Court Opinion

ID: 3069701
Source: CourtListenerOpinion
Date Created: 2015-10-16 00:15:01.958494+00
Date Added: 2024-06-11T09:46:49.428459
License: Public Domain

Case: 11-20633       Document: 00512068034         Page: 1     Date Filed: 11/29/2012

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                                            FILED
                                                                        November 29, 2012

                                     No. 11-20633                          Lyle W. Cayce
                                   Summary Calendar                             Clerk

U.S. COMMODITY FUTURES TRADING COMMISSION,

                     Plaintiff - Appellee

v.

MARK E. RICE,

                     Defendant - Appellant

                   Appeal from the United States District Court
                        for the Southern District of Texas
                              USDC No. 4:11-cv-2446

Before JONES, SOUTHWICK, and HIGGINSON, Circuit Judges.
PER CURIAM:*
       The United States Commodity Futures Trading Commission (“CFTC”)
brought a civil action against defendant Mark Rice, among others, alleging
violations of the Commodity Exchange Act (“CEA”), 7 U.S.C. § 1 et seq. (2006),
as amended by the Food, Conservation and Energy Act of 2008, Pub. L. No. 110-
246, Title XIII (the CFTC Reauthorization Act of 2008 (“CRA”)), §§ 13101-13204,
122 Stat. 1651 (enacted June 18, 2008). The complaint alleges that defendant

       *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
    Case: 11-20633      Document: 00512068034       Page: 2    Date Filed: 11/29/2012

                                   No. 11-20633

Financial Robotics, Inc. (“FinRob”), acting through its agent defendant Rice,
made fraudulent misrepresentations by which it obtained approximately $10
million belonging to 125 fraud victims. On August 8, 2011, the district court
granted the CFTC’s motion for a preliminary injunction against Rice freezing his
assets. Rice appeals the grant of a preliminary injunction (ECF No. 34) and two
supplemental orders (ECF Nos. 40 and 43) that extended a statutory restraining
order and confirmed the appointment of a receiver, and added other entities to
the list of enjoined parties.
                                 BACKGROUND
      Rice was an officer and agent of FinRob. FinRob was incorporated in
Texas in 1998 and operated as an unregistered intermediary in off-exchange
foreign currency trading (“forex”) prior to its involuntary dissolution in
November of 2009. The CFTC alleges that Rice, as part of a scheme operated
from 2006 through February 2009, fraudulently solicited and obtained
approximately $10 million from Robert P. Copeland on the pretext that it would
be invested “risk free” in forex contracts.
      Copeland stated by declaration that Rice induced him to invest
approximately $10 million in forex trading based on fraudulent representations.
Rice and Copeland met at a financial seminar in Los Angeles, California.
(Copeland Decl. ¶ 3, R. at 253.)          Copeland was looking for investment
opportunities offering higher returns for money he had obtained defrauding
investors (for which he is currently incarcerated).1 Copeland spoke with Rice
multiple times on the telephone and met him in person. Rice told Copeland that
the automated forex software trading program that Rice had developed for
FinRob was tested as capable of generating “phenomenal returns” of up to 30%
per month and that the investment would be “risk free” because FinRob

      1
       Copeland’s fraud is unrelated to Rice’s apart from Rice being the only source of
remuneration available to Copeland’s victims.

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                                   No. 11-20633

maintained an insurance policy to protect the principal, and because only a
small portion of the principal would be invested at any given time. (Id. ¶ 3–4,
R. at 253–54.) Rice also told Copeland that “his actual forex trading was
generating returns of 5–10% per month” and that he “guaranteed . . . [he] would
not lose any of [his] principal.” (Id. ¶ 4, R. at 253–54.) Rice told Copeland that
he owned two companies—Commodity Futures and Options Services Inc.
(“CFOS”)2 and FinRob. (Id. ¶ 5, R. at 254.)
      Over a period of time, Copeland wired approximately $10 million to
FinRob and another entity under Rice’s control. In January of 2007, Copeland
opened a trading account at Interbank FX and deposited approximately
$500,000 at Rice’s direction. (Id. ¶ 7.) After experiencing some losses, Rice told
Copeland that he could avoid future losses by withdrawing his funds from the
Interbank FX account and depositing them directly with Rice. (Id. ¶ 8–9.) Rice
further convinced Copeland to wire another approximately $9 million to accounts
held by CFOS and FinRob, ostensibly to be invested in forex trading. (Id. ¶ 10,
R. at 255.) Between July 2007 and September 2008, Rice wired approximately
$1.5 million to Copeland as purported earnings on Copeland’s forex investments.
(Id. ¶ 11.) Rice told Copeland weekly over the phone that Copeland’s funds
“consistently earned returns between 5–9% per month and experienced no
losses.” (Id. ¶ 12.) Copeland broached liquidating his investment with Rice at
a September 2008 meeting. (Id. ¶ 13.) At that time, Rice provided Copeland an
account statement showing a balance of more than $15 million. (Id. Ex. H, R.
at 297.)   Rice asserted that if Copeland kept his money with Rice, then

      2
       Hal Swanson, former president of CFOS, testified that Rice was a part owner of
CFOS. (R. at 667.)

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Copeland’s account balance would increase to approximately $20 million by
January of 2009. (Id. ¶ 13.)3
       In late October 2008, Rice told Copeland that he had some “margin
problems” that he had to travel to England to address. (Id. ¶ 14, R. at 256.) In
mid-November 2008, Rice told Copeland that all of Copeland’s money was gone.
(Id. ¶ 15.) In February 2009, Rice told Copeland, in response to a question about
the insurance policy, that Copeland’s investment had not been insured. (Id. ¶
16.) Rice later sent Copeland approximately $770,000 in repayment. (Id. ¶ 17.)
       On June 29, 2011, the CFTC filed a complaint and an ex parte motion for
a statutory restraining order against Rice and FinRob. The CFTC asked for an
order freezing the defendants’ assets, appointing a temporary receiver,
permitting the CFTC to inspect the defendants’ records, and ordering the
defendants not to destroy records. On June 30, 2011, the district court entered
a restraining order that demanded an accounting be delivered by the defendants
within five days of service. On August 8, 2011, the district court granted the
CFTC’s motion for a preliminary injunction (ECF No. 34) and later provided two
supplemental orders (ECF Nos. 40 and 43). On September 6, 2011, Rice filed a
notice of appeal of those three orders.
       Rice objected to the accounting on the basis that it violated his Fifth
Amendment right against self-incrimination. After the preliminary injunction
was granted, he submitted three loose leaf notebooks for in camera review,
claiming they contained information privileged under the Fifth Amendment.
The district court reviewed those materials in camera prior to the show cause
hearing on September 19, 2011. (R. at 1090.) In open court at the hearing, the
district court addressed Rice’s objections by explaining that only records, and not

       3
       In a section of a motion to dismiss styled as an Answer, Rice admitted to handling
investments for Copeland but denied making any guarantees as to risk, returns, or insurance.
(ECF No. 20.)

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                                  No. 11-20633

explanations of those records, as Rice had assumed, were required for an
accounting. At another show cause hearing held on October 4, 2011, Rice
testified extensively as to the contents of those records.
                          STANDARD OF REVIEW
      “The standard of review for the granting of a preliminary injunction is
whether the district court abused its discretion.” Holland Am. Ins. Co. v.
Succession of Roy, 772 F.3d 992, 997 (5th Cir. 1985). The plaintiff has the
burden of introducing sufficient evidence to justify the grant of a preliminary
injunction. Canal Auth. of the State of Fla. v. Callaway, 489 F.2d 567, 578-79
(5th Cir. 1974).
                                 DISCUSSION
I.    Sufficiency of Evidence
      Rice contends that the district court did not have sufficient evidence to
grant the preliminary injunction. Under the CEA, it is unlawful for any person
“to cheat or defraud or attempt to cheat or defraud” another person in connection
with a commodity futures contract, 7 U.S.C. § 6b(a)(2)(A), or “willfully to deceive
or attempt to deceive the other person” in connection with a commodity futures
contract or order, or in acting as an agent for such contracts or orders, id.
§ 6b(a)(2)(C). Section 6c of the CEA, 7 U.S.C. § 13a-1, authorizes the CFTC to
seek injunctive relief against any person whenever it appears that that person
has engaged, is engaging, or is about to engage in any act or practice
constituting a violation of any provision of the CEA or any rule, regulation, or
order thereunder.
      The primary question at hand is whether sufficient evidence was
presented to establish that Rice willfully deceived Copeland by stating that
Copeland’s investment would be “risk free” and that it was insured. The CFTC
relies entirely on Copeland’s declaration to establish these facts.        In that
declaration, Copeland stated that Rice told him his forex trading software was

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                                  No. 11-20633

capable of generating “phenomenal returns” of up to 30 percent per month, that
his investment would be “risk free,” that only a small portion of his principal
would be invested, that his principal would be insured, and that he was
guaranteed not to “lose any of [his] principal.” Rice objects that this was the only
evidence relied on by the district court to establish fraud and that he did not
have a chance to cross-examine Copeland. However, Rice did not provide any
evidence in rebuttal, not even a personal affidavit. Nor did he seek to bring
Copeland into court so he could be cross-examined. The CFTC met its burden
of production by supplying Copeland’s uncontradicted declaration, and Rice
failed to provide evidence in rebuttal. As there are no other required elements
in doubt, the district court relied on sufficient evidence.
II.    Peripheral Claims
       Rice also argues that the trial court did not have jurisdiction over
transactions which occurred prior to 2008, that the trial court erred by denying
his claim of Fifth Amendment privilege, and that the trial court erred in
authorizing the receiver to freeze and dispose of Rice’s assets. Each of these
arguments is unavailing.
       Rice filed a motion to dismiss, for lack of subject matter jurisdiction, all
claims based on transactions which occurred prior to June 18, 2008, on the basis
that the CFTC lacked jurisdiction over such transactions before the CRA was
passed (ECF No. 34.) The district court denied Rice’s motion from the bench on
September 19, 2011, eleven days after Rice filed this appeal. An order that does
not yet exist cannot be appealed, nor can an order be added to an appeal post
hoc. NCNB Tex. Nat’l Bank v. Johnson, 11 F.3d 1260, 1269–70 (5th Cir. 1994).
Nor is the denial of a motion to dismiss an appealable, final order. In re Greene
Cnty. Hosp., 835 F.2d 589, 596 (5th Cir. 1988).
       Rice argues that the district court should have first reviewed in camera
materials he claimed were privileged under the Fifth Amendment before it

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                                   No. 11-20633

granted the CFTC’s motion for preliminary injunction. However, the district
court did eventually review in camera the materials provided by Rice. At the
subsequent show cause hearing, held on September 19, 2011, the district court
informed Rice that only records, not his explanation of those records, was
necessary for the required accounting. Further, Rice later testified extensively
as to the contents of those records at another show cause hearing held on
October 4, 2011. (R. at 792, 798, 806–07.) If mootness “means anything, it
means in most cases that one cannot successfully appeal when a district judge
has already given the relief sought in the court of appeals.” United States v.
Davis, 103 F.3d 48 (7th Cir. 1996). A defendant “may knowingly and voluntarily
waive many of the most fundamental protections afforded by the Constitution,
including . . . the privilege against compulsory self-incrimination.” United States
v. Dodson, 288 F.3d 153, 160 (5th Cir. 2002) (internal quotation marks omitted).
Based on these facts, Rice’s Fifth Amendment claims are all mooted, waived, or
both.
        Rice also urges us to hold that the district court erred in authorizing the
receiver to freeze and dispose of Rice’s assets without proof that such assets were
derived from a fraudulent activity and without a trial on the merits. The court’s
order authorizing a sale was not, however, entered until January 2012; was not
within the scope of the September notice of appeal; and has never been properly
appealed. We lack jurisdiction to consider this order.
                                 CONCLUSION
        Because the district court relied on sufficient evidence in granting the
CFTC’s motion for a preliminary injunction and because each of Rice’s other
arguments are without merit, the district court’s judgment is AFFIRMED.

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