United States Commodity Futures Trading Commission v. Kratville
796 F.3d 873
| 8th Cir. | 2015Background
- From 2005–2007 Arrington, Kratville, and Welke operated unregistered commodity pools (EMHC/MJM/NIC) that solicited >$4.6M from ~130 investors and funneled funds to an external trader group (FXIG) without disclosing that relationship or risks.
- Marketing materials and solicitations represented steady high monthly returns, proprietary trading systems, and specific brokers/accounts that were false or misleading.
- Regulatory inquiry by the Nebraska Department of Banking and Finance (NDBF) in 2006 prompted creation of new entities and rollovers; defendants continued to report misleading statements and delayed disclosure of losses.
- Electronic evidence (emails, investor affidavits) and defendants’ own communications showed efforts to conceal problems, delete records, and coordinate misleading investor reports.
- The CFTC sued (civil enforcement) alleging fraud, commodity-pool fraud, and registration violations; the district court granted summary judgment for the CFTC against Kratville.
- On appeal Kratville challenged (a) denial of more time to examine newly produced digital evidence, (b) the court’s reliance on certain affidavits and emails and exclusion of his forensic expert, (c) grant of summary judgment on CEA fraud/controlling-person liability, and (d) denial of Rule 60(b)(1) relief for counsel’s conduct.
Issues
| Issue | Plaintiff's Argument (CFTC) | Defendant's Argument (Kratville) | Held |
|---|---|---|---|
| Time to review new digital evidence (Rule 56(d) / continuance) | CFTC relied on existing discovery and produced hard copies earlier; no prejudice from denying delay | CD-ROM from U.S. Attorney produced after discovery closed contained tens of thousands of pages; needed expert forensic review | District court did not abuse discretion: Kratville had hard copies earlier, was not diligent, and failed to show how further analysis would create a genuine issue of material fact |
| Consideration of investor affidavits and emails; exclusion of defense forensic expert | Affidavits and emails were properly admissible; government not bound by private releases; expert untimely disclosed | Some affiants had settlements/releases or questionable credibility; emails may have been altered; expert Burgess could show manipulation | Court properly considered affidavits (CFTC not party to private releases) and did not abuse discretion in excluding late-disclosed expert under Rule 26/37; credibility attacks were insufficient to defeat summary judgment |
| Liability for fraud and related CEA violations (misrepresentation, scienter, materiality; controlling-person liability) | Marketing and solicitations were misleading/false about returns, brokers, proprietary system; defendants knowingly concealed risks and coordinated misrepresentations; Kratville exercised control | Kratville contends ambiguity about authorship/accuracy of some emails and contends he lacked knowledge, control, or acted in good faith | Summary judgment affirmed: undisputed evidence establishes misrepresentations, scienter (emails show intent to hide and deceive), materiality, and that Kratville was a controlling person who knowingly induced violations |
| Rule 60(b)(1) relief for alleged counsel "excusable neglect" (invoking Fifth Amendment, discovery strategy) | CFTC would be prejudiced and face significant delay; counsel’s carelessness not excusable | Trial counsel’s mistakes prevented Kratville from presenting evidence; taking the Fifth was reasonable advice; relief warranted | Denial affirmed: Pioneer factors weigh against relief — delay and prejudice to CFTC, and attorney negligence/strategy errors do not constitute excusable neglect sufficient for Rule 60(b)(1) |
Key Cases Cited
- Hargis v. Access Capital Funding, LLC, 674 F.3d 783 (8th Cir. 2012) (standard for Rule 56(d) continuance review)
- Ray v. Am. Airlines, Inc., 609 F.3d 917 (8th Cir. 2010) (party resisting summary judgment must show how further discovery would create genuine issue)
- R.J. Fitzgerald & Co. v. CFTC, 310 F.3d 1321 (11th Cir. 2002) (elements of CFTC fraud claims and guidance on overall-message materiality)
- Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194 (11th Cir. 2001) (scienter via highly unreasonable omissions or misrepresentations)
- CFTC v. Baragosh, 278 F.3d 319 (4th Cir. 2002) (controlling-person liability under 7 U.S.C. § 13c(b))
- Monieson v. CFTC, 996 F.2d 852 (7th Cir. 1993) (control defined by power to influence entity conduct, not mere title)
- Trost v. Trek Bicycle Corp., 162 F.3d 1004 (8th Cir. 1998) (Rule 37(c)(1) exclusion for undisclosed evidence/experts reviewed for abuse of discretion)
- Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380 (1993) (factors governing excusable neglect analysis)