21 F. Supp. 3d 1317
S.D. Fla.2014Background
- Hunter Wise (and related entities) operated a financed, off-exchange precious‑metals business from 2007–2013 that funneled retail customers’ funds through dealer networks into Hunter Wise-controlled accounts and margin trading with metals suppliers.
- Retail customers were led to believe they purchased and owned physical metals stored in depositories and that they received financed loans; in fact Hunter Wise often did not buy or hold metals in customers’ names and charged fees and interest on non‑existent loans.
- Hunter Wise generated the dealer and customer documents via a Hunter Wise "portal" (white‑label materials), controlled pricing, margin calls, liquidations, and disbursed dealers’ shares—thereby directing the entire scheme.
- Counsel repeatedly warned Hunter Wise principals (Fred Jager and Harold Martin) that Dodd‑Frank would bring such financed retail commodity transactions under CFTC jurisdiction and that their practices risked enforcement and criminal exposure; the principals ignored the warnings.
- The CFTC sued; the court previously granted summary judgment on certain counts and, after trial, found Hunter Wise, Jager, and Martin liable for fraud (7 U.S.C. § 6b), fraud under 7 U.S.C. § 9 and 17 C.F.R. § 180.1, and aiding and abetting (7 U.S.C. § 13c(a)).
- The scheme caused roughly 3,200 retail customers to lose over $52 million; Hunter Wise’s calculated monetary gain was about $18,481,964, and the court awarded restitution and a civil money penalty (triple gains).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Hunter Wise committed fraud under § 4b (7 U.S.C. § 6b) | Hunter Wise made material misrepresentations/omissions (promised ownership/delivery, loans, storage) with scienter causing customer losses | Jager/Martin claimed they reasonably relied on counsel, prior CFTC guidance, and industry agreements; transactions weren’t within Dodd‑Frank scope | Court held misrepresentations/omissions were material, made with scienter, and violated § 4b; defendants' reliance defenses rejected |
| Whether Hunter Wise violated § 6(c)(1) and Rule 180.1 (manipulative/deceptive devices) | Misleading statements and omissions were made in connection with commodity sales and influenced customers’ purchase decisions | Defendants argued transactions were not subject to CFTC anti‑fraud authority or were covered by exceptions/industry norms | Court held fraudulent conduct met the SEC Rule 10b‑5–style standard (material misstatement/omission, in connection with sale, with scienter) and violated § 6(c)(1)/Rule 180.1 |
| Whether Hunter Wise aided and abetted dealer violations (§ 13(a)) | Hunter Wise knowingly associated with and facilitated dealers’ fraud through templates, portal, pricing, and fund control | Defendants argued contractual disclaimers and lack of direct dealer agency insulated them | Court found Hunter Wise knowingly assisted and controlled the scheme and was liable as aider/abettor |
| Whether Jager and Martin are personally liable as controlling persons (7 U.S.C. § 13c(b)) | As CEO/COO and principal managers they controlled operations and knowingly induced or consciously avoided knowledge of violations | Defendants claimed lack of direct involvement or reasonable reliance on counsel/interpretations | Court held both exercised general control, lacked good‑faith oversight, and knowingly induced/failed to prevent violations; personal liability imposed |
Key Cases Cited
- CFTC v. RJ Fitzgerald & Co., 310 F.3d 1321 (11th Cir. 2002) (fraud elements and materiality analysis in CFTC context)
- SEC v. Goble, 682 F.3d 934 (11th Cir. 2012) (elements of §10(b)/Rule 10b‑5—material misstatement, in‑connection‑with, scienter—applied as guide)
- CFTC v. Wilshire Inv. Mgmt. Corp., 531 F.3d 1339 (11th Cir. 2008) (standard for issuing permanent injunctions in CFTC enforcement actions)
- CFTC v. Sidoti, 178 F.3d 1132 (11th Cir. 1999) (limits of boilerplate disclosures and controlling‑person principles)
- JCC Inc. v. CFTC, 63 F.3d 1557 (11th Cir. 1995) (constructive knowledge/knowing inducement and control‑person liability principles)