U.S. Commodity Futures Trading Commission v. PMC Strategy, LLC
903 F. Supp. 2d 368
W.D.N.C.2012Background
- CFTC filed a complaint Feb. 9, 2011 against PMC Strategy, LLC and Timothy Bailey alleging a forex pooling scheme.
- Defendants allegedly solicited about $669,033 from at least 20 pool participants to trade off-exchange forex on their behalf from June 2008 to Feb. 2011.
- Allegations include misappropriation, false account statements, and fraudulent solicitation in violation of the Act’s Section 4b.
- Defendants failed to respond to the complaint; Clerk entered defaults against Bailey and PMC on March 10, 2011; Bailey later appeared but did not move to set aside default.
- Court granted the Commission’s motion for entry of default judgment, permanent injunction, restitution, civil monetary penalties, and ancillary equitable relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether default judgment proper against Defendants. | Plaintiff argues default is warranted where defendants failed to plead or defend. | Defendants did not meaningfully respond; but Bailey later appeared, challenging entry on some grounds. | Yes; the court granted default judgment under Rule 55(b)(2). |
| Whether Defendants violated Sections 4b(a)(2)(A)-(C) of the Act. | Plaintiff contends misappropriation, false statements, and solicitation fraud violated 4b. | Defendants contest allegations of fraud and misrepresentation. | Liability found for all 4b(a)(2)(A)-(C) violations. |
| Whether Bailey is liable as a controlling person under Section 13(b). | Bailey, as PMC’s CEO with control and knowledge of the fraud, is liable as a controlling person. | Bailey contends lack of good faith or knowledge to support controlling person liability. | Bailey liable as a controlling person under Section 13(b). |
| Whether restitution is appropriate and how measured. | Restitution should restore losses to pool participants based on their losses. | Defendants argue against restitution or challenge amount. | Restitution awarded in the amount of $429,781.65 to pool participants. |
| Whether civil monetary penalties are appropriate and quantum. | CMPs warranted given egregious, core violations; seek substantial penalties. | Defendants contest size of penalties. | Bailey to pay $420,000 CMP; PMC to pay $560,000 CMP. |
Key Cases Cited
- Noble Wealth Data Info. Servs., Inc., 90 F. Supp. 2d 676 (D. Md. 2000) (misappropriation of funds violated 4b; supports restitution/money penalties)
- Baragosh, 278 F.3d 319 (4th Cir. 2002) (defendant misappropriation; supports 4b violations guidance)
- In re JCC, Inc., 63 F.3d 1557 (11th Cir. 1995) (controlling persons liability framework under 13(b))
- Porter v. Warner Holding Co., 328 U.S. 395 (1946) (equitable power to mold decrees and provide relief)
- Moradi, 673 F.2d 725 (4th Cir. 1982) (discretion in entry of default judgments; liberal standards)
- Kimberlynn Creek Ranch, Inc., 276 F.3d 187 (4th Cir. 2002) (equitable remedies, including disgorgement, available for violations)
- CFTC v. Smith, CFTC v. Smith (2012) (not including WL; omitted due to citation format)