IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
|COMMODITY FUTURES TRADING COMMISSION,||)||Civil Action No. 99 C 2357|
|JOSEPH P. McGIVNEY, Sr.,||)||Magistrate Judge Denlow|
EDWIN A. KOZIOL, Jr.,
|CAPITAL STRATEGIES, INC.,||)|
|JPM COMMODITIES, INC.,||)|
|J.P.M INVESTMENTS, INC.,||)||CONSENT ORDER OF PERMANENT|
|JPM TRADERS, INC. and||)||INJUNCTION AND OTHER|
|JPM, INC.,||)||EQUITABLE RELIEF AGAINST|
|)||EDWIN A. KOZIOL, JR.|
|- and -||)|
|J. TRADERS, INC.,||)|
|LESLIE WNUKOWSKI and||)|
Plaintiff, Commodity Futures Trading Commission ("CFTC" or "Commission"), filed a complaint against defendants Joseph P. McGivney, Sr. ("McGivney"), Edwin A. Koziol, Jr. ("Koziol"), Capital Strategies, Inc. ("Capital"), JPM2, Inc. ("JPM2"), JPM Commodities, Inc. ("JPMC"), JPM Investments, Inc. ("Investments"), JPM Traders, Inc. ("Traders") and JPM, Inc. ("JPM") and relief defendants J.P.M.R., Inc. ("JPMR"), J. Traders, Inc. ("J. Traders"), Leslie Wnukowski ("Wnukowski") and Marita McGivney ("M. McGivney") on April 12, 1999, seeking injunctive and other equitable relief for violations of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. §§ 1 et seq. (1994), and the Commission Regulations promulgated thereunder, 17 C.F.R. §§ 1 et seq. (1998). On April 12, 1999, this Court entered a Statutory Restraining Order against the defendants and relief defendants. This order was subsequently modified, in part, to permit certain of the defendants to continue to issue and to solicit subscribers for the JPM hotline.
CONSENTS AND AGREEMENTS
To effect settlement of the matters alleged in the complaint against Koziol without a trial on the merits or any further judicial proceedings, defendant Koziol:
1. Consents to the entry of this Consent Order of Permanent Injunction and Other Equitable Relief Against Edwin A. Koziol, Jr. ("Order").
2. Affirms that he has agreed to this Order voluntarily, and that no promise or threat has been made by the Commission or any member, officer, agent or representative thereof, or by any other person, to induce consent to this Order, other than as set forth specifically herein.
3. Acknowledges service of the Summons and Complaint.
4. Admits jurisdiction of this Court over him and the subject matter of this action pursuant to Section 6c(a) of the Act, 7 U.S.C. § 13a-1(a) (1994).
5. Admits that venue properly lies with this Court pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1 (1994).
a. all claims which he may possess under the Equal Access to Justice Act, 5 U.S.C. § 504 (1994) and 28 U.S.C. § 2412 (1994), as amended by Pub. L. No. 104-121, §§ 231-32, 110 Stat. 862-63, and Part 148 of the Regulations, 17 C.F.R. § 148.1, et seq. (1998), relating to, or arising from, this action;
b. any claim of Double Jeopardy based upon the institution of this proceeding or the entry in this proceeding of any order imposing a civil monetary penalty or any other relief;
c. the entry of findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure, except as provided in paragraph 10 below and set forth in Section III; and
d. all rights of appeal from this Order.
7. Acknowledges that, pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1, the Court is not ordering the payment of a civil monetary penalty based upon the accuracy and completeness of Koziol's sworn representations to the Commission concerning his financial condition. Koziol further consents that if at any time following the entry of this Order, the Commission obtains information indicating that Koziol's representations concerning his financial condition were fraudulent, misleading, inaccurate or incomplete in any material respect at the time they were made, the Commission may, at its sole discretion and without prior notice to Koziol, petition the Court for an order requiring Koziol to pay a civil monetary penalty. In connection with any such petition, the only issues shall be whether the financial information provided by Koziol was fraudulent, misleading, inaccurate or incomplete in any material respect at the time such representations were made and the amount of civil monetary penalty to be ordered. In any such petition, the Commission may move the Court to consider all available remedies, including, but not limited to, ordering Koziol to pay funds or assets, directing the forfeiture of any assets, or sanctions for contempt of this Order, and the Commission may also request additional discovery. Koziol may not, by way of defense to such petition, challenge the validity of his consent to this Consent Order, contest the allegations in the Complaint filed by the Commission or the Findings of Fact or Conclusions of Law contained in this Consent Order, or assert that payment of a civil monetary penalty should not be ordered.
8. Agrees that neither Koziol nor any of his agents or employees under his authority or control shall take any action or make any public statement denying, directly or indirectly, any findings or conclusions in the Order, or creating or tending to create, the impression that the Order is without a factual basis; provided, however, that nothing in this provision shall affect Koziol's: (i) testimonial obligations, or (ii) right to take legal positions in other proceedings to which the Commission is not a party. Koziol will undertake all steps necessary to assure that all of his agents and his employees understand and comply with this agreement.
9. Stipulates that the record basis on which this Order may be entered shall consist solely of the Complaint and the findings contained in this Order.
10. Koziol neither admits nor denies the allegations of the Complaint and the findings of fact in this Order. However, Koziol agrees that the parties to this Order intend that all of the findings of fact in this Order shall be given preclusive effect without further proof in any subsequent bankruptcy proceeding filed by, on behalf of, or against Koziol for the purpose of determining whether the restitution obligations of Koziol and/or other payments ordered against him are excepted from discharge. Koziol also consents to the use of the findings contained in this Order, in this proceeding and in any other proceedings brought by the Commission or to which the Commission is a party. Koziol shall provide immediate notice of any bankruptcy proceeding filed by, on behalf of or against Koziol in the manner required by Section VI Part A. of this Order.
11. Consents to the continued jurisdiction of this Court for the purpose of enforcing the terms and conditions of this Order and for any other purposes relevant to this case.
FINDINGS AND CONCLUSIONS
It further appearing to this Court that there is no just reason for delay, and the Court being fully advised in the premises, the Court finds the following:
1. This Court has jurisdiction over Koziol and the subject matter of this action pursuant to Section 6c(a) of the Act, 7 U.S.C. § 13a-1(a) (1994).
2. Venue properly lies with this Court pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1 (1994).
3. The Commission is an independent federal regulatory agency which is charged with the 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. (1998).
4. Koziol, who is 42 years old, resides at 8907 South Melvina, Oak Lawn, Illinois 60453, and has never been registered with the Commission in any capacity.
COMMODITY POOLS FROM 1993 TO 1998
5. Commencing in at least January 1993 to the present, McGivney and Capital, JPM2, JPMC and Traders (hereinafter collectively referred to as the "Corporations") have operated a series of commodity pools and McGivney, Koziol and the Corporations accepted at least $957,583 from 72 investors in those pools from 1993 to 1998.
6. In connection with soliciting and receiving money for investment in commodity futures contracts, McGivney and the Corporations made some or all of the following representations to investors and potential investors in the pools, verbally and in writing:
a. The Capital and JPM2 pools were profitably trading commodity futures;
b. McGivney and the Corporations would repay investors by a certain date, when they knew that their ability to repay depended on their receiving money from new investors;
c. McGivney and the Corporations would pool at least some portion of the investors' money with other investor money and use those funds to trade commodity futures in an account at a futures commission merchant ("FCM"), at a time when McGivney and the Corporations were not trading commodity futures;
d. McGivney, Capital and JPM2 would mail commodity trading account statements to the investors on a monthly or quarterly basis; and
e. Investors in the pools would receive a proportionate share of any realized commodity futures trading profits.
McGivney knew or recklessly disregarded the fact that the foregoing representations were false.
7. The pool agreements between the investors and Capital, JPM2 and JPMC provided that the investors would receive a set amount of interest during the term of their investment, and also the return of their principal at the end of the term, and would be entitled to "bonus interest" from the trading of commodity futures by McGivney and Capital, JPM2 and JPMC, respectively. The "bonus interest" was an "incentive" for the investors to enter into agreements with Capital, JPM2 and JPMC. The Court finds that these agreements suggest that the investors did not bear any risk of loss from the commodity futures trading conducted by McGivney, Capital, JPM2 and JPMC.
8. The pool agreements between the investors and Traders provided that the investors would receive a set amount of interest during the term of their investment, and the return of their principal at the end of the term. In addition, Traders would invest half the investment proceeds into a "special investment account," wherein an investor's funds would be commingled with those of other investors. The agreements further provided that the investors would be entitled to "their pro-rata share" of the gross profit from trading by Traders in investments which may include commodity futures. The effect of this agreement was to suggest that the investors did not bear any risk of loss from the commodity futures trading conducted by Traders.
9. Prospective participants in the commodity pools relied upon the representations as set forth in paragraph 6 above, and in the language of the pool agreements as set forth in paragraphs 7 and 8 above, in making their decision to invest in the commodity pools.
10. McGivney and Koziol deposited the funds received by them into bank accounts in the names of the Corporations, and both McGivney and Koziol were signatories on those bank accounts. In fact, Koziol controlled the checking accounts for all the Corporations.
11. McGivney and Koziol opened trading accounts for Capital, JPM2, JPMC and JPMR at the following futures commission merchants ("FCMs"): Iowa Grain Company, Quantum Financial Services, Inc. and Rosenthal Collins Group, L.P. The account papers for those accounts authorized both McGivney and Koziol to make the specific commodity trading decisions for the JPM2, Capital and JPMC Pools. In fact, however, McGivney made all the trading decisions for the accounts.
12. Between January 1993 and July 1996, McGivney, Koziol and the Corporations invested a net of only $107,112 in futures trading accounts. During that period, those accounts lost a cumulative total of $78,462.
13. McGivney, Koziol and the Corporations have made no deposits into futures trading accounts since July 1996 and have engaged in no futures trading since August 1996, although McGivney and the Corporations continued to solicit new investors for the Pools.
14. McGivney, Koziol and the Corporations commingled investor funds from the Pools with the Corporations' funds and their personal funds.
15. From January 1993 to the present, McGivney and Koziol used some of the investors' funds to make returns of principal and purported profits to other investors. The Court finds that these payments deceived the pool participants into believing that their funds were being utilized to profitably trade commodity futures.
16. McGivney, Koziol and the Corporations have repaid only $202,498 of the $957,583 they solicited and accepted from investors, and therefore still owe $755,085 to investors. Of this amount:
a. A total of at least $248,282 is owed to 18 Capital investors;
b. A total of at least $293,720 is owed to 37 JPM2 investors by JPMR and at least an additional $10,000 is owed to a JPM2 investor by JPMC;
c. A total of at least $130,583 is owed to 15 JPMC investors; and
d. A total of at least $72,500 is owed to 3 Traders investors.
17. McGivney and Koziol used nearly all of the approximately $755,085 in investors' funds that they received and did not return over the past six years for their own use and for that of the Corporations. Among other things, McGivney and Koziol used investor funds to compensate themselves, to pay for the operating expenses of the Corporations, the rent, car payments and other personal living expenses of McGivney, and to make payments to relief defendants J. Traders, Wnukowski (McGivney's friend), and M. McGivney (McGivney's ex-wife).
18. McGivney and Koziol knew that the Corporations had not engaged in profitable futures trading or any revenue-generating activities sufficient to repay investors.
"PERFORMANCE REBATE" COMMODITY POOL
19. In February 1999, McGivney and JPM began soliciting investors for investment in a commodity pool called the "performance rebate."
20. McGivney and JPM represented to potential participants in this pool that:
a. This pool would be funded by diverting one-half of JPM's commodity hotline subscriber fees for investment in commodity futures;
b. The investors' funds would be placed into a specific corporate trading account;
c. The objective for this trading account was "10 to 1 in 12 months."
The Court finds that McGivney knew or recklessly disregarded that these statements had no basis in fact at the time that he made them.
21. Prospective participants in the performance rebate pool relied upon the representations set forth in paragraph 20 in deciding whether to invest in this commodity pool.
22. McGivney, Koziol and JPM never deposited the performance rebate investors' funds in a specific corporate trading account and never traded commodity futures with their funds.
23. McGivney, Koziol and JPM commingled investor funds from the performance rebate pool with JPM's funds and their personal funds and thereby misappropriated those funds. Among other things, McGivney and Koziol used performance rebate investor funds to compensate themselves, to pay for the operating expenses of JPM, the personal living expenses of McGivney, and to make payments to Wnukowski and M. McGivney.
23. A total of $49,000 is owed to 63 participants in the performance rebate pool.
24. McGivney and Koziol knew that JPM had not engaged in any profitable futures trading or any revenue-generating activities sufficient to repay investors.
25. From 1993 to the present, McGivney and Koziol paid relief defendant Wnukowski a net amount of $168,920.48 from investor funds, and Wnukowski does not have any legitimate entitlement, as an investor or otherwise, to receive the Pools' investors funds.
26. From 1993 to the present, McGivney and Koziol paid relief defendant M. McGivney a net amount of $100,000 from investor funds, and M. McGivney does not have any legitimate entitlement, as an investor or otherwise, to receive the Pools' investors funds.
ORDER FOR PERMANENT INJUNCTION
IT IS HEREBY ORDERED THAT:
1. Koziol is permanently RESTRAINED, ENJOINED AND PROHIBITED from directly or indirectly 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) (1994).
2. Koziol is permanently restrained, enjoined and prohibited from directly or indirectly:
a. trading on or subject to the rules of any contract market;
b. engaging in, controlling or directing the trading for any commodity interest account for or on behalf of any other person or entity, whether by power of attorney or otherwise; and
c. applying for registration or seeking exemption from registration with the Commission in any capacity, and engaging in any activity requiring such registration or exemption from registration, or acting as an agent or officer of any person registered, exempted from registration or required to be registered with the Commission. This includes, but is not limited to, soliciting, accepting or receiving any funds, revenue, or other property from any person, giving advice for compensation, or soliciting prospective customers, related to the purchase or sale of any commodity futures or options on commodity futures contracts.
3. The injunctive provisions of this Order shall be binding upon Koziol, upon any person insofar as he or she is acting in the capacity of officer, agent, servant or employee of Koziol, and upon any person who receives actual notice of this Order, by personal service or otherwise, insofar as he or she is acting in active concert or participation with Koziol.
ORDER FOR OTHER EQUITABLE RELIEF
IT IS FURTHER ORDERED THAT:
1. RESTITUTION: Koziol shall be jointly and severally liable with McGivney to pay restitution in the amount of in the amount of seven hundred and fifty-five thousand and eighty-five dollars ($755,085) ("Restitution Amount"), plus prejudgment interest of one hundred and fifteen thousand nine hundred and fifty dollars ($115,950), to compensate the persons whose funds Koziol received and disposed of in connection with the Corporations' commodity pools in violation of the statutory and other provisions identified herein, and is jointly and severally liable with McGivney and JPM to pay restitution in the amount of forty-nine thousand dollars ($49,000) (Rebate Pool Restitution Amount), plus prejudgment interest of three thousand six hundred and ninety-three dollars ($3,693), to compensate the persons whose funds Koziol received and disposed of in connection with the Performance Rebate pool in violation of the statutory and other provisions identified herein. Koziol shall pay postjudgment interest from the date of this Order until the Restitution Amount and the Rebate Pool Restitution Amount are paid in full, at the Treasury Bill rate prevailing on the date of this Order, pursuant to 28 U.S.C. § 1961(a). The persons to whom the Restitution Amount shall be paid and the principal amounts of restitution owed to each are set forth in Appendix A. The persons to whom the Rebate Pool Restitution Amount shall be paid and the principal amounts of restitution owed to each are set forth in Appendix B. Omission from Appendices A or B shall in no way limit the ability of any investor from seeking recovery from Koziol or any other person or entity. Further, the amounts contained in Appendices A or B shall not limit the ability of any investor from proving that a greater amount is owed from Koziol or any other person or entity, and nothing herein shall be construed in any way to limit or abridge the rights of any investor that exist under state or common law.
2. THIRD-PARTY BENEFICIARIES: Pursuant to Rule 71 of the Federal Rules of Civil Procedure, each of the individuals identified in Appendices A and B is explicitly made an intended third-party beneficiary of this Order and, may enforce obedience of this Order to obtain satisfaction of any portion of the Restitution Amount which has not been paid by McGivney or Koziol, to ensure continued compliance with any provision of this Order and to hold Koziol in contempt for any past violations of any provision of this Order.
3. Neither Koziol, McGivney, Wnukowski nor M. McGivney nor any member of their immediate families is entitled to restitution in any amount for any funds invested in JPM, the Performance Rebate Pool or any McGivney commodity pool.
4. COLLATERAL AGREEMENTS: Koziol shall immediately notify the Commission if he makes or has previously made any agreement with any Pool Investor obligating him to make payments outside of this Order. Koziol shall also provide immediate evidence of any payments made pursuant to such agreement in the manner required by Section VI. paragraph A. Upon being notified of any payments made by Koziol to pool investors outside of this Order, the Commission will have the right to reduce and offset Koziol's obligation to specified investors, on an annual basis, and to make any other changes in the restitution distribution schedule that they deem appropriate.
5. TRANSFER OF ASSETS: Koziol shall not transfer or cause others to transfer funds or other property to the custody, possession, or control of any members of his family or any other person for the purpose of concealing such funds from the Court, the Commission, or any investor or until the Restitution Amounts have been paid in full.
6. CIVIL MONETARY PENALTY: The Court is not ordering the payment of a civil monetary penalty, pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1, based upon the accuracy and completeness of Koziol's sworn representations to the Commission concerning his financial condition. If at any time following the entry of this Order, the Commission obtains information indicating that Koziol's representations concerning his financial condition were fraudulent, misleading, inaccurate or incomplete in any material respect at the time they were made, the Commission may, at its sole discretion and without prior notice to Koziol, petition the Court for an order requiring Koziol to pay a civil monetary penalty. In connection with any such petition, the only issues shall be whether the financial information provided by Koziol was fraudulent, misleading, inaccurate or incomplete in any material respect at the time such representations were made and the amount of civil monetary penalty to be ordered. In any such petition, the Commission may move the Court to consider all available remedies, including, but not limited to, ordering Koziol to pay funds or assets, directing the forfeiture of any assets, or sanctions for contempt of this Order, and the Commission may also request additional discovery. Koziol may not, by way of defense to such petition, challenge the validity of his consent to this Consent Order, contest the allegations in the Complaint filed by the Commission or the Findings of Fact or Conclusions of Law contained in this Consent Order, or assert that payment of a civil monetary penalty should not be ordered.
7. DEFAULT: Any failure by Koziol to carry out any of the terms, conditions or obligations under any paragraph of this Order shall constitute an Event of Default under this Order. If any Event of Default occurs and, if capable of being cured, is not cured within ten (10) calendar days following the Commission's (or its designee) mailing of notice of such Event of Default to Koziol, the Commission (or its designee) and/or any pool participant identified in Appendices A and B shall be entitled to:
a. petition the Court to consider all available remedies including, but not limited to, imposing sanctions for contempt of this Order;
b. enforce and take all legal steps necessary to satisfy the Permanent Injunction and otherwise declare the terms and conditions contained in this Order null, void and without legal force;
c. pursue Koziol for any and all additional claims and causes of action of any nature, in law or in equity, which the Commission or any pool participant have, may have or may have had against Koziol; and
d. use any statement heretofore or hereafter made by Koziol as evidence against him.
Koziol expressly agrees and this Court orders that upon the occurrence of an Event of Default, Koziol will be barred from: (1) asserting any defense, including expiration of any statute of limitations, waiver, estoppel or laches, where such defense is based on the alleged failure of the Commission or any Pool Investor to pursue such claims or causes of action during the pendency of this civil action, during the negotiation of Koziol's agreement to this Consent Order or while this Consent Order remains in effect; and/or (2) objecting to, defending against or otherwise disputing the non-dischargeability of his obligations, including his obligations under this Consent Order.
A. NOTICES. All notices required by any provision in this Order shall be sent by certified mail, return receipt requested, as follows:
|Notice to Commission:||
Director, Division of
Commodity Futures Trading Commission
1155 21st Street, N.W.
Washington, D.C. 20581
Scott R. Williamson
|Notice to Defendant:||
Edwin A. Koziol, Jr.
8907 South Melvina
Oak Lawn, Illinois 60453
|Notice to Defendant's Attorney:||
Richard C. Leng
55 W. Monroe St., Suite 2350
Chicago, IL 60603
The defendant must give notice to the Commission within 30 days of any change of his mailing address.
B. ENTIRE AGREEMENT, AMENDMENTS and SEVERABILITY. This Order incorporates all of the terms and conditions of the settlement among the parties. Nothing shall serve to amend or modify this Order in any respect whatsoever, unless: (1) reduced to writing, (2) signed by all parties, and (3) approved by order of the Court. If any provision of this Order or the application of any provision or circumstance is held invalid, the remainder of this Order shall not be affected by the holding.
C. WAIVER. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same or any other provision of this Consent Order. No waiver in one or more instances of the breach of any provision contained in this Order shall be deemed to be, or construed as, a further or continuing waiver of such breach or waiver of the breach of any other provision of this Order.
D. SUCCESSORS AND ASSIGNS. This Order shall inure to the benefit of and be binding on the parties' successors, assigns, heirs, beneficiaries and administrators.
E. ACKNOWLEDGMENT. Upon being served with copies of this Order after entry by the Court, Koziol shall sign an acknowledgment of such service and serve such acknowledgments on the Commission within seven (7) calendar days.
F. Upon being served with copies of this Order after entry by the Court, the Commission shall serve a copy of the Order upon all persons identified as investors in Appendices A and B, within seven (7) calendar days.
G. JURISDICTION. This Court shall retain jurisdiction of this cause to assure compliance with this Order and for all other purposes related to this action.
There being no just reason for delay, the Clerk of the Court is hereby directed to enter this Consent Order of Permanent Injunction and Other Equitable Relief Against Edwin A. Koziol, Jr.
ORDERED this 17th day of July, 2000.
UNITED STATES DISTRICT JUDGE
Consented to and Approved for Entry by:
Edwin A. Koziol,
Richard C. Leng
Susan B. Padove
Scott R. Williamson
Commodity Futures Trading