The opinion of the court was delivered by: Hon. Anthony J. BattagliaU.S. District Judge
CONSENT ORDER OF PERMANENT INJUNCTION AND CIVIL PENALTIES AGAINST INCREASE INVESTMENTS, INC., SPIRIT INVESTMENTS, INC., AND SCOTT BOTTOLFSON
On January 7, 2011, Plaintiff U.S. Commodity Futures Trading Commission (the "Commission" or "CFTC") filed a Complaint against Defendants Increase Investments, Inc. ("Increase"), Spirit Investments, Inc. ("Spirit"), and Scott Bottolfson ("Bottolfson") (collectively, "Defendants"). The Complaint seeks injunctive relief and civil monetary penalties for violations of the Commodity Exchange Act ("Act"), as amended by the Food, Conservation, and Energy Act of 2008, Pub. L. No. 110-246, Title XIII (the CFTC Reauthorization Act of 2008 ("CRA")), §§ 13101 - 13204, 122 Stat. 1651, to be codified at 7 U.S.C. §§ 1 et seq.
I. CONSENTS AND AGREEMENTS
To effect settlement of the matters alleged in the Complaint in this action prior to a trial on the merits or further judicial proceedings, Increase, Spirit, and Bottolfson:
1. Consent to the entry of this Consent Order of Permanent Injunction and Civil Penalties ("Order");
2. Affirm that they have read and agreed to this Order voluntarily, and that no threat or promise, other than as set forth specifically herein, has been made by the Commission or any member, officer, agent or representative thereof, or by any other person, to induce their consent to this Order;
3. Acknowledge service upon them of the summons, Complaint, and this Order;
4. Admit this Court's personal and subject matter jurisdiction over them and this action pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1 (2006);
5. Admit that venue properly lies with this Court pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1 (2006);
6. Waive: a. all claims that may be available to them under the Equal Access to Justice Act (EAJA), 5 U.S.C. § 504 (2006) and 28 U.S.C. § 2412 (2006), and Part 148 of the Regulations, 17 C.F.R. §§ 148.1, et seq. (2010), relating to, or arising from, this action and any right pursuant to EAJA to seek costs, fees and other expenses relating to or arising from this action;
b. any and all claims that they may possess under the Small Business Regulatory Enforcement Fairness Act of 1996, Pub. L. No. 104-121, §§ 201-253, 110 Stat. 847, 857-868 (1996), as amended by Pub. L. No. 110-28, § 8302, 121 Stat. 112, 204-207 (2007), relating to, or arising from, this action;
c. 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;
d. all rights of appeal in this action;
7. Agree and consent to this Court's jurisdiction and inherent authority to enforce this Consent Order and Permanent Injunction;
8. Agree that neither they nor any of their agents or employees under their authority or control shall take any action or make any public statement denying, directly or indirectly, any allegation in the Complaint, or creating, or tending to create the impression that the Complaint or this Order is without a factual basis; provided, however, that nothing in this provision shall affect their (i) testimonial obligations; or (ii) right to take legal positions in other proceedings to which the Commission is not a party. Bottolfson shall take all steps necessary to ensure all of his agents and employees comply with this provision. Each remaining Defendant shall take all steps necessary to ensure all of its agents and employees comply with this provision;
9. Neither admit nor deny the allegations of the Complaint or the Findings of Fact and Conclusions of Law contained in this Order, except as to jurisdiction and venue, which they admit. However, they agree and intend that the allegations of the Complaint and all of the Findings of Fact and Conclusions of Law contained in this Order shall be taken as true and correct and be given preclusive effect, without further proof, in the course of any subsequent action to enforce the terms of this Order and any bankruptcy proceeding filed by, on behalf of, or against him. No provision of this Order shall in any way limit or impair the ability of any person to seek any legal or equitable remedy against the Defendants, or any other person in any other proceeding;
10. Agree to provide immediate notice to this Court and the CFTC by certified mail of any bankruptcy proceeding filed by, on behalf of, or against them;
11. Agree that they will provide notice to this Court and the CFTC by certified mail of any change to their contact telephone number(s) and/or mailing address(es) within ten (10) calendar days of the changes(s); and
II. FINDINGS AND CONCLUSIONS
FINDINGS OF FACT Plaintiff
1. Commodity Futures Trading Commission is a federal independent regulatory agency that is charged by Congress with the administration and enforcement of the Act, as amended, 7 U.S.C. §§ 1 et seq., and the Regulations promulgated there under, 17 C.F.R. §§ 1.1 et seq. (2010).
2. Increase Investments, Inc. is incorporated in Reno, Nevada. Its address is 5190 Neil Road, Suite 430 Reno, NV 89502. Increase has never registered with the Commission in any capacity, however it acted as a commodity pool operator. Scott Bottolfson and his wife Lori Bottolfson are the only officers of the corporation. Increase Investments, Inc. is owned by Spirit Increase Revocable Trust ("SIRT"). Increase Investments, Inc. opened its first futures trading account in March of 2002. The account was opened with R.J. O'Brien, a registered futures commission merchant ("FCM"). Increase operates a single pool, the Increase Investments, Inc. pool ("Increase pool").
3. Spirit Investments, Inc. is an NFA member commodity pool operator ("CPO") with a business address of 619 South Vulcan Ave., Suite 103, Encinitas, CA 92024. It is registered in Delaware. Scott Bottolfson is the President of Spirit Investments, Inc. Lori Bottolfson is the only other principal (she does not have a title). Spirit Investments, Inc. operates a single pool, Kingship Commodities Group, LP ("Kingship"). Spirit Investments, Inc. is owned by SIRT.
4. Scott Bottolfson resides in Encintas, California. Bottolfson is an officer in Increase Investments, Inc. and Spirit Investments, Inc. Bottolfson is registered with NFA as an associated person of Spirit Investments, Inc. He is also a principal and agent of Spirit Investments, Inc. Bottolfson is the "initial Trustee" of SIRT.
5. Section 1a(5) of the Act, 7 U.S.C. § 1a(5) (2006), defines a "commodity pool operator" as any person engaged in a business that is of the nature of an investment trust, syndicate, or similar form of enterprise and in connection therewith, has 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 or derivatives transaction execution facility.
6. During the relevant period, Bottolfson solicited pool participants to trade in two commodity pools, through his companies, Increase and Spirit. Bottolfson pooled various individuals' funds for the purpose of trading commodity futures and options on futures with the pooled funds.
7. Bottolfson solicited a total of approximately $14 million from pool participants. The transfers of funds from participants to the pools were executed through the use of promissory notes with Bottolfson informing the participants that the funds would be traded in futures and options on futures.
8. From approximately 2002, Bottolfson solicited to trade on behalf of pool participants. The pool participants included approximately thirty individuals, all or most of whom were Bottolfson's family and friends. Bottolfson claimed he was pooling the participants' funds to trade in futures and options on futures.
9. Bottolfson traded some of the participants' funds in commodity futures accounts at FCMs in the names of Increase and Kingship.
10. Defendants returned to pool participants approximately $7 million of the approximately $14 million solicited from pool participants. Defendants currently owe the remaining ...