Commodity Futures Trading Comm'n v. Fin. Tree, 2:20-cv-01184-TLN-AC

COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. FINANCIAL TREE dba FINANCIAL TREE TRUST;FINANCIAL SOLUTION GROUP dba FINANCIAL SOLUTION GROUP TRUST;NEW MONEY ADVISORS, LLC; THE LAW FIRM OF JOHN GLENN, P.C.;JOHN D. BLACK aka JOHN BARNES; CHRISTOPHER MANCUSO;JOSEPH TUFO; and JOHN P. GLENN, Defendants;SUISSE GROUP (USA) LLC; JMC INDUSTRIES LLC;LANDES CAPITAL MANAGEMENT, LLC; KINGDOM TRUST LLC;HERBERT CASWELL; ANNE MANCUSO;and TYLER MANCUSO, Relief Defendants.

No. 2:20-cv-01184-TLN-AC

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA

February 24, 2021

ORDER/////////

Presently before the Court are Plaintiff Commodity Futures Trading Commission's ("CFTC") multiple contempt motions filed against Defendants and Relief Defendants John D. Black ("Black") and the three entities under his control (Financial Tree, Financial Solution Group ("Financial Solution"), and New Money Advisors, LLC ("New Money") (collectively, the "Black Entities")), Christopher Mancuso ("Mancuso"), Joseph Tufo ("Tufo"), Suisse Group (USA) LLC ("Suisse Group"), JMC Industries LLC ("JMC"), Herbert Caswell ("Caswell"), Anne Mancuso, and Tyler Mancuso (collectively, "Contempt Parties") for failure to comply with the provisions of this Court's Statutory Restraining Order ("SRO") (ECF No. 9) and Preliminary Injunction ("PI") (ECF No. 33).¹ None of the Contempt Parties have filed any response to CFTC's motions.

For the reasons set forth below, CFTC's contempt motions are GRANTED. (ECF Nos. 24, 29, 54, 66, 86, 94.)

I. FACTUAL AND PROCEDURAL BACKGROUND²

The parties are familiar with the facts of this case and only those relevant to the issues currently before the Court will be reiterated here. On June 15, 2020, CFTC filed a Complaint against the Contempt Parties as well as Defendants and Relief Defendants John P. Glenn ("Glenn"), The Law Firm of John Glenn, P.C. (the "Glenn Law Firm"), Landes Capital Management, LLC ("Landes"), and Kingdom Trust LLC ("Kingdom"). (ECF No. 1.) The Complaint alleges Defendants violated multiple provisions of the Commodity Exchange Act ("Act") and Commission Regulations ("Regulations") by engaging in a Ponzi scheme, whereby they fraudulently solicited customers to invest in future trades, did not actually use the money to trade on investors' behalf, and paid the old investors "returns" from funds they obtained from

///later, fraudulently-solicited investors. (Id.) CFTC maintains Defendants have defrauded their investors of approximately $14.32 million. (Id.)

On the same date that it filed its Complaint, CFTC also filed an Ex Parte Motion for SRO, which the Court granted on July 2, 2020. (ECF Nos. 3, 9.) Pursuant to Section IV(A) of the SRO, all Defendants and Relief Defendants were

immediately RESTRAINED AND ENJOINED, except as otherwise ordered by this Court, from directly or indirectly withdrawing, transferring, removing, dissipating, or otherwise disposing of any Assets, wherever located, including Defendants' and Relief Defendants' Assets³ held outside the United States.

(ECF No. 9 at 20-21.)

Section IV(B) of the SRO required Defendants and Relief Defendants to maintain their Records⁴ and permit CFTC immediate access, specifically:

Defendants and Relief Defendants are hereby RESTRAINED from directly or indirectly destroying, altering, or disposing of, in any manner, any Records that relate or refer to the business activities or business or personal finances of any Defendant or Relief Defendant.

Defendants and Relief Defendants are hereby ORDERED to immediately allow representatives of CFTC to inspect any Records relating or referring to the business activities or business or personal finances of Defendants and Relief Defendants, . . . promptly identify and provide CFTC's staff with the location of all Records . . . [and],in light of the COVID-19 pandemic, . . . shall allow representatives of CFTC to make copies of documents . . . on-site [or] off-site . . . .

(Id. at 21-22.) The SRO additionally instructed Defendants and Relief Defendants to:

promptly contact CFTC's counsel to assert any claims of privilege or other legal objections . . . and promptly cooperate with CFTC's counsel to develop reasonable protocols to isolate and prevent disclosure of claimed privileged and/or other nonbusiness, nonfinancial materials . . . .

(Id. at 21.) The SRO additionally contemplated that Defendants or Relief Defendants might raise a "valid assertion of their respective rights against self-incrimination under the Fifth Amendment." (Id. at 22.) Nevertheless, absent a "valid assertion" of rights, the SRO noted that "nothing herein shall excuse Defendants or Relief Defendants from full and immediate compliance with this Court's Order permitting CFTC to inspect the books and Records which relate to Defendants' or Relief Defendants' business activities and their business and personal finances." (Id. at 21-22.)

On July 28, 2020, the Court issued a PI that continues the terms set forth in the SRO and additionally prohibits Defendants from committing future violations of the Act and Regulations or engaging in commodity-related activities. (ECF No. 33 at 17-20.) Specifically, under Section IV(A) of the PI, Defendants are prohibited from directly or indirectly:

1. Trading on or subject to the rules of any registered entity (as that term is defined by Section 1a(40) of the Act, 7 U.S.C. § 1a(40) (2018));

2. Entering into any transactions involving "commodity interests" (as that term is defined in Regulation 1.3, 17 C.F.R. § 1.3 (2019)), for accounts held in the name of any Defendant or for accounts in which any Defendant has a direct or indirect interest;

3. Having any commodity interests traded on any Defendant's behalf;

4. Controlling or directing the trading for or on behalf of any other person or entity, whether by power of attorney or otherwise, in any account involving commodity interests;

5. Soliciting, receiving, or accepting any funds from any person for the purpose of purchasing or selling of any commodity interests;

6. Applying for registration or claiming exemption from registration with CFTC in any capacity, and engaging in any activity requiringsuch registration or exemption from registration with CFTC except as provided for in Regulation 4.14(a)(9) (17 C.F.R. § 4.14(a)(9) (2019)); and

7. Acting as a "Principal" (as that term is defined in Regulation 3.1(a) (17 C.F.R. § 3.1(a) (2019))), agent, or any other officer or employee of any "Person" (as that term is defined in Section 1a(38) of the Act (7 U.S.C. § 1a(38) (2018))), that is registered, exempted from registration, or required to be registered with CFTC, except as provided for in 17 C.F.R. § 4.14(a)(9).

(ECF No. 33 at 17-18.)

Finally, Section IV(E) of the PI additionally requires "each Defendant and Relief Defendant [to] file with the Court and serve upon CFTC a sworn statement and accounting, with complete documentation, covering the period from January 1, 2015 to the present." (Id. at 19.) Defendants and Relief Defendants' accountings were due by August 27, 2020. (See id.) A review of the docket reflects that the only parties who have filed the required accounting and sworn statement with the Court are Defendants Glenn and the Glenn Law Firm. (See ECF Nos. 71-72, 76.)

As of the filing date of this Order, default has been entered against Mancuso, the Black Entities, Tufo, Kingdom, Landes, Anne Mancuso, Tyler Mancuso, Caswell, JMC, and Suisse Group for their failure to timely respond to the Complaint.⁵ (ECF Nos. 49, 50, 58.) Following issuance of the SRO and PI, CFTC has filed multiple motions seeking to hold nearly all of the Defendants and Relief Defendants in civil contempt for their failure to comply with the provisions of this Court's SRO and PI. (ECF Nos. 24, 29, 54, 66, 86, 94.) No responses were filed to CFTC's motions, which have all been deemed submitted on the pleadings before this Court. (See ECF Nos. 56, 87, 95, 98.)

II. LEGAL STANDARD

"[C]ourts have inherent power to enforce compliance with their lawful orders through civil contempt." Shillitani v. U.S., 384 U.S. 364, 370 (1966). Civil contempt sanctions serve "tocoerce obedience to a court order, or to compensate the party pursuing the contempt action for injuries resulting from the contemptuous behavior." Commodity Futures Trading Comm'n. v. Emerald Worldwide Holdings, Inc. (Emerald), No. CV03-8339AHM, 2004 WL 3186580, at *2 (C.D. Cal. Jul. 29, 2004) (quoting Gen. Signal v. Donallco, Inc., 787 F.2d 1376, 1380 (9th Cir. 1986)).

In order to obtain contempt sanctions, the moving party must demonstrate by clear and convincing evidence that the other party violated "a specific and definite court order by failure to take all reasonable steps within the party's power to comply." In re Dual-Deck Video Cassette Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993). The moving party need not establish the violations were willful or intentional. See id. Once the moving party establishes the violation, the burden shifts to the alleged contemnor to produce evidence justifying his non-compliance. Emerald, 2004 WL 3186580, at *2. Recognized defenses to civil contempt include (1) substantial compliance, and (2) an inability to comply. Id.; U.S. v. Ayres, 166 F.3d 991, 994 (9th Cir. 1999); Fed. Trade Comm'n v. Gill (Gill), 183 F. Supp. 2d 1171, 1183 (C.D. Cal. 2001). Good faith or intent in attempting to comply is immaterial. Pac. Coast Surgical Ctr., L.P. v. Scottsdale Ins. Co., 2:18-cv-3904, 2019 WL 4267764, at *5 (C.D. Cal. July 31, 2019). With respect to the second defense, the alleged contemnor bears the burden of making "a categorical, detailed showing" of his inability to comply. S.E.C. v. Bankers All. Corp. (Bankers), 881 F. Supp. 673, 683 (D.D.C. 1995); Nat'l Lab. Rel. Bd. v. Trans Ocean Export Packing, Inc., 473 F.2d 612, 616 (9th Cir. 1973).

Once the Court determines a violation has occurred, it has broad authority in fashioning appropriate relief that is reasonably calculated to compel obedience with the...