual performance reviews with

11 Long Leaf brokers?

12 A I did with Scott Gecas. He's the sales

13 manager.

14 Q Scott Gecas is -- I apologize. I cut

15 you off.

16 A Sales manager is Scott Gecas. He and

17 I both did the performance reviews so I could hear

18 what was going on.

19 Q So your testimony is that you and

20 Scott Gecas jointly performed -- jointly conducted

21 performance reviews of the brokers?

22 A Correct.

23 Q Between December 2017 and June of 2018,

24 right?

Page 63

1 A We continued that through 2018. We would

2 always do a joint review.

3 Q And just to be clear, that occurred

4 between December 2017 and December of 2018 -- and

5 June of 2018, right?

6 A Yes.

7 Q Is it fair to characterize your

8 role between December 2017 and June of 2018 at

9 Long Leaf Trading as encompassing oversight of the

10 sales organization at Long Leaf Trading?

11 A I had oversight of Scott and -- who ran

12 the sales organization, yes.

13 Q So you're at the top of the pyramid.

14 Even if Gecas is between the APs and you, you're

15 at the top in charge of the sales organization at

16 Long Leaf Trading for all relevant time periods that

17 you owned the company, right?

18 A I'm the owner of the company, yes. I'm

19 on top of the pyramid.

20 Q And in that role one of your

21 responsibilities was overseeing the sales

22 organization at Long Leaf at all relevant times,

23 right?

24 A Overseeing the sales manager, yes.

Page 64

1 Q What's the distinction you're drawing

2 between overseeing the sales manager and overseeing

3 the sales organization?

4 A I wasn't directly in charge of the

5 sales force. I was directly in charge of Scott

6 Gecas.

7 Q What's the difference between like

8 indirect and direct? I don't get it.

9 A Scott could discipline people underneath

10 him. I was focused on Scott Gecas, making sure that

11 he was managing the sales force.

12 Q Do you think you ever told anyone

13 that you oversaw the sales organization at Long Leaf

14 Trading between December 2017 and June of 2018?

15 A I'm sorry. Did you say I or he or --

16 I'm sorry. I didn't --

17 Q Do you think that you have ever

18 described your role at Long Leaf Trading between

19 December of 2017 and June of 2018 as encompassing

20 oversight of the sales organization at Long Leaf

21 Trading?

22 A Yes, it's possible I did say that.

23 Q And if you said it, it was because you

24 believed it, right?

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1 A Yes.

2 MR. PLATT: I'm going to show you

3 what I'm going to mark as CFTC Exhibit 493.

4 (Whereupon CFTC Exhibit No. 493

5 was marked for identification.)

6 Q You can see this is an email that --

7 the top email is forwarded from btadams21 to a

8 guy named Mike Leonard. His email address looks

9 like it's a lawyer's email address, but I'm

10 going to scroll down to show you that the bulk of

11 Exhibit 493 is an email exchange between you and

12 Brian Adams on June 12, 2018. Do you agree with

13 that?

14 A Yes, that's what it is.

15 Q And Brian Adams yesterday you testified

16 was -- I think you testified generally that he was

17 the sales manager during the Evans era and he was

18 more of in a compliance role during your ownership

19 of the company. Is that accurate or --

20 A That is correct.

21 Q So here's your response to Adams. You

22 sent it from your -- from jimdonelson1420@gmail.

23 That's your personal email address, correct?

24 A Yes.

Page 66

1 Q Why did Brian Adams send this email,

2 subject line Termination from Long Leaf, to your

3 personal email address and not your Long Leaf

4 Trading email address?

5 A You'd have to ask him. I don't know.

6 Q You didn't tell him to send the email

7 to your Gmail address?

8 A Once he engaged his lawyer I told him to

9 send it to my personal email address.

10 Q Why did you tell him to do that?

11 A Because it could have legal issues

12 involved with it. Probably a bad choice on my

13 part but ...

14 Q Is it fair to summarize your testimony

15 just now, Mr. Donelson, that you wanted to keep

16 the potential legal issues with Adams off of like

17 the Long Leaf server? Is that like in summary what

18 you're saying?

19 A Yes.

20 Q Did you ever direct anyone else to

21 send emails to your Gmail address as opposed to

22 your Long Leaf Trading address?

23 A Not that I remember.

24 Q Did you ever use your Gmail address for

Page 67

1 any other Long Leaf Trading communications other

2 than this email exchange that we see with Mr. Adams?

3 A I would sometimes send files from

4 myself to myself so I could work on them at home.

5 Q Other than this Adams email in 493 and

6 emailing yourself files, did you ever conduct Long

7 Leaf Trading business communications through your

8 Gmail address?

9 A No, I did not transact business through

10 my Gmail address.

11 Q I think I'm asking a slightly different

12 question rather than -- and I apologize if I asked

13 it imprecisely. I'm not asking if you conducted

14 business through your Gmail address. I'm asking

15 if you used your Gmail email account for any

16 communications related to Long Leaf Trading at any

17 time other than this Brian Adams email exchange

18 or emailing yourself documents so you could work

19 on them at home.

20 A I don't remember ever using it, but I could

21 have done it by accident.

22 Q Okay. Well, we may come back to

23 that shortly. And so the subject line of this --

24 of CFTC Exhibit 493 is Termination from Long Leaf.

Page 68

1 Do you remember, was Adams terminated around the

2 time this email was sent, June of 2018?

3 A Yes.

4 Q Why did you fire Brian Adams?

5 A We did not have the money to pay his

6 salary and he was not in a sales position, so I had

7 no -- I had to take on all those roles myself.

8 Q Other than not having the money to

9 pay his salary, were there any other factors that

10 contributed to your decision to fire Brian Adams?

11 A No.

12 Q So down on Adams' email to you he

13 writes -- the third paragraph so you can follow

14 along -- Adams writes, "I don't appreciate the

15 uncomfortable position this has put me in regarding

16 unknown potential personal liability associated with

17 having my name tagged to high-level positions within

18 Long Leaf that frankly didn't exist," and I think

19 he's referring to principal and chief compliance

20 officer. Did I read that correctly?

21 A He is a principal. I don't believe he

22 was ever tagged as the chief compliance officer.

23 Q So whether or not he was, in fact, the

24 chief compliance officer, do you agree that he's

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1 telling you that he's uncomfortable being associated

2 with those two positions, principal and chief

3 compliance officer?

4 A Yes, that's what it says.

5 Q And then we're just going to

6 scroll up to your response here. You write,

7 "Brian, I understand your concerns and agree with

8 your assessment. My first instinct is to have an

9 outline of what duties you were responsible for and

10 what you were not. My list of what compliance tasks

11 you had responsibility for are as follows:" And

12 then you have an itemized list of five items for

13 Adams and then you describe things that you were

14 responsible for. Do you see that?

15 A Correct.

16 Q So in your email to Adams in June

17 of 2018 you write that you're responsible for --

18 and I'm assuming this is a non-exhaustive list --

19 financial filings, overseeing the sales organization

20 and assuring that non-scripted information meets

21 NFA rules, trade activities, all other compliance

22 activities. Did I -- is that the list that you

23 wrote to Adams about your responsibilities?

24 A Yes, it is.

Page 70

1 Q What do you think you meant by overseeing

2 the sales organization there?

3 A This had to do with compliance,

4 not the actual sales organization itself.

5 The day-to-day responsibilities were Scott Gecas'.

6 However, there's still our compliance that we go

7 through to make sure that rules are being followed.

8 Q And that oversight of the sales

9 organization, whether from a compliance perspective

10 or a business perspective, that was something you

11 were responsible for, right?

12 A At that time, yes.

13 Q And compliance, does that mean that

14 making sure that your APs did not disseminate

15 misleading communications to prospective customers?

16 Was that one of the compliance activities involved

17 with overseeing the sales organization?

18 A Yes.

19 Q What is non-scripted information? What

20 do you mean by that?

21 A If somebody is saying something outside

22 of any script or any talking points, that it meets

23 the rules or if they send out a document or they

24 send out something to a customer or a prospective

Page 71

1 customer, that they -- you know, for example, review

2 of emails is what I would consider non-scripted

3 information.

4 Q Okay, that's helpful. And what about

5 listening to recorded phone calls?

6 A That was primarily roles of Scott and

7 Brian.

8 Q Right, but you list it as a thing that

9 you are responsible for.

10 A I don't see the document anymore. I don't

11 see it as being listed on there.

12 Q Sure, and let me break it down because

13 I skipped an inferential step there. You write

14 among the four things that you're responsible for,

15 Item 2, overseeing sales organization and assuring

16 that non-scripted information meets NFA rules.

17 And I'm focused on that second half, assuring that

18 non-scripted information meets NFA rules. I think

19 you said that that means that you were responsible

20 for ensuring that anything that wasn't on the

21 scripts met NFA rules, is that a fair summary?

22 A That's a fair summary.

23 Q And one way you said that you did that

24 was by reviewing emails because email communications

Page 72

1 were not scripted, right?

2 A Correct.

3 Q And brokers also communicated to customers

4 on phone calls, right?

5 A Correct.

6 Q So what steps did you take to

7 ensure that during telephonic solicitations

8 the non-scripted information used by brokers met

9 NFA rules?

10 A That's where I used Brian and Scott

11 to do that review and bring up any information

12 that they heard.

13 Q So you weren't reviewing recorded

14 telephone calls during this pre-June 2018 time

15 period?

16 A No, I was not.

17 MR. PLATT: And let's change gears a

18 little bit here. I'm going to share a document

19 that I'm going to mark as CFTC Exhibit 494.

20 (Whereupon CFTC Exhibit No. 494

21 was marked for identification.)

22 Q Do you recognize CFTC Exhibit 494

23 as the May 21, 2019 4g request directed to Long

24 Leaf Trading?

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1 A Yes.

2 Q What did you do to respond to this 4g

3 request?

4 A I pulled all the documents related

5 to each and every item from either, you know, AWS

6 storage or backups on our computers or physical

7 paper documents.

8 Q And those included emails and chats, right?

9 A Correct.

10 Q Telephone recordings, right?

11 A Correct.

12 Q Trading records and other documents related

13 to the trading program, right?

14 A Correct.

15 Q Did you perform the collection of

16 information for purposes of responding to this 4g

17 request or did you delegate that to someone?

18 A I did most -- I did the electronic,

19 pulled things that were electronically stored.

20 My wife helped me with all the paper collection

21 and making sure we had everything.

22 Q What documents did Long Leaf store in

23 hardcopy?

24 A All the trading, the stamped trading

Page 74

1 data was -- or the trade tickets. That's the

2 word I was looking for. A lot of the applications,

3 the older applications were still in paper format.

4 Those were the two biggest parts of it. There

5 were other things that were stored in hardcopy,

6 but it wasn't like a whole group of things.

7 Q Were any of Long Leaf's scripts stored

8 in hardcopy?

9 A They were only -- I mean, yes, they were

10 stored in hardcopy.

11 Q In responding to the CFTC's May 21,

12 2019 4g request did you search for, collect and

13 produce all responsive Long Leaf scripts that had

14 been stored in hardcopy?

15 A Honestly, I don't know. There was a lot

16 of documents. We tried to do an exhaustive search

17 of everything.

18 Q Sitting here today, do you remember

19 making a decision not to produce scripts that had

20 been stored in hardcopy to the CFTC in response to

21 the 4g request?

22 A No, I never made any conscious decision

23 to exclude any information.

24 Q Were hardcopy scripts excluded from

Page 75

1 the Long Leaf response to the CFTC's May 21, 2019

2 4g request?

3 A They may have been. I don't know.

4 Q Who would know?

5 A You guys would know if they weren't there

6 or not. I --

7 Q So your testimony is that Long Leaf

8 Trading may or may not have excluded or failed to

9 produce scripts of solicitation materials that were

10 stored in hardcopy when responding to the CFTC's

11 May 21, 2019 4g request. Do I have that right?

12 A Could you repeat the question, please.

13 Q Mr. Donelson, is it your testimony

14 that you are not sure if Long Leaf Trading produced

15 hardcopy scripts and other hardcopy solicitation

16 materials in response to the May 21, 2019 CFTC 4g

17 request?

18 A Yes.

19 Q It seems like kind of an important

20 set of documents to me in this case. Do you think

21 the scripts are important documents?

22 A Yes.

23 Q And you don't know if you produced them

24 or not?

Page 76

1 A There were a ton of documents. It

2 took us weeks to pull all that data together, and

3 we reserved the right when we filed it to supplement

4 because we were still searching boxes and things

5 like that of data.

6 Q Where were the hardcopy scripts stored

7 at Long Leaf Trading? Was there a filing cabinet?

8 Was there like a little binder? Where were they

9 kept?

10 A I honestly don't remember.

11 Q But you know they existed, right, hardcopy

12 scripts of solicitation materials?

13 A Yes, I knew they existed at the time.

14 I thought they were part of what we submitted.

15 MR. PLATT: I'm going to mark as CFTC

16 Exhibit 495 the CFTC's August 21, 2020 first

17 set of requests for production to Long Leaf

18 Trading in connection with this litigation.

19 (Whereupon CFTC Exhibit No. 495

20 was marked for identification.)

21 Q You've seen this document before, right,

22 Mr. Donelson?

23 A Correct.

24 Q And what did you do to respond to this

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1 set of requests for production?

2 A Could you scroll down to make sure I'm

3 clear? This is the extension of the 4g request

4 to the end of the period, is that correct?

5 Q Yeah.

6 A Same types of information. Electronic,

7 obviously most of this was now electronic. The

8 trades tickets were still in paper format, but we

9 were scanning them and just making sure we had all

10 the documents and also making sure that they got

11 moved from the old location to the new location.

12 Q So we'll come back to the request

13 for production in a minute. Earlier you talked

14 about a CRM system. What does CRM stand for?

15 A Customer relationship management.

16 Q How did Long Leaf use its CRMs?

17 A It would store all of its leads,

18 customers, everything in the system. It would

19 use that as the basis to make phone calls, as the

20 basis of, you know, storing customer -- what's the

21 word, not their demographic data but their phone

22 numbers, their email addresses, everything. It

23 would actually allow you to say is this a customer,

24 is this a prospective customer. It's basically

Page 78

1 a way to manage or to -- it's a database all of

2 the possible customers.

3 Q The CRM is the mechanism by which

4 Long Leaf would record telephone calls, right?

5 A Correct.

6 Q Whose telephone calls did Long Leaf

7 Trading's CRM system record?

8 A It would record anybody who was calling

9 through their call manager.

10 Q So is it your testimony that everyone

11 at Long Leaf had their own line recorded?

12 A No, it would only be if they were

13 calling through the CRM. For example, I didn't

14 call through the CRM. Brian Adams didn't call

15 through the CRM. None of those called through

16 the CRM so the recording would not happen or if

17 somebody called you, that would also not get

18 recorded.

19 Q Does the CRM, was it connected to every

20 broker's desk phone or was it a separate device?

21 A No, it's connected to their phone.

22 Q What was the purpose of recording telephone

23 calls at Long Leaf Trading?

24 A So that you had an accurate record of what

Page 79

1 the conversation was.

2 Q For what purpose?

3 A For compliance purposes, for training

4 purposes.

5 Q You testified that you listened to

6 recorded phone calls as part of your supervision

7 of Long Leaf brokers, right?

8 A Correct.

9 Q I think you testified you listened to

10 a lot of calls, right?

11 A I wouldn't say a lot of calls.

12 Q Can you put a number on it? Like

13 how many calls did you listen to per week or

14 per month?

15 A Probably five or six a month.

16 Q Okay. Based on your review of recorded

17 phone calls and the fact that I think yesterday

18 you testified that you sat in close quarters with

19 the Long Leaf brokers on the sales floor, do you

20 think you had a pretty good understanding of the

21 content of Long Leaf Trading's brokers' verbal

22 solicitations during the time period you owned

23 the company?

24 A Yes.

Page 80

1 Q Did Long Leaf brokers ever make business

2 calls from their personal cell phones?

3 A Not that I know of. They were not

4 supposed to.

5 Q Did you direct them to only make

6 solicitation calls through the CRM?

7 A Yes.

8 Q Did Long Leaf brokers ever disable

9 the CRM's recording functionality or otherwise

10 seek to circumvent its recordation of their phone

11 calls?

12 A They could not disable it on their

13 phone. Did they try to circumvent it? I have no

14 instance of that, but could they have, yes.

15 Q What about during the Evans era,

16 do you know if brokers did that during the Evans

17 era? Do you know if brokers tried to circumvent

18 the recordation of their telephone calls during

19 the Evans era?

20 A I don't know.

21 Q Do you know if brokers used their

22 cell phones to make solicitation calls or talk to

23 customers during the Evans era?

24 A I don't know.

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1 Q And there came a time when Long Leaf

2 switched CRM vendors, right?

3 A Correct.

4 Q Do you remember approximately when that

5 occurred?

6 A January of 2019. I think that's when we

7 started implementing that.

8 Q And so for the new vendor, was

9 it a similar policy whereby only outgoing phone

10 calls from the -- through the CRM system would be

11 recorded?

12 A It was supposed to record incoming also.

13 Q Did it record incoming?

14 A I think so but I don't -- I'm not sure

15 about that.

16 Q Why didn't you hook your phone up through

17 the CRM?

18 A I was not soliciting customers.

19 Q You never solicited any customers

20 during the -- you never spoke to any prospective

21 customer before they opened an account?

22 A I did speak to prospective customers

23 but usually very rarely. I would speak to existing

24 customers.

Page 82

1 Q When a Long Leaf broker spoke to an

2 existing customer, their line would be recorded as

3 they made that call through the CRM system, right?

4 A Correct.

5 Q So were you trying to avoid having your

6 line recorded, Mr. Donelson?

7 A No.

8 Q Did it cost more to have an additional

9 recorded line or an additional account with the CRM?

10 A Yes.

11 Q Is that why your line was not recorded?

12 A One reason, yes.

13 Q Any other reasons?

14 A I had a lot of other phone calls

15 that had nothing to do with the customers that --

16 that was primarily calls I was making on a daily

17 basis. The CRM is where all the solicitation came

18 from.

19 Q So your phone calls with existing

20 customers, did those deal with the trading program?

21 A Sometimes yes, sometimes no.

22 Q Your phone calls with existing

23 customers, did they deal with the results of the

24 trading program?

Page 83

1 A Yes.

2 Q Your phone calls with the existing

3 customers, did they sometimes deal with the goals

4 of the trading strategy on a going-forward basis?

5 A I don't remember.

6 Q Did you ever talk to an existing

7 customer about your vision for the way the Long

8 Leaf Trading strategy would evolve?

9 A I don't remember.

10 Q Long Leaf used emails regularly in the

11 course of business, right?

12 A Correct.

13 Q Including to communicate with both

14 prospects and customers, right?

15 A Correct.

16 Q Long Leaf received information from

17 its clearing firms by email, right?

18 A Correct.

19 Q Long Leaf used emails to solicit

20 prospective customers, right?

21 A Correct.

22 Q What was Long Leaf's document

23 retention policy for emails and other electronic

24 communications?

Page 84

1 A We -- all the emails were sorted and

2 archived through GoDaddy, and they would archive

3 all the documents in there from the point -- yeah.

4 Q When did that archiving process begin?

5 A I don't have an exact date, but in 2016

6 when they switched to GoDaddy.

7 Q Got it. Thank you. Do you know if any

8 Long Leaf employees deleted emails that they used

9 for business purposes?

10 A They possibly deleted them, but the archive

11 would still have them.

12 Q Can you explain how that works?

13 A I'm not a tech person but I know how --

14 so every email that goes into the -- the archive

15 is a -- let me take a step back. I'll try to give

16 you the layman version of what I understand it to

17 do is that for every email that goes in or out it

18 adds it to the archives. The fact that you delete

19 it from your local mailbox doesn't change the

20 archive. The archive's a once -- write-once only.

21 Q I understand. That's helpful. And

22 when Long Leaf produced documents in response

23 to the requests for production and 4g request, did

24 Long Leaf collect its emails from the archive or

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1 from the local --

2 A They came from the archive.

3 Q Understood. Did Long Leaf have an internal

4 chat functionality?

5 A Yes.

6 Q What was the document retention policy

7 with regard to the internal chats?

8 A The internal chats would actually go

9 to the email archive also.

10 Q Okay. Do you know if Long Leaf Trading

11 produced chats to the CFTC in response to the 4g

12 request and the requests for production?

13 A No. Can you say that again because I'm

14 not sure I answered it correctly.

15 Q Did Long -- let me ask it slightly

16 differently. Did Long Leaf Trading produce chats,

17 as opposed to emails, in response to the CFTC's

18 4g request and requests for production in the

19 litigation?

20 A Yes, they would be in the email archives,

21 from my understanding.

22 Q Did Long Leaf use like a shared drive

23 or a network drive in the course of its business?

24 A We used OneDrive and you could then

Page 86

1 share it. We didn't use -- during my period we

2 did not use it very much. I just didn't find it

3 overly effective. I was spending more time trying

4 to make sure everybody could get into it than

5 actually was worth it.

6 Q What is OneDrive?

7 A It is a Microsoft product that

8 stores -- backs up all your data, but you can

9 also share files across it. You can work on it.

10 It stores on your computer, but then it also updates

11 the stored drive.

12 Q So let me just show you an exhibit.

13 I'm going to mark this, Mr. Donelson, as CFTC

14 Exhibit 496.

15 (Whereupon CFTC Exhibit No. 496

16 was marked for identification.)

17 Q Do you see this? This is an email from

18 Brian Adams to you on May 21, 2018.

19 A Yeah.

20 Q And he's sharing a document and

21 down at the bottom you can see it says Microsoft

22 OneDrive. Is this an example --

23 A Yes.

24 Q -- of the way that Long Leaf would

Page 87

1 use the OneDrive to store and share documents?

2 A Yes.

3 Q I'm going to scroll down. This is

4 actually a group exhibit, but there's one other

5 email. This is from you to Adams on March 14, 2018.

6 This is still on Exhibit 496. The subject is Jim

7 Donelson shared the folder "Compliance" with you.

8 And this is also -- do you see that it's Microsoft

9 OneDrive?

10 A Yes.

11 Q Is this another example of the way

12 Long Leaf used OneDrive to store and share like

13 folders of documents and information?

14 A Yes.

15 Q Other than OneDrive, did Long

16 Leaf have any other centralized repositories for

17 electronically stored information such as a local

18 network drive or a local shared drive?

19 A We did not have either of those. We didn't

20 have our own server.

21 Q Did you have anything that functioned --

22 do you know like what a local drive is or what a

23 shared drive is generally?

24 A Yes, yes, I do.

Page 88

1 Q Did Long Leaf -- is it right that Long

2 Leaf did not use one of those other than to the

3 extent that you used Microsoft OneDrive?

4 A Correct.

5 Q Did you maintain electronically stored

6 information in a local folder on your computer at

7 Long Leaf?

8 A There was local -- yeah, there was

9 information on my local computer, yes.

10 Q What information did you store on your

11 computer at Long Leaf?

12 A The only things I remember are payroll

13 information, company opening documents and things

14 like that related to actually administration of the

15 company. Those are the only things I would not put

16 into a OneDrive.

17 Q What about during the Evans era, what

18 was the setup for electronically stored information

19 during the Evans era? Did they use a shared drive?

20 A I really don't know.

21 Q Okay. And so for OneDrive I see this

22 compliance folder that I showed you on Exhibit 496.

23 We see, you know, Adams sent you what looked like

24 a script document. What kinds of information did

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1 Long Leaf store on OneDrive?

2 A Basically all of our information was

3 stored on OneDrive, which was --

4 Q Information related to the trading

5 program -- I'm sorry. I think we spoke over each

6 other. Let me just ask the question. Did Long Leaf

7 Trading store information related to the trading

8 program on OneDrive?

9 A Yes.

10 Q Did Long Leaf Trading -- strike that.

11 In responding to the CFTC's 4g request and requests

12 for production, both of them, did Long Leaf Trading

13 collect documents from -- that had been stored in

14 OneDrive?

15 A Yes.

16 Q Were there any documents that had

17 been stored in OneDrive that were excluded from

18 Long Leaf Trading's search for responsive documents

19 concerning the 4g request or the requests for

20 production?

21 A Only documents related to attorney-client

22 privilege.

23 Q So just to sum it up, and this is

24 going to be in laymen's terms, to respond to the

Page 90

1 4g request and the RFPs Long Leaf Trading went

2 into the OneDrive and got pretty much everything

3 and produced it that was responsive?

4 A Yes.

5 Q Okay, thank you. That's helpful.

6 Was OneDrive in existence when Long Leaf Trading

7 changed ownership or is that something you

8 implemented?

9 A No, it was in existence when I purchased

10 the firm.

11 Q And you sort of maintained the existing

12 foldering structure or did you change the foldering

13 structure?

14 A I changed the foldering structure.

15 Q Did you ever look in the OneDrive

16 to determine if there was any information related

17 to the performance of the trading system from

18 the Evans era?

19 A Yes.

20 Q Did you find any information on the

21 OneDrive related to the trading performance of the

22 trading system under the Evans era?

23 A The only thing I saw was maybe

24 an individual trade or -- but nothing overall

Page 91

1 performance.

2 Q Yesterday you testified that pretty

3 early on in your ownership you learned that the

4 trading results from the Evans era in connection

5 with the Time Means Money program had been poor.

6 Do you remember that?

7 A Yes.

8 Q How did you learn that?

9 A There were -- a few brokers told me,

10 hey, the performance in October was bad. It was

11 bad in November. So I downloaded all the data out

12 of Gain's clearing system. You can bring it down.

13 That was a database to analyze that, yeah, this is

14 like four or five months in a row that they lost

15 money and what they were losing money on, but that

16 was basically for a five- to six-month period.

17 Q Which brokers told you that the trading

18 had been poor when you first owned the company?

19 A Well, the ones that had been there.

20 Scott Gecas had told me, Andrew Nelson had told

21 me, I think James Hatzigiannis kind of confirmed it,

22 that like October was a really bad month.

23 Q So I'd like to summarize the process

24 by which you searched for and collected information

Page 92

1 for Long Leaf's response to the CFTC's 4g request

2 and requests for production. You got -- you pulled

3 emails from the Long Leaf Trading email archive,

4 right?

5 A Correct.

6 Q Did you exclude any emails based

7 on responsiveness or did you sort of pull the

8 archive emails and transmit that electronically

9 stored information?

10 A The only things were things related to

11 attorney-client privilege.

12 Q I understand. And the same with chats?

13 A Yes.

14 Q How about phone recordings, were any

15 phone recordings excluded from the productions?

16 A No.

17 Q And you did not exclude any material from

18 the Microsoft OneDrive system when you responded

19 to the 4g request or the RFPs other than what may

20 have been protected by attorney-client privilege,

21 is that right?

22 A Correct.

23 Q Did Long Leaf Trading maintain its

24 access to the OneDrive system after it stopped

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1 business operations in December 2019?

2 A Yes.

3 Q So that there was no loss of data

4 information or information between the time when

5 Long Leaf stopped operating and when it responded

6 to the CFTC's requests for production in August

7 of 2020?

8 A That is correct.

9 Q Did you ever search your Gmails for

10 any responsive communications to respond to the

11 4g request or the CFTC's requests for production?

12 A Yes.

13 Q You did search your Gmails?

14 A Just to make sure.

15 Q Did you produce any Gmails to the CFTC?

16 A I don't think so.

17 Q Did you identify any responsive --

18 any responsive information in your Gmail account?

19 A Mostly attorney-client privileged

20 information.

21 Q What about nonattorney-client privileged

22 information?

23 A I didn't see any. However, I don't

24 have an archive on my Gmail system so I'm looking

Page 94

1 at what my actual email system has right now, or

2 at the time when you asked the question.

3 Q And so do your Gmails roll off, like

4 stored? Like what's -- is there data loss there?

5 Describe that to me.

6 A I don't know what the archiving --

7 or the time frame I have set. I think it's a year

8 or so.

9 Q Okay. So --

10 A Or if I particularly save it.

11 Q So it's possible based on your Gmail data

12 retention setting that --

13 A I could have missed something, yes.

14 Q -- responsive information may not have

15 been retained?

16 A Correct.

17 Q Okay, that's helpful too. So that's

18 all, thankfully, for the 4g and the RFPs.

19 MR. PLATT: Do you guys want to break

20 for a quick lunch now or do you want to keep

21 going and take lunch later? I'm about halfway

22 done.

23 MR. FALVEY: Let's do it now then.

24 THE WITNESS: Let's just keep pushing

Page 95

1 forward.

2 MR. FALVEY: Oh, I need to go pee.

3 THE WITNESS: Okay. So let's just break

4 for lunch then.

5 MR. FALVEY: Or I can do it in three

6 minutes and then we can keep going for a

7 little bit, if you want.

8 THE WITNESS: I'd rather just take

9 a 30-minute break. Is that enough time for

10 lunch?

11 MR. PLATT: Yes. Let's come back at

12 like 12:20 because I've got to run out to --

13 MR. FALVEY: Okay.

14 MR. PLATT: Let's go off the record.

15 (Whereupon a lunch recess was taken

16 from 11:43 a.m., to 12:25 p.m., after

17 which the following proceedings were

18 had:)

19

20

21

22

23

24

Page 96

1 A F T E R N O O N S E S S I O N

2 JAMES DONELSON,

3 called as a witness herein, having been previously

4 sworn and examined, testified further as follows:

5 DIRECT EXAMINATION (Cont'd.)

6 BY MR. PLATT:

7 Q Mr. Donelson, earlier this morning

8 I asked you a series of questions concerning the

9 sources of Long Leaf Trading's revenue. Do you

10 remember those questions?

11 A Yes.

12 Q I just want to return to that topic

13 briefly to make sure I understand the answers.

14 So for the period of time when you owned Long

15 Leaf and you continued -- and Long Leaf continued

16 to receive revenue associated with the CFD dealer,

17 so that was December 2017 through approximately

18 February 2018, is that right?

19 A That is correct.

20 Q Did the revenue associated with the CFD

21 dealer, did that come from Gain?

22 A No, it came from CMC Markets in London.

23 Q Perfect, that's helpful. And

24 of the bucket of money that came to Long Leaf

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1 Trading from Gain between December 2017 and

2 February 2018, do I have it correct that your

3 testimony was approximately 90 percent of that

4 revenue was associated with trading program

5 participants?

6 A A better way to look at it is Gain

7 through August of 2018, that was about 90 percent

8 from the trading -- the trading program and about

9 10 percent from self-traders. Any payments past

10 that point from Gain are only self-traders and

11 any payment from Cunningham is for the program.

12 Q And is the answer the same for the

13 Evans period, would the revenue associated with

14 the CFD dealer have come from CMC Markets and not

15 from Gain?

16 A Correct.

17 Q Thank you. Now I'd like to please --

18 do you still have access to CFTC Exhibit 450?

19 It's an Excel file.

20 A Yes.

21 Q Let me pull that up on your side and

22 we'll look at it together, if possible, please.

23 A Okay.

24 Q This is a document, Mr. Donelson,

Page 98

1 that you created for the purpose of responding to

2 our request for production, right?

3 A Correct.

4 Q And do I understand this document

5 correctly that it's any account, any Long Leaf

6 account that was open for any portion of the

7 relevant period as it's described in the complaint?

8 A Correct.

9 Q And there are four tabs. The tabs are

10 Full List, Sheet 1, TMM Customers and Opened After

11 Ownership?

12 A Yes.

13 Q What does the Full List represent?

14 A That is a complete list of all

15 customers that had accounts open at any time

16 during the complaint.

17 Q And where did you obtain the

18 information that's in the Full List tab of

19 Exhibit 450?

20 A The actual list of customers comes

21 out of downloading the Gain statements for those

22 periods that would tell me who is open, who's not,

23 the client numbers. The emails and that I think

24 come from another source, but it's pulling together

Page 99

1 multiple pieces.

2 Q To identify the information that's

3 in Column A of the Full List tab, that's account

4 name. Did you --

5 A That's the account --

6 Q You obtained those -- that information

7 from the statements that Long Leaf received from

8 either Gain or Cunningham over the years, is that

9 right?

10 A Correct.

11 Q And then Sheet 1, what's going on in

12 Sheet 1?

13 A I'm doing some type of analysis. It's

14 not pertinent.

15 Q The TMM Customers tab of Exhibit 450 has

16 195 accounts listed. What does this tab reflect?

17 A It would be anyone who was in

18 a broker-assisted program during the relevant

19 time period.

20 Q And by broker assisted do you

21 mean the program whereby Long Leaf Trading would

22 recommend options trades to customers and then the

23 customer would either opt in or decline to trade?

24 A Correct.

Page 100

1 Q Is there another kind of broker-assisted

2 trading program at Long Leaf?

3 A No.

4 Q Okay. And how did you determine which

5 accounts to include on the TMM tab? How did you

6 determine which accounts were in the broker-assisted

7 trading program at Long Leaf -- trading program at

8 Long Leaf?

9 A Two things. One would be who was

10 the broker who opened the account. And in the

11 case of any accounts of Tim Evans, I would look at

12 what the actual trades were and are they consistent

13 with other people who are in -- that have been

14 determined to be in the program.

15 Q Bear with me so I summarize

16 your testimony accurately. Your first step in

17 determining which accounts to include on the TMM

18 Customers tab was to look at the broker associated

19 with the account. Is it correct that any account

20 that was not associated with Tim Evans as the broker

21 was included?

22 A That is not correct because of two

23 accounts that Craig Pace opened that were from

24 a previous -- they were self-trading.

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1 Q Got it. So all non-Evans broker

2 accounts and not the two Craig Pace self-directed

3 accounts was your first step, right?

4 A Correct.

5 Q Then among the Evans accounts,

6 you went to the trading statements, the customer

7 statements and looked at the trading activity to

8 see if it was consistent with the Time Means Money

9 trade recommendations, right?

10 A Correct.

11 Q And then on the Opened After Ownership

12 tab, those are all the accounts that were opened

13 after you purchased the company in December 2017,

14 is that right?

15 A Correct.

16 Q Do I have it correct that all the

17 Long Leaf customers who opened accounts after

18 you bought the company participated in the trading

19 program?

20 A Correct.

21 Q If you look at the TMM Customers

22 tab, and there are 195 customer accounts listed

23 on that tab, if you wanted to identify the lifetime

24 PNL associated with any of the accounts, how would

Page 102

1 you do that?

2 A How did I do it or how would I do it?

3 Q Did you do it, first of all?

4 A Well, you take the initial funding

5 and then you would take the closing balance when

6 they either left or when they ceased to be customers

7 of Long Leaf.

8 Q Did you ever undertake to -- undertake

9 that analysis for the Time Means Money customers?

10 A I did.

11 Q When did you do that?

12 A I don't remember when I did it.

13 Q Did you attempt to determine the

14 lifetime PNL for the Time Means Money customers

15 while Long Leaf Trading was in operations or after

16 it ceased to operate?

17 A It was while it was in operations.

18 Q Do you think it was in 2019 or 2018?

19 A For customers that were in --

20 were live customers in 20 -- when I acquired

21 the firm, I created a database that I shared with

22 CFTC of getting to their lifetime where they're

23 making money, what trades are making money, so

24 we're tracking it in there. When we went from

Page 103

1 Gain to Cunningham, we created a different report

2 to track that so sometimes you have to put the two

3 together. But going back to all the customers

4 before, I don't know -- remember when I did that.

5 Q Did you ever --

6 A I remember doing it but it wasn't --

7 I don't remember when.

8 Q Did you ever generate a document

9 that reflected the results of your analysis of

10 customer lifetime net PNL?

11 A Yes.

12 Q Where is that document?

13 A Specific customers' PNL, yes.

14 Q And which ones?

15 A There were quite a few that we would

16 do the report, put the whole report together for

17 upon their request or in some cases kind of on

18 a monthly basis. But they're in the documents

19 sent to -- you know, some names I know, Drayer,

20 Reeves. I don't know each and every -- I can't

21 remember each and every one that I produced one

22 for.

23 Q The analyses you're referencing right

24 now, they would be created for customers to show

Page 104

1 their accounts sort of on a realtime basis,

2 is that right? I think I know what you're talking

3 about, but I'm asking a slightly different question.

4 I'm asking did you ever conduct a lookback analysis

5 of all the Time Means Money customers to determine

6 their lifetime net PNL?

7 A Yes, I did, but I don't remember when.

8 Q All right. Did you retain -- did you

9 create any documents that reflected that analysis?

10 A I don't remember, honestly.

11 Q You don't remember why you did it?

12 A No, I don't remember where --

13 it should have been retained on the OneDrive.

14 Where exactly, I -- I'm sorry? We can't hear

15 you.

16 MR. FALVEY: No, we can't hear.

17 MR. PLATT: Let's go back on the record,

18 please.

19 Q So, Mr. Donelson, before my audio

20 cut out, unfortunately, I was asking you about

21 reports or analyses you created reflecting Long

22 Leaf Trading trading program participants' lifetime

23 net PNL, and I asked you did you create any

24 documents that reflected that analysis.

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1 A There was an Excel spreadsheet that

2 I created. I don't remember the name of it and

3 I don't remember when I did it.

4 Q Was that file produced to the CFTC at

5 any time?

6 A I believe it was.

7 Q Do you remember why you created

8 the document with the analysis of the customers'

9 lifetime net PNL?

10 A To understand the history.

11 Q Do you remember if you did it in 2018

12 or 2019?

13 A Sometime in 2018.

14 Q This document that you're referencing

15 was a single Excel file?

16 A From what I remember, yes.

17 Q Did you email it to anyone?

18 A No.

19 Q What did it show?

20 A Losses on accounts, when they had pulled

21 out the money. It was a high-level analysis of how

22 much money was lost, how much money, period.

23 Q Do you remember what part of 2018

24 it was when you created this analysis? Was it

Page 106

1 early on right after you bought the company?

2 Was it after the significant losses in November and

3 December of 2018? Can you ballpark it?

4 A I don't remember.

5 Q And it would have included -- do

6 you remember if your analysis included all the

7 customers, including those who opened accounts

8 after you opened the company -- after you purchased

9 the company?

10 A It included all the customers to date.

11 Q Do you recall if it showed any customer

12 achieving lifetime net profitability?

13 A I remember a couple, but I really don't

14 remember the file that well.

15 Q A couple, like less than five out of

16 that total?

17 A Correct.

18 Q And the total would have been over

19 a hundred, right?

20 A A total of what?

21 Q Total number of accounts that you

22 included in your analysis of lifetime net PNL

23 to track Time Means Money customers that you're

24 discussing right now.

Page 107

1 A Yeah, it was over a hundred. I know that.

2 Q I'd like to just go back to

3 Exhibit 450 quickly. I just have one more

4 housekeeping question on it. On the TMM Customers

5 tab, Mr. Donelson --

6 A Um-hmm, yes.

7 Q -- if you filter Column J, which is the

8 broker column --

9 A Um-hmm, yes.

10 Q -- only for Tim Evans, you only get

11 three accounts. Does that strike you as low?

12 How did you determine which of the -- or, excuse me.

13 Does that strike you as a low number?

14 A No.

15 Q What's your understanding of whether

16 or not Mr. Evans was opening customer accounts when

17 he owned the company?

18 A My understanding was he was opening only

19 self-trading accounts.

20 Q What's the basis for that understanding?

21 A That's what he told me and the data seems

22 to support that.

23 Q Did he tell you that during the due

24 diligence process associated with the purchase

Page 108

1 transaction of the company or after you had bought

2 the company?

3 A After.

4 Q How did that conversation come up?

5 A It was a conversation about the Gain

6 statements and the assignment of the sales code

7 because as I downloaded the data, you would notice

8 multiple sales codes for the same customer and

9 he had to walk me through that, that okay, this

10 person may have opened it. They left the firm so

11 it got assigned to somebody else, so they moved it

12 to a new sales code. And then there was another

13 sales code related to -- I don't remember what it

14 was related to.

15 Q Do you remember how many accounts

16 were associated with Evans as the broker overall?

17 A All of the self-trading accounts

18 were associated with him except for the two

19 I mentioned with Craig Pace, and there were two

20 accounts where he had discretion on, maybe three.

21 Q So circle back to your earlier testimony.

22 If you wanted to identify the lifetime net PNL for

23 any particular account, you would compare the amount

24 that was deposited in the account by the customer

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1 for the total amount --

2 A Correct.

3 Q -- with the ending balance at the time

4 the account was closed, is that right?

5 A Correct.

6 Q And are those amounts both available on

7 FCM statements?

8 A Yes.

9 Q Let's return to our discussion of Long

10 Leaf's trading program. I think you testified that

11 a characteristic of Long Leaf's trading program was

12 that customers received recommendations and either

13 accepted the recommendations and executed the trades

14 or declined to execute it. Is that generally right?

15 A That is correct.

16 Q What products were a part of Long Leaf's

17 trading program?

18 A Bonds, currencies, ags and oil.

19 Q Those are the underliers, right?

20 And Long Leaf's trades were in options on those

21 underliers, is that right?

22 A That is correct.

23 Q Can you explain at a high level the

24 structure of Long Leaf's recommended trades?

Page 110

1 A It would be usually four options.

2 It would be nondirectional, so you had calls

3 and puts and sells, and it would also be two short

4 positions, two long positions.

5 Q And that was for the time period that

6 you owned the firm, right?

7 A Correct.

8 Q What about the Evans era, what did

9 the trading recommendations look like during the

10 Evans era?

11 A Very similar. However, they -- based

12 on what I can glean from the trading records, they

13 were predominantly credit spreads.

14 Q You know what an iron condor is,

15 Mr. Donelson, right?

16 A Yes.

17 Q Is it fair to say that the majority of

18 Tim Evans' trade recommendations were iron condors?

19 A The majority were either iron condors

20 or iron butterflies is more accurate.

21 Q Okay, that's helpful. Thank you. And how

22 do you know that?

23 A Based on the trading records from Gain

24 Capital.

Page 111

1 Q So it sounds like there came a time

2 where you went back and you looked at the trading

3 records from Gain for the Evans era. Why did you

4 do that?

5 A One was to confirm that these were TMM

6 customers or not by comparing it. The other was

7 some of our current customers had started before

8 I joined the firm. So to get an accurate report

9 to them, I had to go back a period of time and

10 just consistently those are what I saw. I didn't

11 look at each and every trade.

12 Q Did your trading recommendations include

13 iron condors and iron butterflies?

14 A Only for one month.

15 Q What month was that, December 2017?

16 A Correct.

17 Q And then going forward those strategies

18 were out of the Long Leaf rotation?

19 A Correct.

20 Q How were the Long Leaf trade

21 recommendations disseminated to customers?

22 A During my period or Mr. Evans' period?

23 Q Let's start with your time period.

24 A The first month we did use the

Page 112

1 CRM system to do it. After that I would create

2 an Excel, create a PDF and send it to the brokers

3 to send to their customers.

4 Q What about during the Evans era?

5 A The only part I can talk about

6 is what I saw with the CRM, sending it through

7 the CRM. Before that I don't know.

8 Q How far back did the Evans era

9 use of the CRM system to disseminate the trading

10 recommendations go, do you remember?

11 A The start of 2017.

12 Q And before that you're not sure how they

13 were disseminated?

14 A No.

15 Q So you just described you created

16 a document that would be sent out to customers

17 during your ownership. I remember you and

18 Mr. Burden discussed those documents to a great

19 level of detail yesterday, and unfortunately I'd

20 like to return to them briefly.

21 Do you recall your testimony

22 about the inclusion of data points, like max

23 gain or target gain or max loss on the trading

24 recommendations?

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1 A Yes, I do.

2 Q Do you agree generally that data

3 like that in connection with an options trading

4 strategy can be classified as a potential outcome?

5 A I would deem it as a possible outcome,

6 not potential.

7 Q What's the difference between potential

8 and possible? What's the distinction in your mind?

9 A It's based on probability. So max gain,

10 the probability of a max gain is actually very low

11 based on just the probability analysis of the option

12 itself.

13 Q Okay. I don't disagree with you there.

14 And on that topic do you agree that there's a range

15 of probablistic outcomes for an options trade?

16 A Yes, I do.

17 Q And there's a likelihood for any

18 particular potential outcome or probable outcome

19 that could mathematically be associated with each

20 potential outcome or probable outcome?

21 A Yes.

22 Q Did you ever attempt to quantify

23 the likelihoods of the possible outcomes that you

24 had put in your trading recommendations?

Page 114

1 A Yes, it's in the QuikStrike data.

2 Q Did do you that as a matter of practice

3 for every trading recommendation?

4 A Not for every trading recommendation.

5 Q Did you do it for the majority of your

6 trading recommendations?

7 A Yes.

8 Q Why didn't you include the likelihood of

9 the possible outcomes that you listed on the trading

10 recommendations on the trading recommendations?

11 A I don't know.

12 Q Did Long Leaf Trading during the Evans

13 era include the likelihood of the possible outcomes

14 of each trade with their trading recommendations?

15 A Not on the recommendations I saw.

16 Q Are you aware of any trading

17 recommendations from the Evans era that included

18 probabilistic information concerning potential

19 outcomes?

20 A No on the ones I saw only. I can only

21 speak to those.

22 Q And other than the ones that you saw,

23 you don't have any understanding of what Long Leaf's

24 practices were during the Evans era concerning

Page 115

1 disclosure of the likelihood of potential outcomes

2 for each recommended options trade, is that correct?

3 A That is correct.

4 Q Do you think it's important to

5 a customer in assessing whether or not to accept

6 a recommended trade to know what the likelihood is

7 of the potential outcomes that are listed on the

8 recommendation?

9 A I don't know.

10 Q Is it important to you if you were

11 going to execute an options trade for your own

12 personal account to understand the likelihood of

13 potential outcomes of an options trade?

14 A Yes, it would be important to know the

15 probability of making money on the trade but not

16 (inaudible) a point estimate.

17 Q Did the Long Leaf Trading trade

18 recommendations include any probabilistic

19 information that any particular trade would make

20 money?

21 A Yes.

22 Q Describe where on Long Leaf's trading

23 recommendations it disclosed to a customer the

24 likelihood that a trade would make money.

Page 116

1 A In 2019 when we sent a recommendation

2 out, it shows what the expected point is -- what

3 the expected profit or loss is going to be when the

4 short option expires. It's not a probability number

5 as you would say it, but it does show if we make

6 this trade long and this trade short, all other

7 things being equal, if the short expire worthless,

8 this is -- that would be the remaining profit.

9 Q So I think this is a really important

10 followup question, Mr. Donelson. The information

11 you just described in the answer you just gave does

12 not tell a customer the likelihood that a particular

13 trade would make money. Do you agree or disagree

14 with that statement?

15 A I agree.

16 Q Were there any other -- was there any

17 other information in a Long Leaf Trading trading

18 recommendation that disclosed to a customer the

19 likelihood that a trade would make or lose money?

20 A Not in 2018.

21 Q What about in 2019?

22 A 2019 it shows the progression that

23 says if I sell this, buy that, this is what the

24 net's going to be at the end.

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1 Q But you just testified that that's

2 not information that shows the likelihood that

3 a trade would make or lose money, right?

4 A Correct.

5 Q And for the Evans period, no information

6 in the trading recommendations that would reflect

7 whether or not a trade was likely to make or lose

8 money, correct?

9 A Not as far as I know.

10 Q When you owned the company, I think

11 you testified yesterday that in 2018 your employee

12 Scott Gecas was responsible for designing the trades

13 in 2018 and then in 2019 it was primarily your

14 responsibility to design the trades, is that right?

15 A That is correct.

16 Q In 2018 did you and Gecas like talk shop?

17 Did he talk about the trading recommendations?

18 A Yes.

19 Q That makes sense to me that he did

20 that. I've seen a term in the Long Leaf documents

21 that I've never been exposed to in my career in the

22 financial markets called a volatility swap. Did you

23 learn that term from Scott Gecas?

24 A Yes, it's a trading term.

Page 118

1 Q Did you learn it from Gecas?

2 A Yes.

3 MR. PLATT: I'd like to show you

4 what I'm going to mark as CFTC Exhibit 497.

5 (Whereupon CFTC Exhibit No. 497

6 was marked for identification.)

7 Q And this is an email from you to what

8 looks like the group of brokers on April 24, 2018,

9 subject line Trade Recommendations with a bunch

10 of --

11 A Correct.

12 Q -- attachments. Do you see that,

13 Mr. Donelson?

14 A Yes, that is what it is.

15 Q And the first two -- the attachments

16 describe a trade, right? I'll scroll down.

17 A Correct.

18 Q And this is a PDF in the nature of a

19 Long Leaf Trading recommendation. The attachment

20 is a trade recommendation, right?

21 A I'm sorry. I didn't catch the whole --

22 Q Sorry. That was the worst question

23 I've ever asked. This is a Long Leaf trade

24 recommendation, correct?

Page 119

1 A Yes.

2 Q And the first -- there are two trades

3 listed on here. One is a Euro volatility swap and

4 the second one is an oil broken wing butterfly,

5 correct?

6 A Correct.

7 Q Can you -- excuse me. Does this

8 reflect sort of the sale of a short-dated option

9 spread and the purchase of a longer-dated option

10 spread?

11 A Correct.

12 Q April is J and May is K, right, for the

13 volatility --

14 A Correct, correct.

15 Q Okay. So Gecas probably came up with

16 this trade, right?

17 A Correct.

18 Q How often did Scott Gecas' trade

19 recommendations include a volatility swap? And

20 you can do so on any time period, like per month,

21 per week, just sort of anything that will give us

22 a frame of reference.

23 A Maybe once every other month.

24 Q You testified that Mr. Gecas's trade

Page 120

1 designs ultimately performed poorly, correct?

2 A Yes.

3 Q And they performed so poorly that that

4 was a factor in his termination, is that right?

5 A Correct.

6 Q Was that the sole factor in Scott Gecas'

7 termination?

8 A No.

9 Q What other factors played a role in

10 Mr. Gecas' termination?

11 A His impact on the other APs. He was

12 very negative.

13 Q How did that play out in the office?

14 A People wouldn't talk to him or

15 wouldn't want to talk to him, and having somebody

16 running a sales force that nobody wants to talk

17 to is not effective.

18 Q I agree. So do you recall the results

19 from November of 2018?

20 A They weren't good. I know that.

21 Q Okay, yeah.

22 A I don't remember the specifics.

23 Q Okay, okay. That's fair. In a typical

24 month -- how many recommendations did Long Leaf send

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1 out in a typical month?

2 A Four to five until 2019 where we

3 tried to keep four positions on at all times,

4 four (inaudible) positions.

5 Q And the customer would say, yes,

6 please execute or I don't want this trade, right?

7 A Or sometimes they would say I don't

8 want to take that many. I want to take fewer

9 contracts.

10 Q That's helpful. Thank you for that

11 clarification. And can you estimate approximately

12 how frequently Long Leaf customers did not accept

13 the trade that was recommended to them; they said,

14 no, I'm going to pass on that trade?

15 A Just a ballpark would be maybe 15 to

16 20 percent of the time either they declined it

17 or did not respond.

18 Q And that's for 2018 through 2019?

19 A Yes.

20 Q What about during the Evans era,

21 how often did customers decline or not respond

22 to trading recommendations?

23 A I don't know.

24 Q And you mentioned sometimes customers

Page 122

1 would deviate from the recommendation by saying

2 I would like to do the trade, but I would like more

3 contracts or I would like fewer contracts. Is that

4 an accurate summary of your testimony?

5 A That is correct.

6 Q How often would that happen?

7 A Much lower. Maybe 5 percent of the time.

8 Q And there was never a request to deviate

9 from the -- what I will call the core structure of

10 the trade? Do you understand what I mean by the

11 core structure of a recommended trade?

12 A No.

13 Q No, I'm sorry. It was a poorly

14 formed question, so I'll ask it like this. Do

15 you understand when I say the core structure of a

16 trade, I mean the options that comprise the trade?

17 A Yes.

18 Q And did any customers ever request

19 to deviate from that core structure as defined

20 in that way?

21 A No.

22 Q So there was never a request to

23 change the underlier of a trade recommendation?

24 A You mean the underlying future?

Page 123

1 Q Yeah, the underlying instrument of the

2 option.

3 A No.

4 Q There was never a request that you

5 modify a strike price to a particular trading

6 recommendation?

7 A No.

8 Q Isn't it also true that no Long Leaf

9 Trading program participants executed options

10 trading strategies that they devised on their own?

11 A Not to us. I'm sorry. It's thundering

12 outside.

13 Q I caught that. I'm sitting in a windowless

14 office, so I don't know.

15 A It could be snowing outside and you

16 wouldn't know.

17 Q Exactly.

18 (Whereupon CFTC Exhibit No. 498

19 was marked for identification.)

20 Q Mr. Donelson, I'm going to show you

21 a document I've marked as CFTC Exhibit 498, and

22 this is Long Leaf Trading's response to the CFTC's

23 first set of requests for admission. Do you see

24 Exhibit 498 on your screen?

Page 124

1 A Yes, I do.

2 Q I'm going to scroll down to Item 13.

3 This is a question that we posed to Long Leaf

4 through this mechanism that's provided for under

5 procedural rules for litigation. And we asked

6 Long Leaf Trading to admit that Long Leaf Trading

7 did not limit participation in the trading program

8 to existing customers, and Long Leaf interposed an

9 objection that the request was vague and then denied

10 it. What is it about this request that Long Leaf

11 doesn't understand?

12 A The question is can I add customers

13 and then they'll participate. But if you're not an

14 existing customer, you're not going to participate.

15 Q I understand.

16 A And, you know, if you're not our

17 customer, you don't participate in our program.

18 You can become a customer and participate in our

19 program.

20 Q I understand. And let me put it a

21 different way, and with your explanation in mind

22 I understand the objection. I think I've asked this

23 today, but I'll clarify it now. It's true that Long

24 Leaf employed a team of brokers to solicit members

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Page 125

1 of the public who did not have a preexisting

2 relationship with Long Leaf Trading to come open

3 accounts at Long Leaf Trading and participate in

4 the trading program, right?

5 A Yes.

6 Q So the next line on Item 20 here

7 on CFTC Exhibit 498, we ask Long Leaf to admit

8 that it had not disclosed to prospects any of the

9 information described in CFTC Rule 4.35(b), which

10 is generally information about a trading program's

11 performance, including but not limited to,

12 disclosing that neither Long Leaf Trading nor any of

13 its trading principals had ever previously directed

14 any accounts. And there's an objection here because

15 the meaning of directed any accounts is vague.

16 As a person who's participated

17 in this industry, is it true that you don't know

18 what the term directed any accounts means?

19 A Yes.

20 Q Have you ever heard the term directed

21 account before?

22 A I've heard managed account, but I've

23 never heard of a directed account.

24 Q Okay. So since you don't know what

Page 126

1 a directed account is, is it fair to say that

2 Long Leaf Trading has never disclosed to prospects

3 that neither Long Leaf Trading nor any of its

4 trading principals had ever directed accounts?

5 A Could you repeat the question?

6 Q Sure. So your testimony --

7 A My mind lapsed for a second.

8 Q No, I understand. And depositions

9 are long, so I get it. Your testimony was that

10 you haven't heard -- you don't have an understanding

11 of what the term directed accounts means in the

12 concept of the futures industry. So my question

13 is because you do not know what the term directed

14 accounts means, is it also true that you have --

15 that Long Leaf Trading never disclosed to

16 prospective customers that neither Long Leaf

17 Trading nor any of its trading principals had

18 ever previously directed any accounts?

19 A I'm still confused by the question

20 on two points. Long Leaf Trading or any of its

21 trading principals, that would include Tim Evans,

22 that would include anybody who worked for Long Leaf.

23 And when you say ever previously, are you talking

24 about at a different firm, are you talking about --

Page 127

1 that's what I don't -- I struggled with this,

2 along with our lawyer, of understanding when you

3 say it never -- had never previously directed. So

4 if you had a broker that worked someplace else and

5 came and started working, well, that person had

6 directed accounts, if that's what directed accounts

7 means, or is it just their time at Long Leaf?

8 Q Okay, that's helpful. And thank you

9 for that clarification. For time period let's

10 go with the time that you owned the company, the

11 Donelson period. And for the second clarification

12 let's use this -- let's read this as broadly as

13 possible. So I'll rephrase it.

14 During the Donelson period did

15 Long Leaf ever tell any prospective customers that

16 neither Long Leaf nor any of its trading principals

17 had ever directed any accounts?

18 A No, we never told anybody that we -- that.

19 Q And what about for the Evans period?

20 A I don't know.

21 Q Okay, thank you.

22 MR. PLATT: Can we take five? I'm

23 about to start a different topic that's going

24 to take like a half an hour.

Page 128

1 MR. FALVEY: Sure.

2 THE WITNESS: Sure.

3 MR. PLATT: Let's go off the record,

4 please.

5 (Whereupon a recess was taken from

6 1:24 p.m., to 1:33 p.m., after which

7 the following proceedings were had:)

8 Q Mr. Donelson, another topic that you

9 and Mr. Burden covered yesterday and I'd like to

10 return to is the tracking of Long Leaf's trading

11 strategies. One strategy that you referenced

12 from the time you owned the company was the core

13 strategy, right?

14 A Correct.

15 Q I think you testified the core strategy

16 encompassed gut strangles in 2019, right?

17 A Correct.

18 Q For the record, what is a gut strangle?

19 A You buy an in-the-money put

20 and an in-the-money call and then you sell the

21 weekly against the monthly or that's effectively

22 the strategy. It's similar to a volatility swap,

23 but it doesn't require different volatilities.

24 Q Is it fair to say that a gut strangle

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1 as you just described it is a four-legged options

2 trade that's nondirectional in nature?

3 A Correct.

4 Q Where did you learn about gut strangles?

5 A I first saw them when I was the CFO

6 of the United Methodist Pension Plan as we were

7 looking at alternate investments.

8 Q Can you describe the duties and

9 responsibilities that you had as the CFO of the

10 United Methodist Pension Plan?

11 A The CIO, the chief investment officer,

12 reported to me, the actuarials I think reported

13 to me, and then obviously the accounting function

14 reported to me. When I say reporting, it was to

15 assure that the plans were adequately funded.

16 Q And who are the pensioners for the

17 United Methodist Church? Like can you describe

18 the organization to me?

19 A Yeah, it is -- they are the ministers

20 and laypeople of the United Methodist Church and

21 the -- well, no, they're still laypeople, people

22 who work in the boards. They're called boards but

23 they're effectively -- like there's a board over

24 finance. There's a board over pension. There's

Page 130

1 a board over worship, you know. There's boards

2 all over the place.

3 Q I understand. And when did you hold this

4 position of CFO of the United Methodist Church?

5 A I'm trying to go backwards. It was

6 like 2002 to 2004 or 2004 or 2006. It was right

7 before I joined Getco.

8 Q In what context did a gut strangle

9 come up there? Was it the chief investment officer

10 thinking about ways to put money to work?

11 A It was an actual investment advisor

12 pitching us on an investment opportunity. We didn't

13 do any direct trading at the board.

14 Q And so you heard this trade strategy

15 in a pitch. Did the organization you were working

16 for implement those trades?

17 A No, we could not. We cannot trade

18 derivatives.

19 Q I understand.

20 A You can, but it takes three layers

21 of funds and it's not worth it.

22 Q That makes sense. Incidentally,

23 what was the -- at the time you worked there

24 do you remember what the size of the assets under

Page 131

1 management was?

2 A 15 million.

3 Q So other than the core of 2019,

4 I think we also yesterday heard you testify about

5 the edge strategy of 2019. And I think, and correct

6 me if this is wrong, the edge was volatility swaps,

7 is that right?

8 A Some of them were -- the volatility

9 swaps were also core and they were also edge.

10 Edge had more to do with intraday response time and

11 if people wanted, you know, a little higher return

12 and would take a little more risk. But they were

13 usually something we saw during the day, had to get

14 out, and they needed to respond within two hours or

15 less or we couldn't put the trade on so we would

16 have to abandon the trade.

17 Q Let me make sure I understand your

18 testimony. So out of the volatility swap category,

19 I understand there may have been many different

20 underlying instruments for the volatility swap,

21 right?

22 A Correct.

23 Q So among the volatility swaps, they

24 could have been slotted into the core or the edge

Page 132

1 strategy?

2 A Both, yes.

3 Q And so core could have comprised volatility

4 swaps and gut strangle, right?

5 A Correct.

6 Q With lower response times?

7 A Yes.

8 Q And edge was all volatility swaps?

9 A I believe so.

10 Q And it was -- the defining characteristic

11 of an edge trade was the quicker response time to

12 take advantage of a perceived market imbalance?

13 A Yes.

14 Q Got it, got it. Helpful. And core

15 and edge, I've seen in the documents, Mr. Donelson,

16 this concept of cash management strategy. Is it

17 right -- do I read these documents correctly that

18 the cash management strategy was an umbrella term

19 to encompass core and edge? Is that the way that

20 Long Leaf Trading used that term?

21 A Yes.

22 Q And then there was another broader

23 category of trade when you owned the firm called

24 an opportunistic trade, is that right?

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1 A Correct.

2 Q And under opportunistic it was like sort

3 of a market-driven like -- you know what, strike

4 that. What were the market-driven or opportunistic

5 trades?

6 A They would usually be a two-legged

7 directional trade. So one trade, I remember Syria

8 released gas, you know, poison gas. We went out

9 with a call on gold because if something happened

10 over the weekend, everybody's going to rush to gold

11 as security. That's a typical -- that would be

12 typically what we say is a pure opportunistic trade

13 and it would be two-legged.

14 Q Understood. Directional in nature?

15 A Directional in nature, correct.

16 Q And so, you know, you've got a bucket of

17 cash management trades and a bucket of opportunistic

18 trades in 2019. What's the breakdown between the

19 frequency with which each one is recommended? Was

20 it like 50/50 cash management and opportunistic or

21 75/25?

22 A It would be more like 90/10.

23 Q 90 cash management --

24 A Yeah.

Page 134

1 Q -- 10 opportunistic?

2 A Opportunistic were not used heavily,

3 I mean, as the term would expect.

4 Q And among cash management, core and

5 edge, what do you think the breakdown was in 2019?

6 A More like 80/20 between core and edge.

7 Q So it sounds to me like the core trades

8 are the most commonly recommended trades, is that --

9 A Correct.

10 Q -- right?

11 A That's correct.

12 Q And core comprises volatility swaps,

13 gut strangles. Were there any other strategies that

14 were used in the core strategy in 2019?

15 A No. We got away from broken wing

16 butterflies and condors.

17 Q And so in 2018 what were the strategies

18 that were employed by Mr. Gecas?

19 A Broken wing butterfly, broken wing

20 condor, volatility swaps, calendar spreads. We

21 had one ratio spread.

22 Q You're much more expert in options

23 trading than I am, Mr. Donelson. But it sounds

24 to me based on what you listed for Gecas' trades

Page 135

1 that those are mostly nondirectional in nature,

2 is that right?

3 A Yeah, they are all nondirectional.

4 Q Okay, thank you. And then are any of

5 these two-legged spreads or are they all four-legged

6 spreads? I think you just described volatility

7 swaps, broken wing condors, broken wing butterflies,

8 ratio spreads and calendar spreads.

9 A The ratio spread is a three-legged spread.

10 Q Okay.

11 A All the others are four.

12 Q For 2018 and 2019 are there any

13 categories of trading strategy that we haven't

14 discussed?

15 A There were some opportunistic trades

16 there too, two-legged spreads, similar to what we

17 did in 2019.

18 Q In 2018, you mean?

19 A In 2018.

20 Q Similar breakdown do you think between

21 four-legged and two-legged trades? Was it 90/10 for

22 2018?

23 A Probably more 95/5.

24 MR. PLATT: Okay. I'm going to

Page 136

1 show you a document I'm going to mark as

2 C F T C Exhibit 499.

3 (Whereupon CFTC Exhibit No. 499

4 was marked for identification.)

5 Q Can you see Exhibit 499, Mr. Donelson?

6 A Yes.

7 Q This is an email from you to the

8 brokers Cybulski, Hatzigiannis and Stemper on

9 June 25, 2019, subject line Trade Recommendation

10 6-25. Then there's a bunch of attachments, right?

11 A Yeah, that is correct.

12 Q And you write, "This is a volatility

13 swap in soybeans." Do you think this was probably

14 slotted into --

15 A Core.

16 Q Slotted to the core?

17 A Yes.

18 Q Okay. And here's the actual

19 recommendation. I don't know. Does it reflect

20 on there whether it's core or edge? I don't think

21 it does.

22 A No. That became -- nobody paid attention

23 to it one way or the other, so we finally -- the

24 edge people moved their edge trades but the core

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1 people didn't. It was just a trade recommendation.

2 Q And how did you determine -- you know,

3 you just mentioned sort of a group of edge people.

4 Were those people who you knew -- I'll just ask you.

5 How did you identify that subset of customer

6 accounts?

7 A We would actually talk to the

8 customers about whether they wanted to do this

9 or not and whether they would be able to answer it.

10 So they -- we did put it in front of them, but they

11 were kind of required -- they had to agree to it.

12 Q So it sounds like the defining

13 characteristics, you know, to be in the edge

14 accounts was be able to respond quickly and desire

15 the sort of risk profile of the trade?

16 A Correct.

17 Q Put 499 to the side. So yesterday

18 you and Mr. Burden also discussed sort of at

19 length what is marked as CFTC Exhibit 470, and

20 I'll show you just to jog your memory here. And do

21 you remember the attachment to 470 is Track Record

22 Core Strategy May 20, 2019, right?

23 A Correct.

24 Q And there's this sort of -- there's

Page 138

1 a PDF with 13 trades reflecting their closed gain

2 and loss percentage, correct?

3 A Correct.

4 Q And yesterday I think you testified

5 that this was mostly gut strangles. Now it seems

6 like, you know, there may have been some volatility

7 swaps sprinkled in. It's not clear to me if that

8 had happened by this point and, frankly, it doesn't

9 matter. But this was a document that you created

10 for the purpose of tracking a category of trades,

11 right, the core strategy, right?

12 A Correct.

13 Q And CFTC Exhibit 200 is a document

14 that you and Mr. Burden discussed also and I've

15 pulled it up. It was attached to Hatzigiannis'

16 email to a client or prospective client here called

17 Edge Strategy Performance, and I'll scroll down.

18 This was another document that you created to track

19 the performance of a particular strategy, correct?

20 A Correct.

21 Q Do you remember why in Exhibit 200

22 this only starts in sort of June of 2019? Is that

23 when the edge trading really went into effect?

24 A Yes.

Page 139

1 Q Okay. Where are the documents that

2 track other Long Leaf Trading strategies besides

3 core and edge?

4 A I'm confused by the question.

5 Q So you described a set of core

6 trades, a set of edge trades. I think we also

7 talked about opportunistic trades. Like was there

8 a document like Exhibit 470 o r Exhibit 200 t h a t

9 tracked the performance of the opportunistic trades?

10 A It's all in the same file. It's just

11 filtering. So we track all of the trades on one

12 file and then if you want to see this or you want

13 to see that, it's just a filter on the same file.

14 Q Okay, that's helpful. But at certain

15 points in time you created particular documents by

16 filtering your master file to reflect only the core

17 trades and only the edge trades, right?

18 A Correct.

19 Q And we saw those on Exhibit 470 a n d

20 Exhibit 200, right?

21 A Correct.

22 Q Was there ever a time when you

23 filtered your document and created a report,

24 filtered your master document and created a report

Page 140

1 for the opportunistic trades?

2 A No, there were only a couple of them.

3 Never, never did a report on opportunistic trades.

4 Q What about trades that may not have

5 slotted neatly into any category, was there like

6 a miscellaneous report that you created from your

7 master file?

8 A No.

9 Q On your core strategy document,

10 which we saw in Exhibit 470 that you circulated

11 in May of 2019, do you remember that document?

12 A Yes.

13 Q You testified that core was volatility

14 swaps and gut strangles?

15 A Correct.

16 Q And earlier today you testified that

17 you learned how to do volatility strangles from

18 Scott Gecas, and he in fact implemented volatility

19 swaps at Long Leaf Trading in 2018. So my question,

20 Mr. Donelson, is why did you omit Gecas' volatility

21 swaps from 2018 from your core strategy track record

22 document which incorporated volatility swaps?

23 A At that time when we showed the core,

24 the core was only gut strangles. We weren't doing

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1 volatility swaps.

2 Q But there came a time where core

3 encompassed volatility swaps, right? That's your

4 testimony?

5 A Yes.

6 Q So once you sort of made that switch

7 to including volatility swaps in that category,

8 why didn't you go back and add in the complete set

9 of trades to your track record document?

10 A I don't know.

11 MR. PLATT: I'm going to mark

12 a document as CFTC Exhibit 450 -- or,

13 excuse me, as 500.

14 (Whereupon CFTC Exhibit No. 500

15 was marked for identification.)

16 Q This is -- you may recognize this

17 as an email from Gecas to Gecas on May 3, 2018,

18 and he blind carbon copies a bunch of Long Leaf

19 Trading customers. The subject is Long Leaf Trading

20 and the attachments are March Trade After Action

21 Report and April Trade Recap. Do you see those?

22 A Yes.

23 Q I'm interested in the April trade

24 report, so I'm just going to skip right down to it.

Page 142

1 We're scrolling through a bunch of fancy-looking

2 images that Mr. Gecas included in his email. This

3 is a document that Mr. Gecas circulated to Long Leaf

4 customers. This attachment is titled April Trade

5 Recap, and recall this is from May 3, 2018.

6 In the first bullet point

7 here on the first page of the April trade recap

8 document this document reads, "We are striving to

9 have four positions that match our criteria and meet

10 the program goals in place consistently throughout

11 the month. These are what we would define as Core

12 trades, which will most often be four-legged

13 spreads that are nondirectional." So this would

14 encompass volatility swaps, broken wing butterflies,

15 gut strangles, ratio spreads, right -- or not ratio

16 spreads, excuse me, but the others?

17 A Yes.

18 Q And then the second bullet point

19 says, "We are also looking to add trades which

20 exploit short-term opportunities in the market.

21 These trades we will define as opportunistic."

22 You drafted this document, right, Mr. Donelson?

23 A Correct.

24 Q So in May of 2018 Gecas is designing

Page 143

1 the trades. There's one set called core trades,

2 there's another set called opportunistic trades,

3 and then the trading goes poorly and you fire Gecas,

4 right?

5 A Correct.

6 Q And then in 2019, if I understand

7 your testimony correctly, you create a new category

8 called core, a new category called opportunistic

9 with largely overlapping characteristics, and then

10 you start with a blank slate and create a new track

11 record document, is that -- do you disagree with

12 that summary?

13 A I disagree that they were overlapping.

14 Q Okay. What parts of the core strategies

15 in 2018 don't overlap with the core strategies in

16 2019?

17 A Broken wing butterflies, broken wing

18 condors, ratio spreads. Basically the only trade

19 we carried forward was that volatility swap.

20 Q But the broad category of being a

21 four-legged option spread that's nondirectional

22 in nature, that's a common theme between the core

23 strategy in 2018 and the core strategy in 2019.

24 And, in fact, there's at least one strategy,

Page 144

1 the volatility swap, that's exactly the same.

2 Do you agree with that?

3 A Not entirely, no.

4 Q I want to make sure I understand

5 what parts don't overlap between the two years.

6 So explain your points of disagreement with that

7 statement, please.

8 A In 2018 all the options, other than

9 volatility swaps, would have the same expiration.

10 Everything going in 2019, the short options would

11 have a shorter duration than the long option.

12 Q And so with that caveat, that in

13 2019 the trades may have had legs with slightly

14 different expirations, there were still broadly

15 overlapping categories of trades between the 2018

16 core trades and the 2019 core trades?

17 A Yes, there were overlapping categories

18 of trades.

19 Q And, in fact, some of the trades were

20 exactly the same structure, the volatility swaps?

21 A Correct.

22 Q And notwithstanding the similarities

23 between these two categories of core trades, the

24 2018 category of core trades and then the 2019

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1 category of core trades, Long Leaf Trading marketed

2 the new strategy as sufficiently different from the

3 old 2018 strategy to warrant a fresh start on the

4 track record and to omit the 2018 trades, right?

5 A Agreed.

6 Q Do you think any customers were

7 confused by the use of the term core trade at

8 Long Leaf Trading to mean two slightly different

9 things?

10 A I don't know.

11 Q I'm going to go back to CFTC

12 Exhibit 477, which you looked at with Mr. Burden

13 yesterday as well. Do you recognize CFTC

14 Exhibit 477, Mr. Donelson? This is Hatzigiannis

15 to you on October 23, 2019, subject line Send Out

16 Email Permission?

17 A Yes.

18 Q And scrolling down, you know,

19 Mr. Hatzigiannis begins this email chain by

20 seeking your approval to send out a solicitation

21 email that says, and I quote, "We have closed

22 out 30 out of our past 35 trades for a profit,"

23 and he includes a link to a PDF. And I think your

24 testimony yesterday was, you know, I can't comment

Page 146

1 on what this means because I can't see the PDF.

2 Do you remember that?

3 A Correct.

4 Q I'm going to show you what I'm

5 marking as CFTC Exhibit 501, which is an email

6 from James Hatzigiannis on October 21, 2019 to

7 compliance@longleaftrading.com, subject Long Leaf

8 Update.

9 (Whereupon CFTC Exhibit No. 501

10 was marked for identification.)

11 Q Did you monitor the inbox

12 compliance@longleaftrading.com?

13 A It actually just came to my inbox.

14 Q So it automatically would go to you?

15 A Yes.

16 Q So the attachment is Long Leaf

17 Update 10.18.19.pdf. And in Mr. Hatzigiannis'

18 email to you on CFTC Exhibit 477 the attachment is

19 titled Long Leaf Update 10.18.19.pdf. Do you have

20 any reason to think that these are not the same

21 document?

22 A No.

23 Q And scrolling down to the attachment

24 that Mr. Hatzigiannis sent to you, it reflects

Page 147

1 closed trades that were entered between June 18,

2 2019 and October 15th of 2019, correct?

3 A Correct.

4 Q So either three or four months' worth

5 of trading activity depending on how you calculate

6 it from the entry or the exit, right?

7 A Correct.

8 Q And this reflects a return of $6700. It's

9 not clear the value of the account but certainly net

10 profits. Do you agree with that?

11 A Correct.

12 Q And in fact it reflects, as

13 Mr. Hatzigiannis suggests, 30 out of 35 winners

14 for this time period, right?

15 A Correct.

16 Q Let's go back to 477 now that you've

17 been able to see Mr. Hatzigiannis' attachment, and

18 you write the issue I have is that it's selective.

19 And so there was a time, Mr. Donelson, when this

20 concept of disclosing only a subset of trading

21 results struck you the wrong way.

22 My question is sort of with

23 that in mind, do any of the other documents that

24 we looked at yesterday or today where Long Leaf

Page 148

1 only discloses a subset of its trading results,

2 do any of those documents give you concern in

3 hindsight?

4 A No, because it bases it on what the

5 question the person is asking. James is talking

6 about the entire program and he's only -- that's

7 actually an account that only started in June.

8 Q I'm not sure I understand. James

9 isn't asking a question. James is sending you a

10 draft email that he hasn't sent out yet, he's not

11 responding to anyone, and he's asking you will this

12 be okay. And then --

13 A Correct.

14 Q -- and then you say I have an issue with

15 it. So what's the issue?

16 A The issue is that it only starts in June.

17 Q So it only includes a subset of Long Leaf's

18 trading activity, that's the problem?

19 A Correct.

20 Q Why is it a problem to send out

21 only a subset of Long Leaf's trading activity to

22 prospective customers?

23 A It's not showing the complete history.

24 Q Why is it important to show the complete

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1 history to prospective customers?

2 A They should see.

3 Q They should see it because it's

4 important to an investing decision to know how

5 the investment advisor performs, correct?

6 A Correct.

7 Q And it's not sufficient to show

8 the prospective investor just a subset of the

9 trading activity, correct, because it only provides

10 an incomplete picture, right?

11 A Correct.

12 MR. FALVEY: Jody, we've given

13 some leeway on going over turf and the same

14 questions that Ashley was getting at yesterday.

15 Are we -- can you get back to the 30(b)(6)

16 questions?

17 MR. PLATT: Yeah, that's fair, Jim.

18 I think these are pretty well within the list

19 of topics, but I'll move on.

20 MR. FALVEY: Thank you.

21 THE WITNESS: Can I request a quick break?

22 MR. PLATT: Sure. Yes, of course. Ten

23 minutes.

24 THE WITNESS: Thank you.

Page 150

1 MR. FALVEY: Okay.

2 (Whereupon a recess was taken from

3 2:12 p.m., to 2:20 p.m., after which

4 the following proceedings were had:)

5 BY MR. PLATT:

6 Q Mr. Donelson, earlier today we discussed

7 the trading recommendations that were sent out to

8 Long Leaf customers.

9 A Yes.

10 Q And in each recommendation do you

11 generally agree that there's information about

12 the trades and then information about the number

13 of contracts that the customers can receive?

14 A Correct.

15 Q And the trade itself, the trade

16 structure was the same for every customer who

17 received the recommendation, but there was variance

18 among the number of contracts that were recommended

19 to particular customers, right?

20 A Correct.

21 Q So I want to show you an example of

22 one to make sure that I understand it properly.

23 MR. PLATT: I'm going to mark CFTC

24 Exhibit 502.

Page 151

1 (Whereupon CFTC Exhibit No. 502

2 was marked for identification.)

3 Q Do you recognize this as an email

4 that you sent to the Long Leaf brokers on April 4,

5 2019, subject line Detail for Trade?

6 A Yes.

7 Q There's one attachment titled Trade

8 Bond Hedge for Jobs Report Detail, and your email

9 is one sentence. It says, "Here it is customer by

10 customer," right?

11 A Correct.

12 Q I'm just going to scroll down to the

13 attachment, Mr. Donelson, and it looks like sort

14 of an excerpt of an Excel file that shows the broker

15 number in one column, the account number in the

16 next column, the account name in the third column

17 and then there's a title -- there's a column with

18 the title Total. Does that reflect the number of

19 contracts that would be recommended to the customer

20 for this particular trade?

21 A Yes.

22 Q And there are a bunch of different

23 numbers in the total column. There's a 1, there's

24 a 2, there's a 3, there's a 4, there's an 8, there's

Page 152

1 a 6. So there's about four or five different

2 options in terms of the number of contracts, right?

3 A Correct.

4 Q Then the brokers would take this

5 information and relay the recommendation to the

6 customer, is that right?

7 A Correct.

8 Q What are the factors that went into

9 Long Leaf's determination concerning how many

10 contracts to recommend to a particular customer?

11 A One would obviously be the size

12 of the account. The other would be -- another

13 would be how new they are to the program and then

14 also any adjustments that had been given by the

15 client to that number in the past.

16 Q So that last item that you described,

17 adjustments by the client in the past, could that

18 be like the client may have reflected or expressed

19 a higher or lower risk tolerance in the past and

20 you're adjusting -- you are tailoring your

21 recommendation on that basis?

22 A Yes, also certain -- whether they

23 would trade the specific underlying contract

24 or not. Some customers would not trade. We

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Page 153

1 had a customer who was Muslim and would not trade

2 hogs. We had a customer who was a trader of the

3 E-mini, so he didn't want anything to do with E-mini

4 trades. We had some people, as I said earlier, that

5 traded options outside of what we were doing, that

6 they wouldn't take things that they were already

7 trading.

8 Q And this outside trading, it didn't occur

9 at Long Leaf, right?

10 A No.

11 Q So it sounds -- to sum all that up,

12 it sounds like Long Leaf knew its customers pretty

13 well and was able to tailor its recommendations

14 based on its knowledge of the clients' trading

15 preferences, right?

16 A Correct.

17 MR. PLATT: I've got one more just to

18 make sure I fully understand it. I'm going

19 to mark this as CFTC Exhibit 503.

20 Q Mr. Donelson, do you recognize this

21 as an email from -- actually, I'm sorry. We already

22 looked at this document. I've marked this as --

23 A 500, I think.

24 Q Your memory's probably better than mine.

Page 154

1 A But only for a short period of time

2 and then --

3 Q I think it's 499 if I did it right.

4 MR. FALVEY: We can say 499-1/2 if you

5 want.

6 MR. PLATT: I'm going to say 499 for the

7 sake of the record.

8 MR. FALVEY: Sounds good.

9 BY MR. PLATT:

10 Q So there are five PDF attachments to

11 this document. There's the customer list, there's

12 seven contracts, three contracts, two contracts and

13 one contract. I'm going to just scroll through them

14 very briefly. And the customer list is -- contains

15 information of the kind we saw on Exhibit 502

16 with sort of the account number, the account name

17 and then on the right-hand total column, that's the

18 number of contracts that would be recommended,

19 right?

20 A That is correct.

21 Q And then the remaining PDFs are the

22 trade recommendation documents that are tailored

23 for however many contracts are being recommended.

24 So on this document you can see on the top right

Page 155

1 above the box, "We are recommending a total of

2 7 contracts for each recommended position below,"

3 right?

4 A Correct.

5 Q And then the next PDF attachment says,

6 "We are recommending a total of 3 contracts for each

7 recommended position below," right?

8 A Correct.

9 Q So you would send this email to the

10 brokers. They would look at the customer list

11 and then disseminate the corresponding PDF based

12 on the appropriate number of contracts?

13 A Correct.

14 Q Mr. Donelson, what was an adjustment

15 trade in the context of Long Leaf, the Long Leaf

16 Trading program?

17 A There were typically two types.

18 One is we sold the short option. It expired.

19 We have a lot of long -- we have a lot of times

20 at the end it's not profitable at the moment, so

21 we'll sell another set of short options. Then the

22 one you showed me, which is a hedge of -- they were

23 in a good position. However, you know, we had a big

24 jobs report coming up. So we put a hedge in place

Page 156

1 at no commission just to protect that.

2 Q And when you would recommend trade

3 adjustments, would you recommend particular numbers

4 of -- particular amounts of contracts for particular

5 customers?

6 A It would be equal to what the

7 initial entry was. So if you had five contracts,

8 you're going to get five contracts. If you had

9 one contract, you want one contract. You can

10 still -- obviously they can, and sometimes did,

11 say no, I don't want to take the contract. But

12 we didn't want them to have two short and one long

13 and create a problem.

14 Q I understand. So for adjustment trades

15 Long Leaf Trading would go look at the customer's

16 trading history, determine what their original

17 position was and tailor the adjustment trading

18 recommendation to that prior trading activity?

19 A Yeah. We would actually download

20 it from the trading system of what their current

21 position was.

22 Q Got it. Thank you. And so we've been

23 discussing -- and just to clarify the record about

24 trading recommendations and number of contracts,

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1 this has been for the time period that you owned

2 the firm, right?

3 A Correct.

4 Q Do you have an understanding of how

5 Long Leaf determined the number of contracts for

6 customers to execute during the Evans period?

7 A I have what he told me. I don't have how

8 did that actually play out.

9 Q What did Evans tell you about how Long

10 Leaf Trading determined the number of contracts to

11 recommend for a particular trade when he owned --

12 A It was very similar to what I just

13 explained, that they look at the balance of the

14 account, the news of the account and any particulars

15 about the individual.

16 Q Thank you. Mr. Donelson, did Long Leaf

17 provide recaps or summaries of how its trading

18 activity performed for, you know, a month-long

19 period or a week-long period?

20 A We did. More was for an individual

21 asking for a complete account breakdown. The

22 trading history reports you've seen mostly because

23 it's very hard to track what we called this trade

24 into what it looks like in your statement.

Page 158

1 Q Does it ring a bell that these were

2 called like postmortems or after action reports?

3 A Yes.

4 Q What information was Long Leaf

5 trying to convey to customers with reports that

6 were titled postmortems or after action reports?

7 A It was we took this trade, you know,

8 you agreed to this trade. Here's how that trade

9 played out. Here's kind of an explanation of what

10 went on in the market.

11 Q And was the goal sort of like we want to

12 make sure customers know what's going on?

13 A Yes.

14 MR. PLATT: I'm going to show you

15 what's -- what I'm going to mark as CFTC

16 Exhibit 503.

17 (Whereupon CFTC Exhibit No. 503

18 was marked for identification.)

19 Q So if I did it right, I think I'm

20 going to show you what was probably like the first

21 postmortem or after action report that you did on

22 January 31, 2018 and the subject is January Trade

23 Recap.

24 A Yep.

Page 159

1 Q And is this sort of the first one that

2 you did --

3 A Yes.

4 Q -- once you owned the firm?

5 A Yes.

6 Q And then you write -- in this email you

7 write to the brokers, "We will follow up each month

8 with a postmortem of the trading for that month. So

9 I will update this with final results based on the

10 expected entry," is that right?

11 A Yes.

12 Q Scrolling down to the recap, the

13 attachment, it's sort of a narrative describing the

14 mechanics of the trade and the market conditions.

15 Is that a fair summary?

16 A Correct.

17 Q Did Long Leaf Trading in its

18 postmortems ever include information about the

19 profit and loss associated with a particular trade?

20 A Can you scroll down on this? I'm --

21 Q (Scrolling).

22 A Yeah. This is the first month we put

23 on long positions, so this would not have been the

24 result of the trade. This would be the entry of the

Page 160

1 trade.

2 Q Okay, that's helpful. So, Mr. Donelson,

3 my question is I've looked at quite a few of these

4 postmortems or after action reports and they

5 generally take the form of Exhibit 503, like a

6 narrative describing the structure of the trade

7 and the market conditions. But I have never seen

8 one that says, you know, Trade XYZ, if you traded

9 one contract, you would have made 400 bucks.

10 Did you ever include profit

11 and loss information in your trade recaps or your

12 after action reports?

13 A I don't remember.

14 Q During the Evans period did Long Leaf

15 Trading circulate trading recaps or after action

16 reports summarizing trading activity?

17 A I don't know.

18 Q If the goal was to increase

19 transparency into the performance of Long Leaf's

20 trading program, why didn't Long Leaf Trading

21 circulate trading results on a monthly basis along

22 with these postmortems and after action reports?

23 A I was working on a better report for

24 an individual that could go out and say here's

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1 the exact trades.

2 Q Did that ever come to fruition,

3 the better report that was tailored to individual

4 accounts?

5 A Yeah, I -- we would send them out to

6 clients, not on an ongoing basis but as requested.

7 Q When did that start? I think the

8 first one of those -- I know the documents you're

9 talking about. I think the first ones that I've

10 seen pop up in the spring of 2019. Does that sound

11 right?

12 A No, there were reports long before that,

13 I think as early as February 2018.

14 Q So Long Leaf had the ability to

15 generate reports reflecting trade-by-trade profit

16 and loss, but it only did so if requested by a

17 client and it did not do so to circulate with

18 its after action reports. Is that your testimony?

19 A I don't remember if it was in the after

20 action reports.

21 Q Well, it's not in CFTC Exhibit 503,

22 right? 503 doesn't include closed PNL information,

23 right?

24 A That was the one you just showed me?

Page 162

1 Q Yes.

2 A No, it's not in that report.

3 Q I have not seen any postmortems,

4 summaries or after action reports that include

5 closed trade PNL. Sitting here today, can you

6 identify any after action reports or postmortems

7 that include closed trade PNL?

8 A No.

9 Q But you do remember responding to

10 customer requests for PNL summaries for their own

11 individualized accounts, right?

12 A Correct.

13 Q And you generated those in response to

14 those requests?

15 A Correct.

16 Q Mr. Donelson, have you looked at the

17 CFTC's complaint in this action?

18 A Yes.

19 Q What's your understanding of the

20 nature of the legal claims against Long Leaf

21 Trading?

22 A There are charges of fraud. There

23 are charges of not being registered as a CTA, false

24 and misleading statements as a CTA, not filing the

Page 163

1 requisite documents for a CTA and registration

2 of APs.

3 Q I agree with your summary. And

4 to bucket those out, do you agree that there

5 are fraud claims and there are registration claims,

6 two different buckets?

7 A Correct.

8 Q And, you know, you're not a lawyer.

9 MR. PLATT: So, Mr. Falvey, if you want

10 to jump in on any of these questions, feel free

11 to object.

12 MR. FALVEY: Okay.

13 MR. PLATT: But just trying to categorize,

14 you know, the content of the complaint.

15 MR. FALVEY: That's fine.

16 BY MR. PLATT:

17 Q So you referenced this violation that

18 the CFTC has charged Long Leaf Trading with for

19 operating as a commodity trading advisor without

20 registration.

21 A Correct.

22 Q And that was in the complaint. And

23 my question to you, Mr. Donelson, as Long Leaf's

24 corporate designee is did Long Leaf or any of its

Page 164

1 agents ever ask a lawyer whether or not Long Leaf

2 was required to register as a commodity trading

3 advisor?

4 A Yes.

5 Q Which lawyer did you ask?

6 A Ms. Rebecca Wing.

7 Q When did you ask Ms. Wing whether

8 or not Long Leaf Trading was required to register

9 as a CTA?

10 A It's one of the responses but before

11 the acquisition and even after the acquisition

12 whether we should be registered as a CTA given

13 the facts.

14 Q I'm going to show you what I've

15 previously marked as Exhibit 355, and you just

16 referenced it. This is a document that Long Leaf --

17 I think you produced in discovery, and I'll show it

18 to you. Just take a look at it and refamiliarize

19 yourself with Exhibit 355, please.

20 MR. FALVEY: Can you blow it up a tad,

21 Jody.

22 MR. PLATT: Yeah, yep, sorry. This is

23 tiny print. Sorry about that.

24 MR. FALVEY: No worries.

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1 MR. PLATT: Is that legible?

2 THE WITNESS: Yes.

3 MR. FALVEY: Yep, thanks.

4 A Yes.

5 BY MR. PLATT:

6 Q Do you recognize Exhibit 355, Mr. Donelson?

7 A Yes, I do.

8 Q Did you draft it?

9 A Yes.

10 Q And so there are four discrete

11 conversations listed on here. I'm really only

12 interested in the first one. Do you generally agree

13 that the second, third and fourth conversations

14 listed in order from top to bottom are about your

15 registration personally as an associated person?

16 A Correct.

17 Q And the first conversation up at the

18 top is about Long Leaf's registration status as

19 a commodity trading advisor?

20 A Correct.

21 Q And the dates here are -- it's sort

22 of a broad date range, and I just want to drill

23 down on this a little bit. The dates are listed

24 as November 1, 2017 through February 28, 2018.

Page 166

1 Is this meant to capture like there was one

2 conversation during that time period, there was

3 a series of conversations? How did it work?

4 A There were a series of conversations

5 and the best way to separate it is pre-acquisition,

6 post-acquisition. So pre-acquisition we were

7 looking at the information being provided by

8 Mr. Evans. I was -- I asked her to review should

9 this be registered as a CTA.

10 Q And I take it --

11 A And after -- after acquisition is the

12 continuation of that conversation now that we have

13 more insight than what's just in the acquisition

14 documents.

15 Q In Exhibit 355 there's a sentence

16 that says, "We reviewed the requirements, looked

17 at the ongoing review of the NFA and information

18 provided by Mr. Evans." There's three discrete

19 concepts there, and I'd just like to ask you

20 about each of them. What does it mean when you

21 say we reviewed the requirements? What did you and

22 Mrs. Wing look at? Or Ms. Wing, sorry.

23 A She's obviously the lawyer in this,

24 so she reviewed all the requirements to be a CTA

Page 167

1 and what the exact rules are around that.

2 Q Do you know whether or not Ms. Wing

3 conducted any legal research on this issue?

4 A I do not.

5 Q Did she bill you for this advice?

6 A Yes.

7 Q When Ms. Wing sent you bills for legal

8 services, were you billed by the hour or was it

9 sort of a flat fee arrangement?

10 A For the acquisition it was a flat fee.

11 Q Subsequent to that?

12 A Hourly.

13 Q Did Ms. Wing ever tell you that,

14 you know, she needed to take some time to review

15 regulatory authority on these issues or did she just

16 like give you the answer sort of in the course of

17 the conversation?

18 A She didn't tell me in the conversation

19 when I asked. She came back to me a couple weeks

20 later on it.

21 Q Did she explain the basis for her legal

22 opinion?

23 A Yes.

24 Q What did she tell you?

Page 168

1 A That we did not have control of the

2 accounts.

3 Q That was the key factor for Ms. Wing

4 at that pre-acquisition conversation concerning

5 Long Leaf's registration status?

6 A Correct.

7 Q What about after the acquisition? You

8 testified that based on -- you know, I don't know

9 if you learned new information about the company.

10 You had been operating it for some time, so you

11 clearly knew more about it than what Mr. Evans had

12 told you. Did you provide -- excuse me. Strike

13 that. What additional information did you provide

14 to Ms. Wing during the post-acquisition conversation

15 concerning Long Leaf's registration status?

16 A Updates on the NFA review.

17 Q I have two questions. I'm just

18 going to ask them and I can clarify it if you

19 need them clarified. One, what review are you

20 talking about and, two, what about that review did

21 you tell Ms. Wing that was relevant to Long Leaf's

22 registration status?

23 A The review that started in August of

24 2017 and concluded in February of 2018 is the answer

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1 to the first question. Second question, basically

2 an update on the status of it.

3 Q What do you mean --

4 A We knew it was in progress at the time

5 of the acquisition. We did not have the conclusion

6 of it, which didn't happen until February.

7 Q Was there any factual information

8 connected to the fall of 2017 NFA audit that you

9 provided to Ms. Wing in connection with the post10 acquisition legal advice concerning Long Leaf's

11 registration status?

12 A I provided her the exit letter.

13 Q What did the exit letter say?

14 A Two things. One is that we needed to

15 put the number of contracts on the recommendation,

16 and the second was he needed to record the checks

17 when they were written, not when they were cashed.

18 Q Was this a letter that was addressed

19 to Long Leaf Trading?

20 A I'm not sure if it's addressed to Tim

21 Evans or Long Leaf Trading but one of those two.

22 It's from the NFA.

23 Q And was this post-acquisition conversation

24 concerning Long Leaf's registration status, do you

Page 170

1 think that happened in like February of 2018 based

2 on the registration conversations document or do

3 you think it happened later?

4 A I would say it happened near the end

5 of February once we had the final NFA document.

6 Q So by then you had a three-month sample

7 to understand the way that Long Leaf's trading

8 program operated and the extent to which Long Leaf's

9 customers followed the trading recommendations, is

10 that right?

11 A Correct.

12 Q What did Ms. Wing say in her legal opinion

13 in the post-acquisition conversation concerning Long

14 Leaf's registration status about whether or not Long

15 Leaf Trading was properly registered only as an

16 introducing broker?

17 A She reiterated that we did not have

18 control of the accounts and that we would -- did

19 not need to be registered as a CTA.

20 Q Did Ms. Wing ever ask any questions for

21 facts other than whether or not Long Leaf Trading

22 had control over the accounts?

23 A Yes.

24 Q What kinds of questions did Ms. Wing

Page 171

1 ask you?

2 A How many accounts there were, the kind

3 of rate of people accepting or, you know, declining

4 the recommendations.

5 Q Do you remember anything else she asked

6 about in connection with her advice concerning Long

7 Leaf Trading's registration status?

8 A I don't remember anything else.

9 Q Did Long Leaf Trading ever tell Ms. Wing

10 that approximately 90 percent of its revenues came

11 from the trading program?

12 A I don't remember.

13 Q Did Long Leaf Trading ever tell

14 Ms. Wing that no customers in the trading program

15 ever deviated from the structure of the trading

16 recommendation as it was recommended?

17 A I don't remember.

18 Q Did Long Leaf Trading attempt to describe

19 the frequency with which customers accepted its

20 trading recommendations?

21 A I don't remember.

22 Q Did Long Leaf Trading tell Ms. Wing that,

23 you know, to the extent any customer deviated from

24 the trading recommendation, the only deviation was

Page 172

1 a minor detail of the number of contracts, and even

2 then it was at most 5 percent of the customers for

3 any particular trade?

4 A Ask that question again, please.

5 Q Concerning information provided to

6 Ms. Wing in connection with legal advice about

7 whether or not Long Leaf Trading was required to

8 register as a commodity trading advisor, did Long

9 Leaf Trading tell Ms. Wing or any of its agents or

10 employees tell Ms. Wing that the only deviations

11 from the recommended trades by trading program

12 customers related to the number of contracts that

13 would be executed and if there was deviation, it

14 only occurred in, as you testified, 5 percent of the

15 trading recommendations?

16 A No.

17 Q Did Long Leaf Trading in connection

18 with seeking legal advice from Ms. Wing on the

19 issue of whether or not it should register as a

20 commodity trading advisor, did Long Leaf Trading

21 ever tell Ms. Wing that among the trading program

22 participants, no customers executed trades other

23 than the recommended trades?

24 A I don't remember.

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1 Q Were there any documents or notes

2 reflecting these conversations?

3 A They're mostly phone calls.

4 Q Ms. Wing never like put in an email

5 here's my justification --

6 A Not that I know of.

7 Q Well, it would have gone to your Long

8 Leaf Trading email probably, right?

9 A I would assume so, yes.

10 Q I know you're not a lawyer,

11 Mr. Donelson, but did you ever conduct any

12 searches on the internet or otherwise about when

13 an introducing broker is required to dually register

14 as a commodity trading advisor?

15 A I only looked at the NFA website, which --

16 Q What information did you learn from

17 the NFA website on the issue of whether or not Long

18 Leaf Trading may be required to dually register as

19 an introducing broker and a commodity trading

20 advisor?

21 A It listed five things, the first one

22 being you had to have discretion over the account.

23 The second one had to do with numbers of people

24 that you sent the recommendation to. To be honest,

Page 174

1 I don't remember all the other three.

2 Q Your recollection is that the

3 NFA website says that only introducing brokers

4 that have discretion over customers' accounts are

5 required to register as commodity trading advisors?

6 A That's what it said, yes.

7 Q Or do you think maybe it says having

8 discretion over a customer's account is sufficient

9 but not necessary to require dual registration as an

10 introducing broker and commodity trading advisor?

11 A I turned the matter over to Ms. Wing,

12 who's a lawyer, and took her advice on whether we

13 should be registered or not.

14 Q Mr. Donelson, I understand that you

15 asked Ms. Wing or you say that you asked Ms. Wing

16 for legal advice on this issue. What I'm trying to

17 get at is did you ever do any independent research

18 as a very well-educated corporate professional

19 that would call into question her -- the advice

20 that she gave you? Did you ever question her and

21 say, Ms. Wing, I looked at the NFA website and they

22 had a bunch of factors and we hit all of them? Did

23 you ever say something like that? Was there ever

24 a conversation of that nature?

Page 175

1 A No.

2 Q Upon reviewing the NFA website, as

3 you described, did you ever think to yourself that

4 Long Leaf met the criteria that were listed by the

5 NFA?

6 MR. FALVEY: Objection. As Jody has

7 pointed out before, Mr. Donelson is not an

8 attorney, but go ahead and answer.

9 A Parts of it did, parts of it didn't.

10 I relied on her expertise in the field.

11 BY MR. PLATT:

12 Q You testified earlier that Ms. Wing

13 told you that the reason that Long Leaf did not

14 have to register as a commodity trading advisor

15 was because it did not exercise discretion over

16 customer accounts. Did it ever make you question

17 her expertise to know that her advice didn't line

18 up with the factors listed on the NFA website?

19 MR. FALVEY: Objection as to the

20 characterization as to whether her advice

21 lined up with the NFA website, but go ahead.

22 THE WITNESS: I forgot the question now.

23 MR. PLATT: Sure, I'll ask it again.

24 And, Mr. Falvey, your objection can stand.

Page 176

1 I understand where you're coming from.

2 MR. FALVEY: Sure.

3 BY MR. PLATT:

4 Q I think -- let me break it down so

5 it's a better question. You testified I think

6 that Ms. Wing told you that the key factor was that

7 Long Leaf Trading did not exercise discretion over

8 customer accounts, right?

9 A Correct.

10 Q Did she say any other factors that

11 were important to her legal opinion that Long Leaf

12 Trading did not need to register as a commodity

13 trading advisor?

14 A No.

15 Q Did it give you cause for concern

16 as a business owner and educated professional

17 to know that her legal advice did not consider

18 the factors that were listed on the NFA website,

19 all of the factors?

20 MR. FALVEY: Same objection. Sorry,

21 same objection as before.

22 A No, I did not.

23 BY MR. PLATT:

24 Q So earlier today you testified that

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Page 177

1 you knew what an associated person was in the

2 context of the futures industry. Can you just,

3 please -- I apologize if you already answered this.

4 Who is required functionally to register as an

5 associated person?

6 A Anybody who solicits clients or manages

7 the solicitation of clients.

8 Q What if you solicit orders, would that

9 qualify too?

10 A I believe so.

11 Q In connection with your due diligence in

12 acquiring Long Leaf Trading Group, did -- actually,

13 strike that. When you became the principal of Long

14 Leaf Trading Group, did Long Leaf undertake any

15 analysis to determine whether or not all its brokers

16 were properly registered as associated persons?

17 A Yes, we reviewed NFA BASIC.

18 Q Do you remember what the results of that

19 review were?

20 A I remember that every one of our

21 brokers was registered and Andrew Nelson had

22 a temporary license.

23 MR. PLATT: I'm going to mark CFTC

24 Exhibit 504.

Page 178

1 (Whereupon CFTC Exhibit No. 504

2 was marked for identification.)

3 Q I'll represent to you, Mr. Donelson,

4 that this is a printout of Andrew Nelson's NFA

5 BASIC registration information. Do you recognize

6 this, the format of this information?

7 A Yes.

8 Q And I'll scroll through it.

9 A Yes, I do recognize the format.

10 Q I've just scrolled through the whole

11 document. It's a two-page PDF. And under Long Leaf

12 Trading Group, there are two dates for September 5,

13 2017 listed. One is associated person pending. The

14 other is NFA associate member pending. Is that --

15 do you think that's the information that you saw

16 when you looked up Andrew Nelson's registration

17 status?

18 A Yes, that's what I believe it is.

19 Q Did there come a time when you learned

20 that the NFA was going to initiate a registration

21 disqualification proceeding against Mr. Nelson?

22 A Yes, I did.

23 Q When was that?

24 A Sometime in February of 2018 I think,

Page 179

1 about a couple months in. It was in February or

2 January. I can't remember.

3 (Whereupon CFTC Exhibit No. 505

4 was marked for identification.)

5 Q So I'm just going to show you CFTC

6 Exhibit 505, which is not inconsistent with your

7 testimony. This is a January 25, 2018 email from

8 you to Mr. Evans, the former principal of Long

9 Leaf. You write, "Got a letter today on Andrew.

10 They are initiating a registration disqualification

11 proceeding where he request a hearing unless he

12 withdraws the application. Is this standard

13 procedure? Not familiar with this."

14 Do you recognize this as an email

15 that you wrote to Evans?

16 A Yes.

17 Q Does this refresh your recollection that

18 you probably learned about the disqualification

19 proceeding against Mr. Nelson in late January 2018?

20 A Yes.

21 Q After you received this information

22 that you described as something you weren't familiar

23 with, did you permit Mr. Nelson to continue acting

24 as an associated person?

Page 180

1 A I did.

2 Q Did you ever ask anyone -- or you

3 asked Mr. Evans is this standard procedure. Do you

4 remember if Mr. Evans responded to you?

5 A He did. I don't remember, but he didn't

6 really understand the procedure either -- proceeding

7 either.

8 Q Did you ask Ms. Wing about -- in late

9 January 2018 about whether or not --

10 A Yeah, I did, I did.

11 Q So let me just finish the question,

12 and we've been talking over each other --

13 A Okay.

14 Q -- a little bit today. It's mostly my

15 fault and I apologize. Did you ask Ms. Wing around

16 the time you received Exhibit 505 whether or not you

17 should continue to permit Mr. Nelson to interact

18 with customers and solicit prospective customers?

19 A No. I asked her what this was and what

20 I had to do.

21 Q What did she say?

22 A We were talking about the procedure

23 itself, that we would have to file something,

24 and we sent the filing over. I don't know when.

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1 Q So was the conversation more around

2 what to do with the hearing that you reference in

3 your email here to Mr. Evans?

4 A Correct.

5 Q It wasn't about whether or not Mr. Nelson

6 should continue to operate in a customer-facing role

7 while the hearing was pending, is that accurate?

8 A That's accurate.

9 Q And Ms. Wing never told you around this

10 time to take Mr. Nelson out of a customer-facing

11 role?

12 A No.

13 Q I have a couple questions about the

14 Evans era, Mr. Donelson, just because --

15 A Okay.

16 Q -- just because some of your

17 answers today have indicated some knowledge of

18 the documentation from the Evans era but less than

19 perfect information about what was going on in the

20 office under normal practices and procedures.

21 Is that fair?

22 A That's fair.

23 Q During the Evans era was Long

24 Leaf Trading aware that its trading recommendations

Page 182

1 resulted in consistent losses for customers?

2 A I don't know how they wouldn't know

3 that, but how many people knew what was going on,

4 I don't know.

5 Q It sounds like, you know, your

6 answer is you're sort of speculating based on

7 your reconstruction of or analysis of documentation

8 and not on, you know, everyone was talking about

9 losses in the office kind of thing?

10 A Yeah, I don't know whether they were --

11 how widespread. But if you were a broker working

12 for Tim Evans, it's hard not to see the losses if

13 you're getting a report every day.

14 Q Do you know whether the brokers from the

15 Evans era received reports every day?

16 A I believe they were emailed from Gain

17 every day based on the broker code. That was the

18 procedure -- that was the process when I acquired

19 the firm, and I don't think Gain changed their

20 process.

21 Q And you say anyone who looked at those

22 daily customer account statements should know that

23 customers are losing money over time. What is it

24 about the customer account statements that would

Page 183

1 show that?

2 A If you're showing a dwindling net liq --

3 net liquidating value.

4 Q And all the Long Leaf brokers had the

5 relevant skills and training to understand those

6 concepts, is that right?

7 A I can't speak for the Evans period.

8 The brokers that worked for me, yes.

9 Q Do you know which scripts Long

10 Leaf followed during the Evans era? Earlier you

11 testified that in 2017 the script matched the script

12 that existed in the early part of 2018. But beyond

13 that do you have any understanding of what scripts

14 Long Leaf used during the Evans era?

15 A Not really.

16 Q Do you know whether Long Leaf during the

17 Evans era told customers that it would use option

18 selling strategies to drive results?

19 A I don't know specifically.

20 Q Do you know during the Evans era

21 if the brokers told prospective customers that if

22 you sell four options, there is a strong statistical

23 likelihood that you're going to win on three of

24 those, giving you a much more predictable path

Page 184

1 to success? Did Long Leaf use that line with

2 prospects during the Evans era?

3 A I don't know for sure. I've heard it.

4 I don't know if they continued to be -- used it

5 all the time.

6 Q In what context did you hear that line

7 during the Evans era?

8 A They were talking in terms of the CME

9 study from 1999.

10 Q And you heard this on recorded calls,

11 is that right?

12 A Yeah.

13 Q Did you ever listen to a recorded call

14 of Jeremy Ruth?

15 A I don't remember.

16 Q During the Evans era did Long Leaf

17 Trading tell customers and -- tell prospective

18 customers that as a company we wouldn't have the

19 ability to work with hundreds of clients month

20 after month for six years and oversee millions of

21 dollars if we weren't being profitable for them?

22 A I don't know.

23 Q During the Evans era did Long Leaf

24 disclose to prospective customers complete and

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Page 185

1 accurate track record information concerning the

2 trade recommendations?

3 A I have no records of it.

4 Q Do you know one way if they did or they

5 didn't?

6 A I'm just saying I have no record of them

7 ever doing it.

8 Q And you have no independent knowledge

9 other than the lack of recordation?

10 A Correct.

11 Q Did anyone at Long Leaf ever talk about

12 Jeremy Ruth during the time period you owned the

13 firm?

14 A Yes.

15 Q What did they say about him?

16 A He was a good salesman. He was hard

17 to work with. Those were the two main things.

18 Q Who told you those two things about

19 Mr. Ruth?

20 A I'm paraphrasing the conversation

21 with multiple, but that's -- the ones that had

22 been there. I think Connor was there. I think

23 James was there. I think Andrew and Scott may have

24 been there, but a lot of the brokers had not been

Page 186

1 there when Jeremy was there.

2 Q Based on the statements of brokers

3 whose time overlapped with Mr. Ruth's time and with

4 your time, you had an understanding that Mr. Ruth

5 was a good salesman?

6 A He was good at sales and he was very,

7 very difficult to work with.

8 Q And just so the record's clear, Mr. Ruth

9 did not work at Long Leaf during the time you worked

10 there, right?

11 A Correct.

12 Q Did Mr. Hatzigiannis or Mr. Campo

13 or any of the other brokers who overlapped with

14 Mr. Ruth and with you, did they describe what made

15 Mr. Ruth good at sales?

16 A I don't remember any specific comments,

17 you know, but he was -- as they said, he was good

18 at talking to the client. He was good at, you know,

19 getting them over their objections, so on and so

20 forth.

21 Q Did any of the Long Leaf brokers whose

22 time overlapped with Jeremy Ruth ever tell you that

23 Mr. Ruth made misleading or untrue statements in

24 the context of soliciting customers to Long Leaf

Page 187

1 Trading?

2 A I don't know.

3 Q Why was Mr. Ruth fired at Long Leaf?

4 A I do not know. It was before I got there.

5 MR. PLATT: Okay. Can we take, you

6 know, a ten-minute break? I'm close to done.

7 I just want to make sure that I've covered all

8 the topics that I want to.

9 MR. FALVEY: Sure.

10 THE WITNESS: Sure.

11 MR. PLATT: Thanks. Let's go off the

12 record.

13 (Whereupon a recess was taken from

14 3:24 p.m., to 3:40 p.m., after which

15 the following proceedings were had:)

16 Q Mr. Donelson, earlier when we

17 were discussing your track record documents,

18 you referenced a master file.

19 MR. PLATT: I'm going to mark an exhibit

20 as CFTC Exhibit 506.

21 (Whereupon CFTC Exhibit No. 506

22 was marked for identification.)

23 Q This is a file titled Trading Performance

24 Tracking Data Long Leaf 2019. This was produced to

Page 188

1 CFTC in discovery. It's a multi-tab spreadsheet.

2 The first half of it is titled CoreData. Is this

3 the master tracking file you were referencing?

4 A Yes.

5 Q And there's an Account tab --

6 A Yeah.

7 Q -- that I just clicked on.

8 A Yes.

9 Q Is this the tab that you would filter to

10 create your reports concerning strategy-by-strategy

11 analysis?

12 A I think it would be either the Historical

13 or the Report tab.

14 Q I just clicked on the Report tab.

15 This looks like the tab that you would use to

16 generate --

17 A Yeah.

18 Q -- individual reports?

19 A That would be individual reports, and

20 then I think the Historical or the Summary would be,

21 you know.

22 Q This is the Historical tab, but it

23 doesn't look to me like it's filtered. So is

24 there a tab that contains all the data that would

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Page 189

1 be filtered?

2 A Look at the Summary tab. No, it's

3 all the data that was created. I just don't see

4 the tab --

5 Q The Detail file looks like it is filtered,

6 the Detail tab.

7 A Yeah.

8 Q Is there a flag or a piece of data in

9 here that you would associate with the strategy?

10 A I don't see where it has the strategy

11 in there.

12 Q So can you walk me through how you

13 would create a report associated with a particular

14 strategy?

15 A There should be a strategy next to

16 each one of the trades. That's why I'm confused.

17 It had multiple versions of this. So, I mean, like

18 it would not -- I'd never go back to a previous

19 version but I would go forward to a different

20 version, but all the data would stay the same.

21 Q This is the one that was produced

22 in discovery. So it sounds like either this file

23 or a file like it you were able to manipulate --

24 A Yeah.

Page 190

1 Q -- or filter to produce strategy2 by-strategy or customer-by-customer reports --

3 A Yes.

4 Q -- in 2019, is that generally correct?

5 A That's generally correct, yes.

6 Q I just want to turn back very briefly

7 to your discussions with Ms. Wing concerning Long

8 Leaf Trading's registration as an introducing broker

9 or commodity trading advisor. You said that you

10 clicked around the NFA website and identified a

11 list of factors that were relevant to the analysis,

12 and I just want to understand what it was that you

13 learned independently of your legal advice about

14 what factors were relevant to this analysis.

15 A Like I said, there were five factors

16 and the first one being that you had to have control

17 or discretion over the account, which we didn't

18 have. And the rest of them were about -- I kind

19 of stopped looking there after it says you have to

20 have discretion, which is the advice that she gave

21 me, "she," the lawyer.

22 Q And you don't remember what those other

23 factors were?

24 A I have a general -- one had to do with

Page 191

1 how many would be sent out to -- or how -- if it

2 would be sent out to X number of people. I don't

3 remember the other two or three.

4 Q And this is potentially a minor detail,

5 but I want the record to be clear. Earlier you

6 said that your independent research reflected that

7 the broker had to have control or discretion. Was

8 there a difference to your mind between the concept

9 of control and the concept of discretion?

10 A No.

11 Q And what did those terms mean to you

12 before you received legal advice?

13 A I didn't even look at the NFA website

14 before I received legal advice. This was before

15 the acquisition.

16 Q When do you think you looked at the NFA

17 website?

18 A I'd say February 2018. I think I

19 was looking at some other registration issues

20 or something but kind of driving around the NFA

21 website.

22 MR. PLATT: I think that's all the

23 questions that I had. Mr. Falvey, did you

24 have any clarifications you wanted to ask

Page 192

1 the witness?

2 MR. FALVEY: I do not. I'd like

3 to thank you for your professionalism and

4 civility, Mr. Platt. I do appreciate it.

5 So thank you for that.

6 MR. PLATT: It's my pleasure. I thank

7 you, Mr. Donelson, for appearing on behalf

8 of Long Leaf for a second day of depositions.

9 I know it's a long day. So with that, we can

10 go off the record.

11 MR. FALVEY: Thank you.

12 (WITNESS EXCUSED)

13

14

15

16

17

18

19

20

21

22

23

24

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Page 193

1 IN THE UNITED STATES DISTRICT COURT

 NORTHERN DISTRICT OF ILLINOIS

2 EASTERN DIVISION

3 COMMODITY FUTURES TRADING )

 COMMISSION, )

4 )

 Plaintiff, )

5 )

 vs. ) No. 20 C 3758

6 )

 LONG LEAF TRADING GROUP, )

7 INC., et al., )

 )

8 Defendants. )

9

10

 I, JAMES A. DONELSON, do hereby certify

11 that I have read the foregoing transcript of my

 remote 30(b)(6) deposition given on June 24, 2021,

12 consisting of pages 1 to 195, inclusive, and I do

 again subscribe and make oath that the same is a

13 true, correct and complete transcript of my

 deposition so given as aforesaid, and includes

14 changes, if any, so made by me.

15

 Corrections have been submitted

16 No corrections have been

 submitted

17

18

 JAMES A. DONELSON, Deponent

19

 Subscribed and sworn to

20 before me this day of

 , 20

21

 Notary Public

22

23

24

Page 194

1 NORTHERN DISTRICT OF ILLINOIS )

EASTERN DIVISION )

2 STATE OF ILLINOIS )

 ) SS.

3 COUNTY OF COOK )

4

5 I, Mary Maslowski, Certified Shorthand

6 Reporter and Notary Public in and for the County of

7 Cook, State of Illinois, do hereby certify that on

8 June 24, 2021, at 9:07 a.m., the remote deposition

9 of the witness, JAMES A. DONELSON, called by the

10 Plaintiff, was taken before me, reported

11 stenographically and was thereafter transcribed

12 by me.

13 The said witness, JAMES A. DONELSON, was

14 first duly sworn to tell the truth, the whole truth,

15 and nothing but the truth, and was then examined

16 upon oral interrogatories.

17 I further certify that the foregoing

18 is a true, accurate and complete record of the

19 questions asked of and answers made by the said

20 witness, at the time and place hereinabove referred

21 to.

22 The signature of the witness was not waived

23 by agreement.

24 The deposition terminated at 3:50 p.m.

Page 195

1 Pursuant to Rule 30(e) of the Federal

2 Rules of Civil Procedure for the United States

3 District Courts, if deponent fails to read and sign

4 this deposition transcript within 30 days or make

5 other arrangements for reading and signing thereof,

6 this deposition transcript may be used as fully as

7 though signed, and the instant certificate will then

8 evidence such failure to read and sign this

9 deposition transcript as the reason for signature

10 being waived.

11 The undersigned is not interested in the

12 within case, nor of kin or counsel to any of the

13 parties.

14 Witness my official signature and seal as

15 Notary Public, in and for Cook County, Illinois on

16 this 14th day of July, A.D., 2021.

17

18

19 Mary Maslowski, CSR, RPR

 Notary Public

20 79 West Monroe, Suite 1001

 Chicago, Illinois 60603

21

22

23

24

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