UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
|COMMODITY FUTURES TRADING COMMISSION,||)||Civil Action No. 00-Civ-13-17|
|DAVID M. MOBLEY SR.;||)||COMPLAINT FOR PERMANENT|
|MARICOPA INVESTMENT FUND, LTD.;||)||INJUNCTION AND OTHER|
MARICOPA INDEX HEDGE FUND, LTD.;
|MARICOPA FINANCIAL CORPORATION;||)|
|ENSIGN TRADING CORPORATION;||)|
|MARICOPA INTERNATIONAL INVESTMENT||)|
|CORP. d/b/a/ MARICOPA INVESTMENT||)|
|CORP.; AND IAM INC.,||)|
|- and -||)|
|MARICOPA ECLIPSE PARTNERS, LTD.;||)|
|MARICOPA OVERSEAS LTD.;||)|
|EPWORTH FINANCIAL, LTD.;||)|
|MARICOPA CAPITAL MANAGEMENT L.C.;||)|
|MOBLEY TRADING & INVESTMENT CORP;||)|
|AND D. MOBLEY INCOPORATED,||)|
The Commodity Futures Trading Commission ("Commission") alleges as follows:
1. Defendant David Mobley Sr. (Mobley Sr.) conceived and carried out a $59 million fraud on the investors in four hedge funds he created and managed: Maricopa Investment Fund, Ltd., Maricopa Index Hedge Fund, Ensign Trading Corporation, and Maricopa Financial Corporation.
2. Mobley Sr. claimed to have $450 million under management and told his investors that he invested their funds primarily in major stock index products using computer trading models he developed. He claimed to have achieved rates of return averaging approximately 51 per cent per year, net of his management fee of 30 percent. He declined to have his funds audited, explaining to investors that audits would risk divulging his secret and highly profitable trading strategies.
3. In fact, Mobley Sr. had no more than about $35 million under management and his trading program was generally unprofitable. He lost the bulk of the investors' funds through a series of failed business ventures in, for example, a mortgage company, a golf and country club development, a research and polling company, a cigar lounge, and a plan to build a stadium on a golf course. Mobley Sr. also used investor funds to make charitable contributions of approximately $3.5 million and to support a lavish lifestyle for himself and his family and associates, including an expensive vacation home near Vail, Colorado, sports cars, expensive jewelry, and numerous trips on private jets.
4. Mobley Sr. estimates that since September 1992, more than 170 investors contributed a total of $140 million into his funds. Most of the investors were wealthy, though some were of modest means and entrusted Mobley Sr. with their IRAs. Only about $33 million of investor assets, including about $5 million in illiquid assets, remain. Taking into account prior redemptions which Mobley Sr. estimates at less than $48 million (which included substantial profits paid to the redeeming investors at the expense of the remaining investors), total investor losses appear to exceed $59 million.
5. By 1996, at the latest, the investment scheme involved, among other things, the management of a de facto commodity pool and the trading of commodity futures and options, in which substantial commodities-related trading losses ultimately were both incurred and concealed from investors. Specifically, defendants omitted to disclose to investors that their funds would be traded in commodity futures and options. Further, Mobley Sr. caused certain defendants to issue reports to investors that fraudulently overstated the profitability of their investments while concealing the fact that substantial losses had resulted from trading investor funds in commodity futures and options. Finally, Mobley Sr. misappropriated investor funds and converted them to his own use and benefit.
6. Thus, Defendants have engaged, are engaging in, and are about to engage in acts and practices which violate the anti-fraud provisions set forth in Sections 4b and 4o(1) of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. 6b and 6o(1) (1994).
7. Accordingly, pursuant to Section 6c of the Act, 7 U.S.C. 13a-1 (1994), the Commodity Futures Trading Commission brings this action to enjoin such acts and practices, and to compel compliance with the provisions of the Act. In addition, the Commission seeks restitution, disgorgement, civil penalties, and such other equitable relief as the Court may deem necessary and appropriate.
8. Given Defendants' pattern of fraudulent activity, unless restrained and enjoined by this Court, they are likely to continue to engage in the acts and practices alleged in the Complaint, as more fully described below. The Commission brings this action on an emergency basis to stop the fraud and to preserve the remaining assets for the investors' benefit.
II. JURISDICTION AND VENUE
9. The Act prohibits fraud in connection with the purchase and sale of commodity futures contracts and options, and establishes a comprehensive system for regulating the purchase and sale of commodity futures and options contracts. This Court has jurisdiction over the subject matter of this action and all parties hereto pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1 (1994), which authorizes the Commission to seek injunctive relief against any person whenever it shall appear 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.
10. Venue properly lies with this Court pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1(e) (1994), in that Defendants 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, among other places.
III. THE PARTIES
11. Plaintiff Commodity Futures Trading Commission is the independent federal regulatory agency charged with the administration and enforcement of the Act, 7 U.S.C. §§ 1 et seq., and the Regulations promulgated thereunder, 17 C.F.R. §§ 1 et seq.
12. Defendant David M. Mobley Sr., Sr. resides in Naples, Florida. Mobley Sr. owns and/or controls, directly or indirectly, the other Defendants. Mobley Sr. has provided sworn testimony to the Commission and the Securities and Exchange Commission in which he has admitted conceiving and carrying out the fraud described in this Complaint. From time to time during the relevant period, Mobley Sr. transacted business in the Southern District of New York, including but not limited to, maintaining investor funds and
trading accounts at Morgan Stanley Dean Witter & Co. Mobley Sr. has never been registered in any capacity with the Commission.
13. Defendant Maricopa Investment Fund, Ltd. ("MIF") is a limited partnership owned and controlled, directly or indirectly, by Mobley Sr., and whose general partner is Maricopa International Investment Corporation. From time to time during the relevant period, MIF transacted business in the Southern District of New York, including but not limited to, maintaining investor funds and trading accounts at Morgan Stanley Dean Witter & Co.
14. Defendant Maricopa Index Hedge Fund, Ltd. ("MIHF") is a limited partnership owned and controlled, directly or indirectly, by Mobley Sr., and whose general partner is Maricopa International Investment Corporation. From time to time during the relevant period, MIF transacted business in the Southern District of New York, including but not limited to, maintaining investor funds and trading accounts at Morgan Stanley Dean Witter & Co.
15. Defendant Maricopa Financial Corporation is an entity which accepted investor funds, offered a fixed percentage return on investment, and is owned and controlled, directly or indirectly, by Mobley Sr. Its funds were invested in Ensign Trading Corporation's trading accounts.
16. Defendant Ensign Trading Corporation ("Ensign") is owned and controlled, directly or indirectly, by Mobley Sr. and incorporated in Belize. Ensign maintains an office at P.O. Box 10656, APO, Grand Cayman, Cayman Islands. Ensign was a vehicle used to receive funds from MIF, MIHF and otherwise, which it used to trade, among other things, commodity futures and options. From time to time during the relevant period, Ensign has transacted business in the Southern District of New York, including, but not limited to, maintaining customer funds and trading accounts at Morgan Stanley Dean Witter & Co.
17. Defendant Maricopa International Investment Corporation ("MIIC"), is a Florida corporation owned and controlled, directly or indirectly, by Mobley Sr. Incorporated in September 1992, it is located at 5150 Tamiami Trail North, Suite 700, Naples, Florida 34103. It acts and has acted as the general partner of MIF and MIHF limited partnerships. From time to time during the relevant period, MIIC has transacted business in the Southern District of New York, including, but not limited to, maintaining investor funds and a trading account at Morgan Stanley Dean Witter & Co.
18. Defendant IAM, Inc. ("IAM") is a Bahamian corporation that purportedly acts as a trading manager for Ensign, and is owned and controlled, directly or indirectly, by Mobley Sr. From time to time during the relevant period, MIIC transacted business in the Southern District of New York, including, but not limited to, maintaining investor funds and a trading account at Morgan Stanley Dean Witter & Co.
19. Relief Defendants, Maricopa Eclipse Partners, Ltd.; Maricopa Overseas Ltd.; Epworth Financial, Ltd.; Maricopa Capital Management L.C.; Mobley Sr. Trading & Investment Corp; and D. Mobley Sr. Incorporated, are each entities that Mobley Sr. owns and/or controls, directly or indirectly, and that hold customer funds in constructive trust for the benefit of customers.
A. STATUTORY BACKGROUND
20. A commodity pool is defined in Commission Regulation 4.10(d)(1) , 17 C.F.R. § 4.10(d)(1999), as any investment trust, syndicate or similar form of enterprise engaged in the business of investing its pooled funds in trading commodity futures and options.
21. A commodity pool operator ("CPO") is defined in Section 1a(4) of the Act, 7 U.S.C. § 1(a)(4)(1994), 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.
B. DEFENDANTS' BUSINESS PRACTICES
22. Starting in or around 1992 and continuing through the present, Defendant Mobley Sr. induced numerous investors to make sizeable investments through various Defendant entities, which pooled customer funds ostensibly for the purpose of trading securities and other equity investments. An Offering Circular for MIF and MIHF used during the relevant period states that the partnerships would be "investing in publicly traded securities," and a solicitation brochure created by Defendants in early 1999 indicated that investor funds would be traded in equity options and other equity investments.
23. During the relevant period, Mobley Sr. accepted or caused to be accepted a total of approximately $140 million in funds in MIF and MIHF accounts (from U.S. investors), and in accounts in the name of Ensign (from offshore investors).
24. Mobley Sr. opened or caused to be opened several Ensign trading accounts with Morgan Stanley Dean Witter & Co. ("Morgan Stanley"), a securities and futures brokerage house located in New York City, and directed that all funds invested in MIF and MIHF be transmitted to Ensign's accounts at Morgan Stanley. Thus, Ensign's Morgan Stanley accounts received funds both directly from investors and indirectly through MIF and MIHF.
25. Investor funds were also transferred between and among other Defendants, including MIIC, MFC and IAM, passing through Ensign from time to time.
26. By 1996, at the latest, some of the funds transferred to Ensign were used to trade commodity futures and options trading accounts at various futures commission merchants, and eventually transferred to accounts opened at Morgan Stanley. Thus, Mobley Sr. omitted to disclose to investors the material fact that he intended to and did use their funds for trading in futures and options, and traded their funds without appropriate authorization.
27. In 1999 alone, unauthorized commodity futures and options transactions in the Ensign accounts resulted in losses of over three million dollars of investor funds. Rather than reporting to investors the fact that losses were being incurred from futures and options trading with their funds, Mobley Sr. made or caused to be made false, deceptive and/or misleading statements in the form of account statements sent to investors that falsely reflected huge profits in the investors' personal accounts, while failing to set forth the facts that their funds were being used to trade commodity futures and options and that net losses were flowing from such trading.
28. Mobley Sr. also overstated the size and returns of his funds to the Commission in both oral and written misrepresentations, as well as the source of funds in the commodity futures and options trading accounts, and the purpose for which funds were traded in those accounts.
29. Further, during the relevant period, Mobley Sr. misappropriated investor funds and converted them to his personal use, which included investments in other businesses, the purchase of luxury cars and homes for himself and his family, and cash payments and gifts to family members and others. On information and belief, some of the funds he misappropriated and converted to his own use and benefit derived from investor funds traded in the commodity futures and options accounts in Ensign's name at Morgan Stanley.
V. VIOLATIONS OF THE COMMODITY EXCHANGE ACT
VIOLATIONS OF SECTION 4b OF THE ACT:
FRAUD BY MISREPRESENTATIONS, OMISSIONS AND MISAPPROPRIATION
30. Paragraphs 1 through 30 are realleged and incorporated herein.
31. Beginning in approximately 1996 and continuing until the present, Mobley Sr., together with the Defendant entities, by the conduct outlined in Paragraphs 23 - 30 above, through use of the mails and other means and instrumentalities of interstate commerce, directly or indirectly, (i) cheated or defrauded or attempted to cheat or defraud other persons; (ii) willfully made or caused to be made to other persons false reports or statements thereof, or willfully entered or caused to be entered for other persons false reports thereof; or (iii) willfully deceived or attempted to deceive other persons, caused investor funds to be used for, among other things, trading commodity futures and options contracts, in violation of Section 4b(a) of the Act, 7 U.S.C. § 6b(a)(1994).
32. 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 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.
33. Mobley Sr. and the other Defendants acted willfully in the conduct set forth in Paragraphs 23-30 above.
34. By the conduct described in Paragraphs 23-30, above, Defendant entities are liable as principals for the acts and omissions of their agent, Mobley Sr., by operation of Section 2(a)(1)(A)(iii) of the Act, 7 U.S.C. § 4, and Section 1.2 of the Regulations, 17 C.F.R. § 1.2.
35. By the conduct described in Paragraphs 23-30 above, Mobley Sr. is liable as a controlling person under Section 13b of the Act, 7 U.S.C. § 6b(a)(ii), for the foregoing acts and omissions of Defendant entities. Mobley Sr. exercised actual control or possessed the authority to exercise control and did not act in good faith or knowingly induced, directly or indirectly, the acts constituting these violations.
VIOLATIONS OF SECTION 4o(1) OF THE ACT:
FRAUD BY COMMODITY POOL OPERATORS
36. Paragraphs 1 through 35 are re-alleged and incorporated herein.
37. Beginning in approximately 1996 and continuing through the present, Defendant entities, by acting as commodity pool operators, and by use of the mails or other instrumentalities of interstate commerce, directly or indirectly, employed devices, schemes or artifices to defraud customers, or engaged in transactions, practices, or a course of business conduct which operated as a fraud or deceit upon customers, in violation of Section 4o(1) of the Act, 7 U.S.C. § 6o(1)(1994).
38. Mobley Sr. is liable as a controlling person for the foregoing acts and omissions of the Defendant entities, pursuant to Section 13b of the Act, 7 U.S.C. 13b, in that he actually controlled or possessed the authority or ability to control the Defendant entities which committed the foregoing violations of Section 4o of the Act and Mobley Sr. did not act in good faith or knowingly induced, directly or indirectly, the acts constituting these violations.
DISGORGEMENT OF THE ASSETS OF THE RELIEF DEFENDANTS
39. Paragraphs 1 through 38 are re-alleged and incorporated herein.
40. The Defendants committed a fraud upon the investors in connection with, among other things, the purchase and sale of commodity futures and options, as alleged herein.
41. The Relief Defendants have received funds or have otherwise benefitted from funds which are directly traceable to the funds obtained from the Defendants' investors through fraud.
42. The Relief Defendants are not bona fide purchasers with legal and equitable title to the investors' funds or assets, and the Relief Defendants will be unjustly enriched if they are not required to disgorge the funds or the value of the benefit they received as a result of the Defendants' fraud.
43. The Relief Defendants should be required to disgorge the funds and the assets, or the value of the benefit they received, from those funds and assets, which are traceable to the Defendants' fraud.
44. By reason of the foregoing, the Relief Defendants hold funds and assets in constructive trust for the benefit of the Defendants' investors.
WHEREFORE, Plaintiff 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, enter:
a. a permanent injunction prohibiting the defendants and any other person or entity associated with them from engaging in conduct violative of the provisions of the Act they are alleged to have violated;
b. an order directing the defendants and relief defendants and any successors thereof, to disgorge pursuant to such procedure as the Court may order, all benefits received from the acts or practices which constituted violations of the Act, as described herein, and interest thereon from the date of such violations;
c. an order directing the defendants to make full restitution to every customer whose funds were received by them as a result of acts and practices which constituted violations of the Act, as described herein, and interest thereon from the date of such violations;
d. an order requiring the defendants to pay civil penalties in amounts not to exceed the higher of $110,000 (or $100,000 for violations occurring before November 28, 1996), or triple the monetary gain to them for each violation of the Act, as described herein; and
e. such other remedial ancillary relief as the Court may deem appropriate.
|Date: February 22, 2000||Daniel A. Nathan (DN 7595)|
|Susan B. Bovee|
Attorneys for Plaintiff
|Commodity Futures Trading Commission|
|Three Lafayette Centre|
|1155 21st Street, N.W.|
|Washington, DC 20036|
|(202) 418-5523 (fax)|