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United States Commodity Futures Trading Commission v. Paron Capital Management

September 5, 2012

UNITED STATES COMMODITY FUTURES TRADING COMMISSION, PLAINTIFF,
v.
PARON CAPITAL MANAGEMENT, LLC, AND JAMES D. CROMBIE, DEFENDANTS.



[Proposed] Consent Order of Permanent Injunction Under the Commodity Exchange Act Against Defendant Paron Capital Management, LLC

On or about September 15, 2011, Plaintiff United States Commodity Futures Trading Commission ("Commission," "CFTC," or "Plaintiff") filed its Complaint in the above-captioned 22 action against Paron Capital Management, LLC, ("Paron") and James D. Crombie ("Crombie") 23 (collectively, "Defendants"), seeking injunctive and other equitable relief for violations of Section 24 9(a)(4) of the Commodity Exchange Act (the "Act"), 7 U.S.C. §§ 1, et seq., as amended by the Food, 25 Conservation, and Energy Act of 2008, Pub. L. No., 110-246, Title XIII (the Commodity Futures 26 Trading Commission Reauthorization Act of 2008 ("CRA")), §§ 13101-13204, 122 Stat. 1651 27 (enacted June 18, 2008), to be codified at 7 U.S.C. § 13(a)(4); violations of Section 4b(a)(1)(A), (B) 28 of Act, as amended by the CRA, to be codified at 7 U.S.C. § 6b(a)(1)(A), (B); and violations of Section 4o(1)(A), (B) of the Act, as amended by the CRA, to be codified at 7 U.S.C. § 6o(1)(A), (B). 2

The Commission filed its Amended Complaint on March 28, 2012. The Amended Complaint alleges 3 that Paron, by and through Crombie, and Crombie individually, made and provided to the National 4 Futures Association ("NFA") false, fictitious, or fraudulent statements during an NFA investigation 5 and audit of Paron conducted pursuant to NFA's official duties under the Act. Defendants made and 6 provided to NFA these false, fictitious, or fraudulent statements for the purpose of preventing NFA 7 from discovering that Defendants were soliciting clients to trade commodity futures on or subject to 8 the rules of a designated contract market using fraudulent promotional material. The fraudulent 9 promotional material was based on falsified and counterfeit trading account statements. After 10 providing NFA with initial false, fictitious, and fraudulent statements, Paron, by and through 11 NFA in an attempt to further conceal Defendants' conduct and impede NFA's investigation and audit. 13

Paron consents to the entry of this proposed Consent Order, including to the findings and 14 conclusions in the Order, the jurisdiction of the Commission, and venue. Paron further states that its 15 consent is entered into voluntarily and that no promise or threat has been made by the Commission or 16 any member, officer, agent or representative thereof to induce it to consent to this Order. 17 18 19 trial on the merits or further judicial proceedings, Paron: 20 21 Management, LLC ("Consent Order"); 23

24 this Consent Order voluntarily, and that no promise, other than as specifically contained herein, or 25 threat, has been made by the Commission or any member, officer, agent or representative thereof, or 26 by any other person, to induce consent to this Consent Order; 27 Crombie, and Crombie individually made subsequent false, fictitious, and fraudulent statements to 12

I.CONSENTS AND AGREEMENTS

To effect settlement of all charges alleged in the Amended Complaint against Paron without a

1. Consents to the entry of this Consent Order of Permanent Injunction and Ancillary

Equitable Relief Under the Commodity Exchange Act Against Defendant Paron Capital 22

2. Affirms that Paron, through its officers, agents and attorneys, has read and agreed to

3. Acknowledges service of the summons and Complaint and the Amended Complaint;

2 pursuant to Section 6c of the Act, as amended, to be codified at 7 U.S.C. § 13a-1; 3 4 in this action pursuant to Section 6c of the Act, as amended, to be codified at 7 U.S.C. § 13a-1; 5 6 amended, to be codified at 7 U.S.C. § 13a-1(e); 7

Commission in conformity therewith, Part 148 of the Commission's Regulation ("Regulations"), 17 11

(b) any and all claims that Paron may possess under the Small Business Regulatory Enforcement Fairness Act of 1996, Pub. L. No. 104-121, §§ 201-253, 110 Stat. 847, 857-14 868 (1996), as amended by Pub. L. No. 110-28, § 8302, 121 Stat. 112, 204-205 (2007), relating to, or 15 arising from, this action; 16

(c) any claim of Double Jeopardy based upon the institution of this action or the 17 entry in this action of any order imposing a civil monetary penalty or any other relief, including this 18

(d) any and all rights of appeal from this action;

8. Consents to the continued jurisdiction of this Court over Paron for the purpose of 21 implementing and enforcing the terms and conditions of this Consent Order and for any other purpose 22 relevant to this action, even if Paron now or in the future resides outside the jurisdiction of this Court; 23

9. Agrees that Paron will not oppose enforcement of this Consent Order on the ground 24 that it fails to comply with Rule 65(d) of the Federal Rules of Civil Procedure and waives any 25 objection based thereon; 26 4. Admits the jurisdiction of this Court over Paron and the subject matter of this action 5. Admits the jurisdiction of the Commission over the conduct and transactions at issue 6. Admits that venue properly lies with this Court pursuant to Section 6c(e) of the Act, as 7. Waives:

(a) any and all claims that Paron may possess under the Equal Access to Justice Act, 5 U.S.C. § 504 (2006) and 28 U.S.C. § 2412 (2006), and/or the rules promulgated by the 10 C.F.R. §§ 148.1 et seq. (2011), relating to, or arising from, this action; 12 13 Consent Order; and 19

10. Agrees that Paron will continue to use its best efforts to cooperate with the Commission in all aspects of this litigation, including, but not limited to, by continuing to provide 28 documents and information as requested and by making witnesses available upon request, and that 2 such cooperation will continue through the termination of litigation against all Defendants; 3 11. Agrees that neither Paron nor any of its agents or employees under its authority or 4 control shall take any action or make any public statement denying, directly or indirectly, any 5 allegation in the Amended Complaint or the Findings of Fact or Conclusions of Law in this Consent 6 Consent Order is without a factual basis; provided, however, that nothing in this provision shall affect 8 Order, or creating or tending to create the impression that the Amended Complaint and/or this 7 Paron's: (a) testimonial obligations, or (b) right to take legal positions in other proceedings to which 9 the Commissionis not a party. Paron shall undertake all steps necessary to ensure that Paron's agents 10 or employees under its authority or control understand and comply with this agreement; and 11 12. By consenting to the entry of this Consent Order, Paron neither admits nor denies the 12 allegations of the Amended Complaint or the Findings of Fact and Conclusions of Law in this 13 Consent Order, except as to jurisdiction and venue, which it admits. Further, Paron agrees and 14 intends that the allegations contained in the Amended Complaint and all of the Findings of Fact and 15 Conclusions of Law contained in this Consent Order shall be taken as true and correct and be given 16 preclusive effect, without further proof, in the course of: (a) any current or subsequent bankruptcy 17 proceeding filed by, on behalf of, or against Paron; (b) any proceeding pursuant to Section 8a of the 18 Act, as amended, to be codified at 7 U.S.C. § 12a, and/or Part 3 of the Regulations, 17 C.F.R. §§ 3.1 19 et seq. (2011); and/or (c) any proceeding to enforce the terms of this Consent Order. 20 13. Agrees to provide immediate notice to this Court and the Commission by certified 21 mail, in the manner required by Part VI of this Consent Order, of any bankruptcy proceeding filed by, 22 on behalf of, or against Paron, whether inside or outside the United States, and 23 14. Agrees that no provision of this Consent Order shall in any way limit or impair the 24 ability of any other person or entity to seek any legal or equitable remedy against Paron in any other 25 proceeding. 26 27 to this action. 28

15. The findings and conclusions in this Consent Order are not binding on any other party

II.FINDINGS AND CONCLUSIONS

2

16. The Court, being fully advised in the premises, finds that there is good cause for the

3 entry of this Consent Order and that there is no just reason for delay. The Court therefore directs the 4 entry of the following Findings of Fact, Conclusions of Law, permanent injunction and equitable 5 relief pursuant to Section 6c of the Act, as amended, to be codified at 7 U.S.C. § 13a-1, as set forth 6 herein. 7

THE PARTIES AGREE AND THE COURT HEREBY FINDS:

A.Findings of Fact

Relevant Parties in the Case

17. Plaintiff U.S. Commodity Futures Trading Commission is an independent federal 11 regulatory agency that is charged by Congress with administering and enforcing the Act, as amended, 12 to be codified at 7 U.S.C. §§ 1 et seq., and the Regulations promulgated thereunder, 17 C.F.R. §§ 1.1 13 et seq. (2011). 14

18. The Commission maintains its principal office at Three Lafayette Centre, 1155 21st Street, NW, Washington, D.C. 20581. 16

19. Defendant Paron Capital Management, LLC is a Delaware corporation, 17 incorporated in March 2010, whose principal place of business is in Tiburon, California. Paron has 18 been registered in Nevada as a foreign business entity since December 2010. Paron has been 19 registered with the Commission as a commodity trading advisor ("CTA") (NFA ID # 0422876) since 20

August 2, 2010. Crombie was registered as an associated person ("AP") and listed as a principal of 21 Paron from August 2, 2010 until March 31, 2011. Paron has two other APs, Peter J. McConnon 22 ("McConnon") and Timothy D. Lyons ("Lyons"). McConnon and Lyons are not parties to the 23 present suit. Upon information and belief, Paron is the successor of JDC Ventures LLC ("JDC"), a 24 firm founded in 2005 as an entity solely owned and managed by Crombie. In 2010, JDC began 25 operating as Paron Capital Management LLC, and at that time the entity identified three members: 26 Crombie, Lyons, and McConnon. 27

20. Defendant James D. Crombie is an individual residing in California. He was 28 registered with the Commission as an AP and listed as a principal of Paron from August 2, 2010 until March 31, 2011. According to Article 3 of Paron's June 2, 2010 Limited Liability Company 2

Agreement (the "Operating Agreement"), Crombie was designated as the company's "Initial 3

Manager" for a period of three years, and Crombie possessed a 75% initial limited liability company 4 interest in Paron during the same period. According to Article 6 of the Operating Agreement, 5

Crombie was previously listed as a principal of JDC, which was a registered CTA, between January 7 and May 2010, and registered as an AP of JDC from February 2009 to May 2010. The Commission's 8 claims against Paron arise from the acts and omissions of its former member, Crombie, who was 9 dismissed from Paron on or about March 31, 2011. 10

Book," a monthly newsletter ("Newsletter"), and a Due Diligence Questionnaire ("DDQ") in order to 15 solicit potential clients for Paron. 16

22. In early 2011, NFA received anonymous complaints alleging that Defendants were 17 advertising fictitious performance information and that Crombie and JDC had been sued in civil 18 lawsuits for financial fraud in ...


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