IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION

_______________________________________________________
)
COMMODITY FUTURES TRADING COMMISSION, ) NO. 00-Civ-00622ST
Plaintiff, )
)

vs.

)
)
STEPHEN W. BROCKBANK ) COMPLAINT FOR INJUNCTIVE AND

591 12th Avenue

) OTHER EQUITABLE RELIEF UNDER
Salt Lake City, Utah 84103, ) THE COMMODITY EXCHANGE ACT
)
CAROL J. LOVE a/k/a )
Carol L. Zimmerman )
9060 Winthrop Drive )
West Jordan, Utah 84088, )
)
  -and- )
)
BIRMA, LTD. )
310 E. 4500 S., Suite 430 )
Salt Lake City, Utah 84107, )
)

Defendants.

)
_______________________________________________________ )

 

I.

SUMMARY

1. In October 1997, Stephen W. Brockbank and Carol J. Love formed an investment general partnership called BIRMA, Ltd. ("BIRMA"), ostensibly to trade their own funds. Since at least that time, Brockbank and Love have operated BIRMA as a commodity pool without being registered with the plaintiff Commodity Futures Trading Commission ("Commission" or "CFTC") as commodity pool operators ("CPO"), as required under the federal commodity laws. While operating BIRMA, Brockbank and Love misappropriated customer funds, commingled investor funds with their own funds, and issued false statements to investors representing that profitable trading had occurred on behalf of the pool when such trading had not occurred. Brockbank, Love and BIRMA (collectively referred to as "Defendants") have opened commodity futures trading accounts in the name of BIRMA with at least three futures commission merchants ("FCM") and misappropriated investor funds by depositing the investors' funds into accounts in which Defendants maintained sole financial interest. Defendants also opened an account in Love's name using investor funds. Defendants did not, however, disclose to the FCMs that the BIRMA or Love accounts contained investor funds.

2. Currently, the BIRMA trading accounts contain approximately $862,589 in funds and Love's account contains a current balance of approximately $193,785.

3. Based upon the foregoing facts, Defendants have engaged, are engaging, or are about to engage in acts and practices which violate the anti-fraud and registration sections of the Commodity Exchange Act, as amended, 7 U.S.C. §§ 1 et seq. (1994) ("Act"), and the Commission's Regulations concerning CPOs. More specifically, the Defendants have engaged, are engaging, or are about to engage in acts or practices which violate Section 4b(a)(i) and (iii)of the Act, 7 U.S.C. § 6b(a)(i) and (iii), by, among other things, misappropriating customer funds; Section 4b(a)(ii) of the Act, 7 U.S.C. § 6b(a)(ii), by, among other things, issuing false statements to investors; Section 4o(1) of the Act, 7 U.S.C. § 6o(1), by, among other things, misappropriating commodity pool participant funds; Section 4m(1) of the Act, 7 U.S.C. § 6m(1), by failing to register with the Commission as a CPO; Commission Regulation 4.20(a), 17 C.F.R. § 4.20(a) (1999), by failing to properly establish a commodity pool as a separate legal entity from that of the pool operator; and Commission Regulation 4.20(c), 17 C.F.R. § 4.20(c), by commingling the funds of commodity pool participants.

4. Unless restrained and enjoined by this Court, Defendants are likely to continue to engage in the acts and practices alleged in this Complaint and in similar acts and practices, as more fully described below.

5. Accordingly, pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1, the Commission brings this action to enjoin such acts and practices, prevent the dissipation of assets, and to compel compliance with the provisions of the Act. In addition, the Commission seeks civil penalties, an accounting, restitution, disgorgement and such other equitable relief as the Court may deem necessary or appropriate under the circumstances.

II.

JURSIDICTION AND VENUE

6. This Court has jurisdiction over this action pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1, which authorizes the Commission to seek injunctive relief against any person whenever it shall appear to the Commission that such person has engaged, is engaging, or is about to engage in any act or practice constituting a violation of any provision of the Act or any rule, regulation or order thereunder.

7. Venue properly lies with this Court pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1(e), in that the Defendants are found in, inhabit, or transact business in this district, and the acts and practices in violation of the Act have occurred, are occurring, or are about to occur within this district.

III.

THE PARTIES

8. Plaintiff Commission is an independent federal regulatory agency that is charged with responsibility for administering and enforcing the provisions of the Act, 7 U.S.C. §§ 1 et seq. (1994), and the Regulations promulgated thereunder, 17 C.F.R. §§ 1 et seq. (1999).

9. Defendant Stephen W. Brockbank resides at 591 12th Ave., Salt Lake City, Utah 84103. Brockbank has never been registered with the Commission in any capacity.

10. Defendant Carol J. Love resides at 9060 Winthrop Dr., West Jordan, Utah 84088. Love has never been registered with the Commission in any capacity. Love is employed as a legal secretary. Love is also known as Carol L. Zimmerman.

11. Defendant BIRMA, Ltd., a Utah limited partnership, has its main office at 310 E. 4500 S., Suite 430, Salt Lake City, Utah 84107. BIRMA listed Brockbank and Love as its officers and directors on its Certificate of Limited Partnership. BIRMA has never been registered with the Commission in any capacity.

IV.

FACTS

A. Statutory Background

12. A "commodity pool" is defined in Commission Regulation 4.10(d)(1), 17 C.F.R. § 4.10(d)(1), as any investment trust, syndicate or similar form of enterprise engaged in the business of investing its pooled funds in trading commodity futures and/or commodity options.

13. A "commodity pool operator" is defined in Section 1a(4) of the Act, 7 U.S.C. § 1(a)(4), as any person engaged in a business that is of the nature of an investment trust, syndicate, or similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others, funds, securities, or property, either directly or through capital contributions, the sale of stock or other forms of securities or otherwise, for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market.

14. A "participant" is any person who has any direct financial interest in a commodity pool. Regulation 4.10(c), 17 C.F.R. § 4.10(c).

B. BIRMA Accounts at R.J. O'Brien & Associates Inc. Accepted Customer Funds

15. Between October 1997 and March 1998, Defendants opened four general partnership trading accounts in BIRMA's name (BIRMA #1, BIRMA #2, BIRMA #3 and BIRMA #4) at R.J. O'Brien & Associates Inc. ("RJO"), an FCM.

16. Defendants deposited into at least one of the accounts referenced in paragraph 15 funds that investors had given to Brockbank to invest in a commodity pool to trade commodity interests. ("Brockbank commodity pool investors").

17. In September 1998, RJO advised Brockbank that he should be registered as a CPO.

18. Defendants never undertook such registration or notified the Commission that they were exempt from such registration.

19. On or about September 21 and 22, 1998, RJO closed the BIRMA accounts.

20. Meanwhile, on or about September 8, 1998, at Brockbank's request, Love opened an account in her own name at RJO and represented on the account opening documents that she was the account's sole owner. The account opening documents listed Brockbank as having power-of-attorney over the account. Between September 9, 1998 and December 3, 1999, Love deposited approximately $434,000 into the account and withdrew approximately $159,700. The current account balance is approximately $193,785.

21. Love's account at RJO was funded with money from Brockbank's commodity pool investors.

C. BIRMA Account at Rosenthal Collins Group, L.L.C.

22. On or about October 11, 1999, Defendants opened an account at Rosenthal Collins Group, L.L.C. ("Rosenthal"), an FCM. Defendants represented in the account opening documents that no other person or entity had any financial interest in the account. Brockbank also executed a CPO Exemption Notice in which he claimed to be exempt from registering with the Commission as a CPO. Defendants funded the Rosenthal account in December 1999, when Brockbank sent a $100,000 check.

23. On information and belief, the $100,000 check deposited in the Rosenthal account was derived from funds that an investor gave Brockbank to trade commodity interests.

D. BIRMA Account at E.D.&F. Man International Inc.

24. On January 31, 2000, Defendants opened a BIRMA trading account at E.D.&F. Man International Inc. ("Man"), another FCM. Defendants represented in the account opening documents that no other person or entity had any financial interest in the account. The Defendants sent Man a series of letters stating that the BIRMA trading account did not serve as an investment vehicle for other limited partnerships and that BIRMA did not hold itself out as "engaging in the business of investing capital contributions from other participants in the commodity futures markets."

25. On information and belief, at least one investor gave Brockbank funds to trade commodity interests that Brockbank deposited into a BIRMA bank account, and Brockbank subsequently transferred at least a portion of the investor funds to the BIRMA account at Man.

E. Defendants' False Statements

26. In January and February 2000, Defendants issued statements to at least one investor that purport to show profits from the trading of commodity futures contracts. In fact, during those months, there was no trading in the RJO, Rosenthal or Man accounts.

27. During these same months, Defendants debited at least that investor's account 20 percent of the purported profits as an incentive fee, even though they had conducted no trading in the RJO, Rosenthal or Man accounts.

28. In March 2000, Defendants issued statements to at least one investor that purported to show trading profits. In fact, during that month, the RJO, Rosenthal and Man accounts actually incurred net trading losses.

29. Despite the fact that Man and Rosenthal have refused to allow Defendants to trade the BIRMA accounts, since approximately July 6, 2000, Defendants have continued to issue daily reports to at least one investor that purport to show trading.

30. Based upon this information, Defendants may be continuing to improperly trade investor funds or may be issuing false statements regarding the value of the BIRMA pool and the daily trading activity for the pool.

V.

VIOLATIONS OF THE COMMODITY EXCHANGE ACT

COUNT I

VIOLATIONS OF SECTION 4b(a)(i)and (iii) OF THE ACT:

FRAUD BY MISAPPROPRIATION OF CUSTOMER FUNDS
AND MISREPRESENTATION BY FALSE STATEMENTS

31. Paragraphs 1 through 30 are realleged and incorporated herein.

32. From approximately October 1997 to the present, Defendants violated Section 4b(a)(i) and (iii) of the Act, 7 U.S.C. § 6b(a)(i) and (iii), in that they cheated or defrauded or attempted to cheat or defraud and willfully deceived or attempted to deceive other persons by, among other things, misappropriating funds they received from BIRMA customers and other investors and issuing false statements to investors.

33. Defendants engaged in this conduct in or in connection with orders to make, or the making of, contracts of sale of commodities for future delivery, made, or to be made, for or on behalf of other persons where such contracts for future delivery were or may have been used for (a) hedging any transaction in interstate commerce in such commodity, or the products or byproducts thereof, or (b) determining the price basis of any transaction in interstate commerce in such commodity, or (c) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof.

34. Each act of misappropriating investor funds or issuing false statements made during the relevant time period, including but not limited to those specifically alleged herein, is alleged as a separate and distinct violation of Section 4b(a)(i) and (iii) of the Act, 7 U.S.C. § 6b(a)(i) and (iii).

COUNT II

VIOLATIONS OF SECTION 4b(a)(ii) OF THE ACT:

PROVIDING FALSE STATEMENTS TO INVESTORS

35. Paragraphs 1 through 30 are re-alleged and incorporated herein.

36. Since at least October 1997, and continuing through the present, Defendants have violated Section 4b(a)(ii) of the Act, 7 U.S.C. § 6b(a)(ii), in that they have prepared and issued false statements regarding the value of the BIRMA pool and the daily trading activity for the pool.

37. Defendants engaged in this conduct in or in connection with orders to make, or the making of, contracts of sale of commodities for future delivery, made, or to be made, for or on behalf of other persons where such contracts for future delivery were or may have been used for (a) hedging any transaction in interstate commerce in such commodity, or the products or byproducts thereof, or (b) determining the price basis of any transaction in interstate commerce in such commodity, or (c) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof.

38. Each false report or statement made during the relevant time period, including but not limited to those specifically alleged herein, is alleged as a separate and distinct violation of Section 4b(a)(ii) of the Act, 7 U.S.C. § 6b(a)(ii).

COUNT III

VIOLATIONS OF SECTION 4o(1) OF THE ACT

FRAUD BY COMMODITY POOL OPERATORS

39. Paragraphs 1 through 30 are realleged and incorporated herein.

40. Since at least October 1997 through the present, Defendants have acted as CPOs in that they have engaged in a business that is of the nature of an investment trust, syndicate, or similar form of enterprise and in connection therewith, and have solicited, accepted or received funds, securities or property from others for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market.

41. From approximately October 1997 through the present, Defendants have violated Section 4o(1) of the Act, 7 U.S.C. § 6o(1), in that they directly or indirectly employed or are employing a device, scheme, or artifice to defraud commodity pool participants or prospective commodity pool participants, or have engaged or are engaging in transactions, practices or a course of business which operated as a fraud or deceit upon commodity pool participants or prospective commodity pool participants by means of the acts and practices described in paragraphs 1 through 30 above.

42. In connection with such conduct, Defendants used or are using the mails and other means or instrumentalities of interstate commerce, directly or indirect-ly, to engage in business as a CPO.

43. Each act of engaging in a transaction, practice or a course of business which operated as a fraud or deceit upon commodity pool participants or prospective commodity pool participants during the relevant time period, including but not limited to the acts and practices specifically alleged herein, is alleged as a separate and distinct violation of Section 4o(1) of the Act, 7 U.S.C. § 6o(1).

COUNT IV

VIOLATIONS OF SECTION 4m(1) OF THE ACT:

FAILURE TO REGISTER AS A COMMODITY POOL OPERATOR

44. Paragraphs 1 through 30 are re-alleged and incorporated herein.

45. Since at least October 1997 through the present, Defendants have acted as CPOs in that they have engaged in a business that is of the nature of an investment trust, syndicate, or similar form of enterprise and in connection therewith, and have solicited, accepted or received funds, securities or property from others for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market.

46. In connection with such conduct, Defendants used or are using the mails and other means or instrumentalities of interstate commerce, directly or indirect-ly, to engage in business as CPOs.

47. Defendants engaged and continue to engage in these activities without the benefit of registration, in violation of Section 4m(1) of the Act, 7 U.S.C. § 6m(1) (1994).

48. Each use of the mails or any means or instrumentality of interstate commerce in connection with his business as a CPO without proper registration during the relevant time period, including but not limited to those specifically alleged herein, is alleged as a separate and distinct violation of Section 4m(1) of the Act, 7 U.S.C. § 6m(1).

COUNT V

VIOLATIONS OF REGULATION 4.20(a):

FAILING TO ESTABLISH A POOL AS A SEPARATE ENTITY

49. Paragraphs 1 through 30 are re-alleged and incorporated herein.

50. Pursuant to Commission Regulation 4.20(a), 17 C.F.R. § 4.20(a), a CPO must operate its pool as an entity cognizable as a legal separate entity from that of the pool operator.

51. Defendants violated Regulation 4.20(a), 17 C.F.R. § 4.20(a), by failing to establish the BIRMA pool or pools as a separate legal entity from Brockbank, Love or BIRMA, Ltd.

52. Each failure to establish the BIRMA pool or pools as a separate legal entity from Brockbank, Love or BIRMA, Ltd. during the relevant time period, including but not limited to those specifically alleged herein, is alleged as a separate and distinct violation of Regulation 4.20(a), 17 C.F.R. § 4.20(a).

COUNT VI

VIOLATIONS OF REGULATION 4.20(c):

COMMINGLING OF PROPERTY BY A CPO

53. Paragraphs 1 through 30 are re-alleged and incorporated herein.

54. Pursuant to Commission Regulation 4.20(c), 17 C.F.R. § 4.20(c), no CPO may commingle the property of any pool that it operates or that it intends to operate with the property of any other person.

55. Defendants violated Regulation 4.20(c), 17 C.F.R. § 4.20(c), by commingling their personal property with the funds of the BIRMA pools.

56. Each act of commingling Defendants' personal property with the funds of the BIRMA pools during the relevant time period, including but not limited to those specifically alleged herein, is alleged as a separate and distinct violation of Regulation 4.20(c), 17 C.F.R. § 4.20(c).

VI.

RELIEF REQUESTED

WHEREFORE, the Commission respectfully requests that this Court, as authorized by Section 6c of the Act, 7 U.S.C. § 13a-1, and pursuant to its own equitable powers:

A. Find Defendants liable for violating Sections 4b(a)(i) and (iii), 4b(a)(ii), 4o(1) and 4m(1) of the Act, 7 U.S.C. §§ 6b(a)(i) and (iii), 6b(a)(ii), 6o(1), and 6m(1) (1994); and Regulations 4.20(a) and 4.20(c), 17 C.F.R. §§ 4.20(a) and 4.20(c) (1999);

B. Enter orders of permanent injunction enjoining Defendants and all persons insofar as they are acting in the capacity of Defendants' agents, servants, employees, successors, assigns, and attorneys, and all persons insofar as they are acting in active concert or participation with Defendants who receive actual notice of such order by personal service or otherwise, from directly or indirectly:

1. Cheating or defrauding or attempting to cheat or defraud other persons in or in connection with any order to make, or the making of, any contract of sale of any commodity for future delivery, made, or to be made, for or on behalf of any other person if such contract for future delivery is or may be used for (a) hedging any transaction in interstate commerce in such commodity or the products or byproducts thereof, or (b) determining the price basis of any transaction in interstate commerce in such commodity, or (c) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof, in violation of Section 4b(a)(i) of the Act, 7 U.S.C. § 6b(a)(i);

2. Willfully making or causing to be made to other persons any false report or statement thereof, or willfully to enter or cause to be entered for such persons any false record thereof, in or in connection with any order to make, or the making of, any contract of sale of any commodity for future delivery, made, or to be made, for or on behalf of any other person if such contract for future delivery is or may be used for (a) hedging any transaction in interstate commerce in such commodity or the products or byproducts thereof, or (b) determining the price basis of any transaction in interstate commerce in such commodity, or (c) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof, in violation of Section 4b(a)(ii) of the Act, 7 U.S.C. § 6b(a)(ii);

3. Willfully deceiving or attempting to deceive other persons by any means whatsoever in or in connection with any order to make, or the making of, any contract of sale of any commodity for future delivery, made, or to be made, for or on behalf of any other person if such contract for future delivery is or may be used for (a) hedging any transaction in interstate commerce in such commodity or the products or byproducts thereof, or (b) determining the price basis of any transaction in interstate commerce in such commodity, or (c) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof, in violation of Section 4b(a)(iii) of the Act, 7 U.S.C. § 6b(a)(iii);

4. Employing any device, scheme, or artifice to defraud any participant or prospective participant, or engaging in any transaction, practice, or course of business which operates as a fraud or deceit upon any participant or prospective participant, by use of the mails or any means or instrumentality of interstate commerce, in violation of Section 4o(1) of the Act, 7 U.S.C. § 6o(1);

5. Operating as a CPO engaged in the business of soliciting, accepting, or receiving from others, funds, securities, or property, for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market without being registered with the Commission as a CPO, in violation of Section 4m(1) of the Act, 7 U.S.C. § 6m(1);

6. Failing to operate their pool or pools an entity cognizable as a legal entity separate from that of the pool operator, in violation of Regulation 4.20(a), 17 C.F.R. § 4.20(a); and

7. Commingling the property of any pool Defendants operate or intend to operate with the property of any other person, in violation of Regulation 4.20(c), 17 C.F.R. § 4.20(c);

C. Enter orders pursuant to Section 6c(a) of the Act restraining Defendants and all persons insofar as they are acting in the capacity of their agents, servants, successors, employees, assigns, and attorneys, and all persons insofar as they are acting in active concert or participation with Defendants who receive actual notice of such order by personal service or otherwise, from directly or indirectly:

1. Destroying, mutilating, concealing, altering or disposing of any books and records, documents, correspondence, brochures, manuals, electronically stored data, tape records or other property of defendants, wherever located, including all such records concerning defendants' business operations;

2. Refusing to permit authorized representatives of the Commission to inspect, when and as requested, any books and records, documents, correspondence, brochures, manuals, electronically stored data, tape records or other property of Defendants, wherever located, including all such records concerning Defendant's business operations; and

3. Withdrawing, transferring, removing, dissipating, concealing or disposing of, in any manner, any funds, assets, or other property, wherever situated, including but not limited to, all funds, personal property, money or securities held in safes, safety deposit boxes and all funds on deposit in any financial institution, bank or savings and loan account held by, under the control, or in the name of Defendants;

D. Enter an order directing that Defendants provide the Plaintiff immediate and continuing access to Defendants' books and records, make an accounting to the Court of all of Defendants' assets and liabilities, together with all funds they received from and paid to investors and other persons in connection with commodity futures transactions or purported commodity futures transactions, including the names, addresses and telephone numbers of any such persons from whom they received such funds from October 1997 to the date of such accounting, and all disbursements for any purpose whatsoever of funds received from commodity investors, including salaries, commissions, fees, loans and other disbursements of money and property of any kind, from October 1997 to and including the date of such accounting;

E. Enter an order prohibiting Defendants, all persons insofar as they are acting in the capacity of agents, servants, employees, successors, assigns, or attorneys of the Defendants, and all persons insofar as they are acting in active concert or participation with Defendants who receive actual notice of the Order by personal service or otherwise, from:

1. Directly or indirectly soliciting or accepting any funds from any person in connection with the purchase or sale of any commodity futures and options contract;

2. Placing orders, giving advice or price quotations or other information in connection with the purchase or sale of commodity futures and options contracts for themselves and others;

3. Introducing customers to any other person engaged in the business of commodity futures and options trading;

4. Issuing statements or reports to others concerning commodity futures and options trading; and

5. Otherwise engaging in any business activities related to commodity futures and options trading;

F. Enter an order requiring Defendants to disgorge to any officer appointed or directed by the Court or directly to their pool participants all benefits received including, but not limited to, salaries, commissions, loans, fees, revenues and trading profits derived, directly or indirectly, from acts or practices which constitute violations of the Act as described herein, including pre-judgment interest;

G. Enter an order requiring Defendants to make restitution by making whole each and every pool participant whose funds were received or utilized by them in violation of the provisions of the Act as described herein, including pre-judgment interest;

H. Enter an order requiring Defendants to pay civil penalties under the Act, to be assessed by the Court, in amounts of not more than the higher of $110,000 for each violation of the Act and Regulations or triple the monetary gain to Defendants for each violation of the Act and Regulations;

I. Enter an order requiring Defendants to pay costs and fees as permitted by 28 U.S.C. §§ 1920 and 2412(a)(2) (1994); and

J. Enter an Order such other and further relief as this Court may deem necessary and appropriate under the circumstances.

 

Date: August 22, 2000 Respectfully submitted,
_______________________________
Rosemary Hollinger
ATTORNEYS FOR PLAINTIFF Senior Trial Attorney
COMMODITY FUTURES TRADING Illinois ARDC No. 03123647
COMMISSION
300 South Riverside Plaza, Suite 1600N _______________________________
Chicago, IL 60606-6615 Camille M. Arnold
(312) 886-3174 (Hollinger) Trial Attorney
(312) 353-3631 (Arnold) New York Bar No. 7868
(312) 353-4502 facsimile

.

Carlie Christensen
(Bar # 0633)
Civil Division Chief
Office of the United States Attorney
185 South State Street, Suite 400
Salt Lake City, Utah 84111
801-524-5682