Cftc v. James Crombie
914 F.3d 1208
9th Cir.2019Background
- Crombie co-founded Paron Capital Management in 2010 and marketed a trading model for stock‑index futures to investors.
- The CFTC alleged Paron’s marketing materially overstated past performance and assets under management (e.g., claimed $35M AUM and 38.6% 2008 returns) and that Crombie provided false information to the National Futures Association (NFA) during its investigation.
- District court granted summary judgment for the CFTC on multiple counts under the Commodity Exchange Act (CEA), including 7 U.S.C. §§ 6b(a)(1)(A)–(B), 6o(1), and § 13(a)(4), and entered remedies: $750,000 civil penalty, ~$746,460 restitution, and a broad permanent injunction.
- Crombie conceded falsity of many statements but challenged (1) the district court’s mens rea standard for “willfully” under § 13(a)(4), and (2) some remedies and scope of the injunction.
- Ninth Circuit held the criminal‑statute meaning of “willfully” in § 13(a)(4) applies in civil enforcement (i.e., knowingly false or reckless as to falsity), affirmed liability on disputed misstatements, affirmed restitution and many injunctive provisions, but vacated and remanded two injunction provisions for further explanation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper meaning of “willfully” in § 13(a)(4) when enforced civilly | CFTC: apply the criminal meaning in §13(a)(4) (knowingly false or reckless) | Crombie: district court applied a civil intent standard; he argued that standard should govern here | Court: §13(a)(4) is a criminal provision so its criminal mens rea applies in civil enforcement; willful = knowingly false or reckless as to falsity (affirmed) |
| Whether genuine disputes of fact exist on willfulness for specific NFA statements | CFTC: Crombie knew or recklessly disregarded falsity of account statements, payment characterization, and $50k treatment | Crombie: innocent mistakes; used terms interchangeably; relied on third‑party reports | Court: no genuine dispute—evidence shows knowledge or reckless disregard; summary judgment affirmed |
| Scienter required under §§ 6b(a)(1)(A)–(B) and 6o(1) for marketing misrepresentations | CFTC: Savage standard—knowledge required for §6b; §6o requires intentional conduct for covered advisers | Crombie: argued lack of knowledge and reliance on third‑party accountants (and that §6o may require negligence) | Court: Crombie knew AUM and performance claims were false given his knowledge of accounts; acted intentionally under §6o; summary judgment affirmed |
| Scope and justification of equitable remedies (restitution, injunction) | CFTC: restitution and rescission‑style relief appropriate to make victims whole; broad injunction necessary to prevent recurrence | Crombie: challenges legal basis for victim‑based restitution and some injunction provisions (argues overbroad/no justification) | Court: restitution and rescission pairing permissible; restitution affirmed; most injunction provisions upheld but two provisions (barring personal trading/accounts) vacated and remanded for district court explanation |
Key Cases Cited
- United States v. Tarallo, 380 F.3d 1174 (9th Cir. 2004) (willfulness in criminal fraud context: defendant must have known statements were false or acted with reckless disregard)
- Ratzlaf v. United States, 510 U.S. 135 (1994) (contexts where willfulness requires knowledge of illegality)
- Bryan v. United States, 524 U.S. 184 (1998) (willful acts in criminal law typically require bad purpose; word has multiple meanings)
- Lawrence v. CFTC, 759 F.2d 767 (9th Cir. 1985) (civil definition of willfulness contrasted with criminal meaning)
- CFTC v. Savage, 611 F.2d 270 (9th Cir. 1979) (scienter standards for §§ 6b and 6o; knowledge and intentionality requirements)
- CFTC v. Co Petro Mktg. Grp., Inc., 680 F.2d 573 (9th Cir. 1982) (§13a‑1 authorizes traditional equitable relief including accounting/disgorgement)
- CFTC v. Wilshire Inv. Mgmt. Corp., 531 F.3d 1339 (11th Cir. 2008) (restitution authorized under §13a‑1 and equitable principles)
- FTC v. Figgie Int’l., Inc., 994 F.2d 595 (9th Cir. 1993) (restitution and rescission can be paired where victims’ losses exceed defendant’s unjust enrichment)