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United States Commodity Futures Trading Commission v. Gordon A. Driver

July 5, 2012

UNITED STATES COMMODITY FUTURES TRADING COMMISSION, PLAINTIFF,
v.
GORDON A. DRIVER, AXCESS AUTOMATION LLC, AND AXCESS FUND MANAGEMENT LLC, DEFENDANTS.



The opinion of the court was delivered by: Otis D. Wright, II United States District Judge

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT [99]

I.INTRODUCTION

The United States Commodity Futures Trading Commission ("CFTC") brings this civil enforcement action alleging that Defendant Gordon Driver (in part through his corporate vehicles Axcess Automation LLC and Axcess Fund Management LLC) operated a Ponzi scheme*fn1 from February 2006 through May 2009. Throughout the course of the scheme, Driver allegedly solicited at least $14.3 million from over 100 participants in the United States and Canada to participate in commodity pools to trade commodity futures and options. Plaintiff contends that Driver sent the pool participants false and misleading reports and statements claiming profits, while in reality Driver had only two profitable trading months throughout the course of the alleged scheme. Meanwhile, Driver used only a small portion of the solicited pool funds for commodity trading, using the rest for his own personal and business expenses, including payouts to pool participants to maintain the charade.

The CFTC now moves, unopposed, for summary judgment. (ECF No. 99.) In light of Defendants' failure to oppose Plaintiff's Motion, the Court deems the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78(b); L.R. 7-15. Having reviewed the evidence submitted by Plaintiffs, and having considered the applicable law, the Court GRANTS the CFTC's Motion. The Court finds and rules as follows.

II.FINDINGS OF FACT

A.Commodity Pool Ponzi Scheme

Between at least February 2006 and May 2009 (the "Relevant Period"), Gordon Driver solicited and accepted approximately $14,319,905 from over 100 participants in the United States and Canada to invest in a commodity pool for the purpose of trading commodity futures on or subject to the rules of a contract market. (Driver SEC Test. 25:25--26:10, Apr. 23, 2009; Santiago Decl. ¶ 9.)

In soliciting pool participants, Driver told prospective pool participants (both directly and indirectly via several "point people") that he:

 had a proprietary trading software for trading E-mini S&P 500 futures contracts that he had used to trade futures successfully (Gray Dep. 28:3--18, Dec. 7, 2011; Traynor Dep. 25:13--26:12, Jan. 13, 2012);

 obtained profitable returns averaging 1--5% per week (or 20% per month), and in some cases as high as 43% per month (e.g., Driver SEC Test. 25:25--26:10, 83:16--84:12, 115:11--116:2; Slowly Decl. ¶¶ 3--6 & Exs. 1--4);

 obtained profits in seven or eight out of ten trades (Driver SEC Test. 51:1--3,

54:22--57:21);  minimized risk by terminating trading following three losing trades in one day and imposing limits on daily losses (Mainse Test. 90:2--11, Apr. 30, 2009; Shaheen Test. 37:4--38:8, June 5, 2009).

Contrary to these representations, Driver's trading was abysmally unprofitable throughout the Relevant Period: of the $3.7 million of pool funds he traded, Driver lost approximately $3.5 million (representing a 94% loss), and he had only two profitable trading months (March and May 2009). (Santiago Decl. ¶¶ 5--7.) Driver never disclosed his losses to pool participants; instead, he sent pool participants periodic statements and reports falsely showing profitable returns averaging 5% per week (or 20% per month) and claimed that he rarely had weekly losses and never had monthly losses. (Driver SEC Test. 83:16--84:22, 115:11--116:2, 119:15--121:2, 144:1-- 12; Taylor Test. 99:2--16, Aug. 6, 2009.) Driver knew these representations were false, as the actual trading statements showed consistently unprofitable returns every month prior to 2009. (Driver SEC Test. 19:21--20:13; Santiago Decl. ¶ 7.) Further, Driver admits that he received the real account statements from three Futures Commission Merchant accounts held in his name, which reflected consistent losses. (Driver SEC Test. 142:8--13.)

Driver deposited pool funds in at least five bank accounts held in his name or in the name of Axcess Automation. (Driver SEC Test. 38:21--39:2, 76:24--77:16; Santiago Decl. ¶ 9.) Driver used only $3.7 million of the $14.3 million in pool funds to actually trade E-mini S&P 500 futures contracts, which he never disclosed to pool participants. (Taylor Test. 231:9--134:3, Aug. 6, 2009; Kozlowski Dep. 67:3--17, Apr. 6, 2012; Batzner Dep. 94:18--95:2, Nov. 30, 2011; Driver SEC Test. 78:10--13, 78:24-- 79:3; Santiago Decl. ¶ 6.) Driver used the remainder of the pool funds for personal and business expenses, including payment of $9.7 million to several pool participants as purported profits to conceal his trading losses. (Santiago Decl. ¶ 14 & Ex. II, at 6; Driver SEC Test. 45:13--18, 87:2--10, 158:2--17, 161:12--162:8.) These purported profits were not actual profits, but rather money invested by other pool participants. Driver used an additional $1.6 million of pool funds on gambling in Las Vegas casinos, rent, meals, travel, entertainment, car payments, computer equipment, clothing, and cash withdrawals. (Santiago Decl. ¶ 14; Driver SEC Test. 45:13--18, 87:2--10, 158:2--17, 161:12--162:8.) Approximately 83 defrauded pool participants are still owed some or all of their principal, which amounts in the aggregate to $9,562,488. (Santiago Decl. ¶ 11 & Exs. II, IV.) Only $77,592 of pool funds remain and have been frozen. (Santiago Decl. ¶ 12 & Ex. IV, at 1.)

B.The Axcess Defendants, Failure to Register as Commodity Pool Operators, and Failure to Produce Books and Records Driver is the founder, owner, and sole principal of Defendants Axcess

Automation LLC and Axcess Fund Management LLC, both of which are Nevada limited liability companies based in Las Vegas, Nevada. (Answer ¶¶ 18, 23, 58.) The Court finds that Driver acted within the scope of employment or office on behalf of and directly controlled the actions of both entities.

Neither Driver nor Axcess Automation have ever registered with the CFTC as Commodity Pool Operators ("CPOs"). (Answer ¶ 21.) Nevertheless, Driver and Axcess Automation, acting as CPOs, solicited, accepted, and received millions of dollars from individuals for commodity futures trading purposes and commingled pool funds with non-pool property. (Answer ¶ 24; Driver SEC Test. 72:9--11, 76:24-- 77:8, 77:20--22, 78:6--9; Santiago Decl. ¶ 9; Sass Dep. 136:25--138:13, Aug. 11, 2009.) In addition, Driver (acting as an employee of Axcess Automation), directly and indirectly emailed pool participants periodic reports showing profitable returns and provided pool participants with instructions on wiring funds to his bank accounts. (Driver SEC Test. 83:16--84:22, 144:1--12; Taylor Test. 72:20--73:2.)

Axcess Fund, on the other hand, has been registered with the CFTC as a CPO since July 2008, and Driver has been registered as an associated person of Axcess Fund since September 2008. (Slowly Decl. ¶20, Ex 18; Answer ¶¶ 18, 20, 58--60.) On April 15, 2009, the CFTC sent Axcess Fund a document request under 7 U.S.C. § 6g requesting Axcess Fund's books and records. (Answer ¶ 55; Slowly Decl ¶ 19 & Ex. 17.) While Axcess Fund produced some of its records, it did not produce its emails or customer subscription agreements. (Slowly Decl. ¶¶ 24--25.) On April 28, 2008, Axcess Fund and Driver's attorney sent a letter to the CFTC stating that "Driver [would] be unable to produce true and correct records evidencing actual trading activity and corresponding financial records." (Slowly Decl. ¶ 26 & Ex. 24.) Driver asserted his Fifth Amendment right to be free from self-incrimination at his deposition when asked whether Axcess Fund had failed to timely produce documents upon a CFTC request. (Driver Dep., June 18, 2012.)

In January 2010, the Court ordered Defendants to produce all of their business records related to pool activities or risk being held in contempt of the Court's August 17, 2009 Order of Preliminary Injunction. (ECF No. 37, 41.) Defendants subsequently substantially complied with the Court's Order by producing, among other things, Axcess Fund's emails and customer subscription agreements. (ECF No. 45.)

C.Commingling of Commodity Pool Funds

During the Relevant Period, Driver and Axcess Automation, while acting as CPOs, commingled pool funds with non-pool property. Driver deposited solicited pool funds in bank accounts held in his own name and in the name of Axcess Automation. (Driver SEC Test. 38:21--39:2,76:24--77:16; Santiago Decl. ¶ 9.) Axcess Automation commingled pool funds by transferring approximately $345,000 of pool funds to Driver's personal bank accounts. (Santiago Decl. ¶10.) Driver commingled pool funds by directly depositing pool participants' funds into his personal bank accounts at M&T Bank, HSBC, and Citibank Canada. (Driver SEC Test. 77:9--16, 78:6--9; Santiago Decl. ¶ 9.) Driver also deposited approximately $3.7 million of pool funds into three Futures Commission Merchant trading accounts held in his name: York Business Associates LLC, dba Transact Futures (February 2006-- May 2008); Dorman Trading LLC (May 2007--March 2009); and Advantage Futures LLC (February 2009--present.) (Driver SEC Test. 11:8--23, 13:7--16; Santiago Decl. ¶¶ 5--7.) In February 2008, Driver ...


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