Behrens et al v. JP Morgan Chase Bank N. A. et al

MEMORANDUM OF LAW in Opposition re: 228 MOTION to Dismiss Plaintiffs' Second Amended Complaint. Opposition to NFA Motion to Dismiss. Document

S.D.N.Y.January 13, 2019

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK BRUCE BEHRENS, et al. Plaintiffs, vs. JPMORGAN CHASE BANK, N.A., et aL, Defendants, Index No. 1:16-cv-05508-VSB Hon. Vernon S. Broderick PLAINTIFFS' MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANT, NATIONAL FUTURES ASSOCIATION'S MOTION TO DISMISS THE SECOND AMENDED COMPLAINT January 13, 2019 Susan J. Levy Attorney for Plaintiffs 40 East 1oth Street Suite 2k New York, New York 10003 Tel. (212) 962-1782 Fax (212) 962-3711 Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 1 of 40 TABLE OF CONTENTS Page TABLE OF AUTHORITIES ......... :' ....................................................................................... iv STATEMENT OF FACTS ..................................................................................................... 1 ARGUMENT .......................................................................................................................... 1 1.. BECAUSE NFA VIOLATED 7 U.S.C.§25(b)(2) or §22(b)(2) PROXIMATELY CAUSING LOSSES IN BAD FAITH, THESE CLAIMS SHOULD PROCEED ................................................................... 1 A. The Elements of7 U.S.C. §25(b)(2) Have All Been Satisfied .................................................................................................... 4 B. The SAC Plausibly Alleges that NF A Failed to Enforce Its Rules and By-Laws .............................................................................. 5 1. Because Steven Brewer and Brewer Futures Group,Inc. were already barred from acting as a CPO, NF A Should Have Revoked Brewer's NFA Membership in 2007 Pursuant to NFA By-Law 30l(a)(ii)(D) and By-Law 301(a)(ii)(d) and by-law 301( c )(i) and Prevented Plaintiffs' Losses .............................................................................................. 6 a. Under NFA By-Laws 301(a)(ii)(D)& (E) Steven Brewer and BFG, Should have been banned in 2007, thus NF A violated 22(b )(2) ................................................. 6 b. NF A alternatively failed to enforce NF A By-Law 301(c)(i) as to Steven Brewer and BFG, thus violating 7 U.S.C.§25(b)(2) ....................................................... 8 2. NF A did not properly enforce Compliance Rule 2-30 against defendants to warn about the risks of investing in naked puts and calls; therefore violating§ 17(b)(7) and §22(b)(2)and (4) ..................................................................... 9 3. NFA violated §22(b)(2) by failing to enforce compliance rules 2-2, 2-4, 2-10, 2-29, and 2-30 against Perry Comeau, an NF A Associate .......................................................................... 12 :..i- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 2 of 40 C. Because NF A Enforced Its Own Rules Only against NF A "Registrants," Not All "Persons," NFA Caused Violations of 7 U.S.C.§2(a)(1)(B), 7 U.S.C.§6(o), 7 U.S.C.§ 13, 7 U.S.C. Page § 21, 17 CFR 4.15; and 7 U.S.C.§22(b)(2) ....................................... 13 1. NFA's knowing exclusion ofnon-registered CTAs for many years and not by accident establishes bad faith conduct pursuant to § 22(b )( 4) ................................................ 16 2. Application of NFA By-law 1110 caused a §22(b)(2) violation with respect to 7 U.S.C.§2(a)(l)(B) and 17 CFR4.15 .......................................................................... 17 D. Because NF A Breached Its Obligation to Provide A Fair Arbitration Forum Under §17(b)(10), A Valid Violation Of §22(b )(2) Has Been Alleged ........................................................ IS 1. The SAC properly alleges unfairness where NF A applied Code 6(M) and other rules to deprive Plaintiffs of consoli- dating their Hearings .................................................................. 18 2. Other Examples Demonstrate Violations of7 U.S.C.§ 25(b)(2)( 4) ............................................................................... 21 3. A fair inference is that the Panel did not evaluate The account statements ............................................................ 21 II. QUESTIONS OF FACT EXIST REGARDING NFA'S BAD FAITH UNDER 22(b)(4) ..................................................................................................................... 22 A. Because NFA Allowed PFG and the Wasendorfs to Engage In Felonious Conduct for Over 20 years, There is A Valid Inference of Bad Faith ............................................................ 22 1. Because the SAC alleges facts to establish NFA's self-interest and ulterior motive to earn exorbitant Profits, bad faith has been properly alleged ...................... 23 2. The SAC also establishes constructive bad faith ............... 24 a. Because NF A failed to expel PFG back in 1996 and Allowed such felonious conduct to continue, it Acted in bad faith ........................................................ 24 -ii- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 3 of 40 b. Other Cases ShowNFA's bad faith Conduct Under §22(b)(4) ........................................................... 26 III. PLAINTIFFS' CLAIMS ARE VALID BASED ON TOLLING PROVISIONS ...... .27 A. This Case Qualifies for Equitable Tolling Based on Fraudulent Concealment. ........................................................................................... 27 B. This Case is Timely Under the Discovery Accrual Rule("DAR") Because Triggering Data existed in 2017, and This Case was Filed Within 2 Years Thereof.. ................................................................. 29 IV. BECAUSE THE SAC STATES A PENDANT STATE LAW CLAIM FOR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS, THIS CLAIM SHOULD PROCEED ........................................................................... 30 CONCLUSION .................................................................................................................... 30 -iii- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 4 of 40 TABLE OF AUTHORITIES Cases In Re Amaranth Nat. Gass Comm Lit., 587 F.Supp.2d 513 (S.D.N.Y. 2008), Pages aff'd, 703 F.3d 170 (2d Cir. 2013) ...................................................................... 2,3,17 Battalla v. State of New York, 10 N.Y.2d 237(1961) ............................................................................................... 30 Behrens v. JP Morgan Chase Bank, Et.Al. 16-cv-5508 Docket# 157-1 (S.D.N.Y. 2/12/2018) ........................................ 1,11,27 Bosco v. Serhant, 836 F.2d 271 (71h Cir. 1987) ...................................................................... .2,8,16,24 Brawer v. Options Clearing Corp., 807 F.2d 297 ( 303 Cir. 1986), cert. denied, 484 U.S. 819, 108 U.S. 819, 108 S.Ct. 76 (1987) ............................................................... 24 CSAM Capital Inc. v. Lauder, 67 A.D.3d 149, 885 N.Y.S.2d 473(lst Dept. 2009) ........................................ .29 In re California Capital Trading Group, NFA Case No. 11-BCC-004(Apri14, 2011) ................................................... .2 DGM v. N Y.Fut.Exch.Inc., 265 F. Supp.2d 254 (S.D.N.Y. 2003) .................................................... .2,11,22,23 Ehrgoffv. Mayor City ofNY., 96 N.Y.264 (1884) ............................................................................................. 30 In re Foreign Exchange Benchmark Rates Anti. Liti., 2016 WL 5108131 *16 (S.D.N.Y. 2016) ............................................................ .29 FrontPoint Asian Even Driven Fund,LP,Et. Et. Al. V. Citibank, Et.Al., 16-cv-5264 (S.D.N.Y.2017) ............................................................................... 28 Laydon v. Mizuho Bank, Ltd., 2014 WL 1280464 ( S.D.N.Y.2015) ...................................................................... 2 -iv- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 5 of 40 Matter of Engel, 193 Misc.2d 91, 746 N.Y.S.2d 826 (Sup.Ct.N.Y.Co.2002) ................................ .20 Lentell v. Merrill & Co., Inc., 396 F. 2d 161 (2d Cir. 2005) ............................................................................... 28 In Re Merrill Lynch Ltd. Partnerships Litig., 154 F.3d 56 (2nd Cir. 1998) ................................................................................... 29 Merrill Lynch Pierce Fenner & Smith, Inc. v. Curran, 456 u.s. 353 (1982) ............................................................................................... 1 Powers v. British Vita, P.L.C., 57 F.3d 176 (2d Cir. 1995) ..................................................................................... 8 In Re Oxford Trading Group, NFA case No.:10-BCC-020(August 10, 2010) ....................................................... 2 In Re Silver London Fixing Anti Lit., 213 F. Supp. 3d 530 (S.D.N.Y. 2016) .................................................................... 28 In ReState of New York v. Hendrickson, 840 F.2d 1065 (2d Cir. 1988) ................................................................................ 28 In ReState Wide Fx. Inc., Et. At., NFA case No. 10-BCC-036(July 28, 2011) .............................................................. 9 Strax v. Commodity Exch. Inc., 524 F. Supp. 936 (S.D.N.Y. 1981) .......................................................................... 30 Troyer v. NF A, 200 F. Supp.3d 874 (N.D. Ind 2/14/2008) 16-cv-00 146-SLC; 2017 WL2971962 (N.D.Ind. 07/12/2017) ........................................ 2,7,8,9,23,28,29 Statutes 7 U.S.C.§ 1 et seq ............................................................................................................ 3,5 7 U.S.C. § l(a)(38) ............................................................................................................ 13 7 U.S.C.§2(a)(1)(B) ................................................................................................. 13,17,18 7 U.S.C.§4(o)(l)and 4(o)(2) ................................................................................ 14,15,16,17 7 U.S.C.§ ........................................................................................................................... 16 -v- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 6 of 40 7 U.S.C. § 6 et seq ............................................................................................................. 15 7 U.S.C.§6(o) ................................................................................................................ 13,14 7 U.S.C.§ 13 ....................................................................................................................... 23 7 U.S.C.§13(a) ................................................................................................................. 9,23 7 U.S.C.§ 13(a)(3) .......................................................................................................... 23,24 7 U.S.C.§ 17 (Commodities Exchange Law) ...................................................................... 17 7 U.S.C.§ 17(b)(2) ............................................................................................................... 16 7 U.S.C.§17(b)(7) ................................................................................................................ 11 7 U.S.C.§(b)(10) ....................................................................................................... 18,21,22 7 U.S.C.§21 ..................................................................................................... 1,2,3,4,5,13,22 7 U.S.C.§21(a)(10) ......................................................................................................... 13,22 7 U.S.C.§ 21(b)(7) ................................................................................................................. 5 7 U.S.C.§ 21(b)(8) .............................................................................................................. 13 7 U.S.C.§ 21(b)(10) ..................................................................................................... 3,18,21 7 U.S.C.§22 .......................................................................................................................... 2 7 U.S.C. 22(a)(2) ................................................................................................................ 2,5 7 u.s.c. §22(b)(2) ................................................ 1,2,3,4,5,6,7,9,11' 12, 13, 15,16, 17,18,21,22 7 U.S.C.§ 22(b)(4) ...................................................................... 1,2,7,9,17,18.19,21,23,26,27 7 U.S.C.§25 ......................................................................................................................... 1 7 u.s.c. 25(b) ................................................................................................................ 4,28 7 U.S.C.§ 25 (b)(1) .............................................................................................................. 4 7 U.S.C.§ 25(b)(2) ................................................................................................. 1,3,4,8,21 7 U.S.C.§25 (b)(4) ....................................................................................................... 21,27 -vi- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 7 of 40 §17(b)(10) ......................................................................................................................... 18 Rules and Regulations 17 C.F.R §1 ............................................................................................................................ 3,5 17 C.F.R. 1.3 .............................................................................................................................. 13 17 C.F.R. 4.14(a)(10) ............................................................................................................ 15,17 17 C.F.R.4.15 ................................................................................................................... 13,15,17 NFA By-laws Chapter 13 ............................................................................................................. 2 NFA By-law 301 ............................................................................................................ 6 NFA By-law 301(a)(i) ...................................................................................................... 15,16,17, NFA By-law 301(a)(ii)( C) & (D) ......................................................................................... 6,7,8 NFA By-law 301(a)(ii)(E) ........................................................................................................ 6,7 NFA By-law 301(c)(1) ......................................................................................................... 6,8,9 NFABy-law 1110 ............................................................................................................... 17,18 N.F.A. Compliance Rules ....................................................................................................... 5,14 1-1 (d) defines associate .................................................................................................. 14 2-2 Proscribing Fraud .......................................................................................... 5,6,11,16 2-3 Warning about Risks oflnvesting in Puts and Calls .............................................. 5,11 2-4 Requiring Just and Equitable Principals ofTrade .................................................. 5,16 2-10 Requiring Books and Records ........................................................................ 5,12,16 2-13 CPO/CTA Regulations ............................................................................................... 6 2-29 Proscribing False Statements in Promotional Materials .................................... 5,12,16 2-30 Mandatory Risk Disclosures .......................................................................... 5,9,11,16 NFA Interpretive Notice 9013 ....................................................................................................... 11 Public Law 95-405 (September 30, 1978) ..................................................................................... 15 NFA Code of Arbitration §2(a)(l) ................................................................................................ l6 N .F .A. Code of Arbitration § 2(b) ................................................................................................ 17 NF A Code of Arbitration 4( c) ....................................................................................................... 19 -vii- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 8 of 40 NFA Code of Arbitration Rule 6M .......................................................................................... l9,21 N.F.A. Code of Arbitration §7 ...................................................................................................... 16 NFA Order dated May 16, 2007 NF A Case No. 06-BCC-008 annexed to Levy Declaration as Exhibit 6 ....................................................................................................................... 8 -viii- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 9 of 40 STATEMENT OF FACTS For a full recitation ofthe Statement of Facts, please refer to the Memorandum of Law in Behrens v. JPMorgan, Et. Al. Docket #157-1, pp.1-8 (S.D.N.Y. 2016) which is fully incorporated by reference herewith and made a part hereof.("Pl. Mem. Law Opp #157-1 ") ARGUMENT I. BECAUSE NFA VIOLATED 7 U.S.C § 25(b)(2) or §22(b)(2) PROXIMATELY CAUSING LOSSES IN BAD FAITH, THESE CLAIMS SHOULD PROCEED.1 The Facts alleged in Plaintiffs' Second Amended Complaint (SAC) plausibly demonstrate that Defendant NF A failed to provide customer protection in this case and many others requiring NF A to monitor and regulate and reprimand PFG so that it complied with the Commodities Laws pursuant to its Congressional Mandate codified in the Commodities Exchange Act as§ 17, ("CEA"), and codified as 7 U.S.C.§ 21. As such, Plaintiffs are well- within their rights to interpose this private right of action because the cornerstone of commodities regulation are Private Rights of Action based on Self-Regulation. See Merrill Lynch Pierce Fenner & Smith, Inc. v. Curran, 456 U.S. 353 (1982.) All claims are timely based on Tolling including the Discovery Accrual Rule. NF A often refers to itself as an "SRO" or "DSRO, but NF A is distinct from other SROs because it is the only Registered Futures Association in the United States, and it is specifically governed by both 7 U.S.C.§21 and §25. However, the facts of this case and many others amply demonstrate that NF A breached § 22(b )(2) & ( 4) because, on too many occasions, NF A simply did not expel individual brokers even when member firms were finally banned from NFA based on misconduct. See Declaration of Susan J. Levy, dated January 13,2019 as Exh. 1. 1 Plaintiffs withdraw that claim of aiding and abetting against NF A. -1- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 10 of 40 Thus, brokers could and did continue Fraudulent schemes by simply re-registering with other member firms. Thus NF A did not put a stop to this inexcusable and terrible misconduct nor forced respondents to pay Awards to make Plaintiffs whole due to its broken Arbitral Forum. Although NF A had the last clear chance to bar PFG from the Industry on many occasions prior to 2008 so that Plaintiffs could have avoided this train wreck; NF A stood silent, and along the way violated §22(b)(2) and (4).2 SAC ~~923-926. See SAC~~ 545-555; see also, Troyer v. NFA, 200 F. Supp. 3d 874 (N.D Ind 02114/2008). As such, a fair inference can and should be drawn under the posture of a Motion to Dismiss that NFA acted in Bad Faith which in this case can also be viewed as negligence where NFA was mandated to act. See Bosco v. Serhant, 836 F.2d 271, 277-278 (71h Cir. 1987), Pl. Mem. Law #157-1 pp. 66-67 or NFA's alleged Bad Faith can also be viewed as akin to Intentional Conduct where NF A's exercise of discretion was tinged with conduct to help itself. See DGM v. NY Fut. Exch. Inc., 265 F. Supp. 2d 254, 263 (S.D.N.Y.2003). The SAC alleges NFA acted with self-interest and ulterior motive to generate extraordinary Assessment Fees and Membership fees. See Laydon v. Mizuho Bank, Ltd., 2014 WL 1280464, *5-6 (S.D.N.Y. 2015) (Court found a clear motive to commit fraud based on the "compensation tied to success in trading financial products," and "overwhelming factual content from which this Court could infer manipulative intent. .. "); In re Amaranth, 587 F. Supp. 2d 513, 529 (S.D.N.Y. 2008)("The inquiry ... is whether all the facts alleged, taken collectively, give rise to a strong iriference of scienter, not whether any individual allegation scrutinized in isolation, meets the standard."). See Levy Dec. NF A Membership Fee Structure Chart, Levy Dec. Exh. 2 See also, SAC ~~306-323; In re California Capital Trading Group, NFA Case No. II-BCC-004 (Apriii4, 20II); In re Oxford Trading Group, NFA case No.: IO-BCC-020, (August IO, 20IO); In reState Wide Fx. Inc., Et. AI., NFA Case No. IO-BCC-036 (July 28, 201I), Case Summary of Portfolio Managers, Inc. NFA 15-BCC-0034 (March 14, 20I6); Declaration of Susan J. Levy, Esq. dated January II, 2019, as Exhibits 1. -2- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 11 of 40 The SAC also plausibly alleges that NF A has not provided a fair and equitable Arbitral Forum in violation of7 U.S.C. §21(b)(10). SAC ~617 Not only do Plaintiffs seek compensation under §22(b )(2), but also because NF A has collected exorbitant fees of approximately $48,000.00 from Plaintiffs directly, the SAC has stated a valid claim against NFA for unjust enrichment, since these parties had a direct relationship. See SAC, ~~840, 841, In re Amaranth, 587 F. Supp.2d 513, 547, n. 229 (S.D.N.Y. 2008)(Court rendered an advisory opinion as to how to re-plead the claim of unjust enrichment to survive a motion to dismiss.") Moreover, NFA refuses to live up to its mandate under 7 U.S. C. §21 and has deprived customers of guaranteed protections under 7 U.S.C. §1, et. seq. and 17 C.P.R. §1 et. seq. Although the Berkeley Group Report, paid for by NF A upon information and belief, materially omitted information to put Plaintiffs on Inquiry Notice of any Bad Faith claims, since the BGR only identified negligent conduct by NF A. SAC ~ 570. Thus, the evidence alleged in the SAC describes NFA's breaches of duty more fully. Put simply, the SAC makes out a case because had NF A enforced its own rules in good faith not bad faith, as alleged, under §22(b )(2), it would have protected Plaintiffs from losses due to Wasendorfs Ponzi Scheme. SAC ~545(a). The SAC identifies both NFA's failure to enforce its By-laws and Rules to protect customers and for applying the NF A Rules and By-Laws in such a way that bad actors could defraud members of the investing public, like Sherri Scheffert and Bruce Behrens. Put otherwise, a review ofNF A's Basic and Internal records show how it wittingly decriminalized crime and reduced Wasendorf, Sn. and PFG's unspeakable conduct in this case to nothing more than unprovable allegations based on the NF A Rules in effect when the Schefferts brought their claims before NF A. See NF A Basic Records of PFG violations from 1996 to 2013 annexed to Levy Dec. Exh. 3. Not One of the Eighteen NFA Arbitrators found any violations occurred in -3- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 12 of 40 Plaintiffs' cases, although Paul Thomas, Esq. nevertheless collected some costs for his travel expenses. See SAC ~648(b ). Thus, the SAC also plausibly alleges that NF A has not provided a fair Arbitral Forum. A. The Elements of7 U.S.C. §25(b)(2) Have All Been Satisfied. 7 U.S.C. §25(b)(2)3 shows Congressional Intent to cast a wide net over NFA to protect members of the investing public from unscrupulous bad actors whose self-interest predominate over a fair application ofNFA Rules and By-laws such as many ofthe Defendants in this case including NF A's own Advisory Board Member Russell Wasendorf, Sn., the darling ofthe Industry.4 The SAC adequately alleges that NFA time and again ignored felony conduct committed by Wasendorf, Sn. and many others such as the on-going Ponzi Scheme alleged in the SAC. See SAC ~~432-437 Levy Dec. Exh. 3. A review of the NFA Basic System also demonstrates that many NF A members and associate members now have no current status; therefore a reasonable inference can be drawn that the NF A registration is fleeting because these felons get in and out of the industry after pocketing customer's cash, destroying customer- accounts, and recording high fees and commissions to partially account for the stolen proceeds. Now the time has come for NF A to bare their fair share of the responsibility for derelictions of duty because for over 20 years, Wasendorfs business was the business of the NFA. 3Section 22(b )(2), codified as 7 U .S.C. §25(b )(2) states: "A registered futures association that fails to enforce any bylaw or rule that is required under section 21 of this title or in enforcing any such bylaw or rule violates this chapter or any Commission rule, regulation or order shall be liable for actual damages sustained by a person that engaged in any transaction so specified in subsection (a) of this section to the extent of such persons actual losses that resulted from such transaction and were caused by such failure to enforce or enforcement of such bylaw or rule." 4Section 22(b)(2), 7 U.S.C. §25(b)(2), is very similar to 7 U.S.C.§25(b)(1) that applies to Boards of Trade like the CME. In both cases, Congress recognizes a private remedy. Section 25(b)(2), like §25(b)(1) shows that any entity that has rule-making authority needs to be held accounttble for any self-interested conduct especially effecting members of the public. As such, Plaintiffs have a valid claim against NF A. -4- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 13 of 40 Plaintiffs have plausibly alleged all of the necessary elements of a claim under §22(b)(2) such as that: (1) Plaintiffs have standing under §25(a) since they were customers trading futures and options over the CME Exchange; (2) NF A failed to enforce several By-laws and/or rule that it is required to enforce under 7 U.S.C. §21 or NF A in enforcing any by-law or rule violated 7 U.S.C. §1 et. Seq or 17 C.F. R. §1, et. Seq., (3) causing actual damages, and (4) such conduct was in Bad Faith. 5 Defendant NF A has not objected to the issues of Standing and Damages, (Elements 1 and 3 enumerated above), thus those defenses should be deemed waived.6 B. The SAC Plausibly Alleges That NFA Failed to Enforce its Rules and By-Laws. To fulfill its mandate under 7 U.S.C. §21,7 NFA has enacted Compliance Rules such as Compliance Rules 2-2 (Proscribing Fraud) 2-4 (Requiring Just and Equitable Principals of Trade), 2-10 (Requiring Books and Records) and 2.29 (Proscribing False Statements in Promotional Materials) and 2-30 (Mandatory Risk Disclosures), and By-laws such as 301 that impose certain requirements on Commodities Industry Professionals in connection with their interactions with members of the investing public to ensure fairness. See Levy Dec. Exh.4, 5. 5 Section 22(b )(2) describes two independent circumstances where NF A should be held liable for actual damages demonstrating Congressional intent to broadly construe Section 22(a)(2). First, Section 22 allows for a private remedy based on inaction or nonfeasance whereby NFA is required to take affirmative action by enforcing its rules and by-laws that it is required to enact under 7 USC §21; and secondly, NFA is also responsible for its own malfeasance or improper action where NF A by enforcing its By-laws or Rules violates the laws and rules of the United States. Under both independent scenarios NFA conduct is actionable for causing damages if its actions resulted in violations of the CEA, 7 U.S.C. § 1, Et. Seq. and 17 C.F.R. 1, Et. Seq. as well as any CFTC Orders. , 6 Plaintiffs have Standing under§ 22(a) since there is no dispute they were in fact commodities Option customers who received advice and traded over an Exchange. Equally true is that each Plaintiff suffered actual damages which is established by their account statements. Thus, these elements have been satisfied. SAC~~ 92-115. 7Under 7 U.S.C § 2l(b)(7) NFA must establish rules such that: [T]he rules of the association are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade in general, to protect the public interest, and to remove impediments to and perfect the mechanism of free and open futures trading." -5- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 14 of 40 The SAC validly alleges breaches ofNFA's own Rules and By-Laws in violation of§ 22(b)(2) with respect to each Defendants. Thus, valid claims have been stated herein. 1. Because Steven Brewer and Brewer Futures Group, Inc. were already barred from acting as a CPOs,S NF A should have revoked Brewer's NFA membership in 2007 pursuant to NFA by-law 30l(a)(ii)(d) and by-law 30l(c)(l) and prevented Plaintiffs' losses. NFA's violation of §22(b)(2) is clearly established in the SAC because NFA should have expelled Defendants Steven Brewer of Brewer Futures Group, LLC. ("BFG" Inc. hereinafter) in March, 2007 based on a prior NF A Order dated March 16, 2007. See Levy Dec. Exh. 6. BFG owned by Stephen Brewer acted as the Introducing Broker for Plaintiffs' Accounts which were introduced in April, 2007 SAC ~~88, 103, 179, 545©. Prior to 2007, BFG and Brewer were also registered as Commodity Pool Operators ("CPO") giving them the ability to manage Commodity Pools which are akin to mutual funds. See NF A Compliance Rule 2-13 CPOICTA Regulations, Levy Aff. Exh. 4. Absent BFG, these Plaintiffs never could have made these investments because only an Introducing Broker ("IB") can bring an Account to a Futures Commission Merchant ("FCM") such as Peregrine Financial Group, Inc. ("PFG") in this case. However, by March 16,2007, Steven Brewer and BFG already had a binding NFA Order issued against them based on felonious misconduct such as BGF's serious failure to distribute financial statements concerning its investment activities and misrepresenting performance data in its promotional material. SAC ~187, Levy Dec. Exh. 6. NFA also fined BFG $45,000.00. While ·NFA is banishing Brewer on one hand, Brewer continues to introduce Plaintiffs' Accounts to PFG and continues to participate in this RICO conspiracy in 2007. SAC ~190. a. under NFA by-laws 301(a)(ii)(D) & (E), Steven Brewer and BFG, should have been banned in 2007, thus NFA violated.§22(b)(2). 8 See NF A Decision dated March 16, 2007, and Basic Print Out annexed to the Levy Dec. as Exhibit 6 -6- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 15 of 40 According to NFA By-law 301(a)(ii)© & (D), NFA could not continue the Membership or Associate Status of any person, such as Brewer, who was the cause of another member or associate's suspension, expulsion or Order barring such other person from NFA membership or association.9 Troyer v. NFA, 290 F. Supp. 3d 874 N.D. Ind. 2/14/2018). Because at least one other Federal Court has recognized that such conduct by NF A establishes a prima facie case, this Court too should allow this valid claim to proceed. Troyer v. NFA, 290 F. Supp. 3d 874, 882-883_(N.D. Ind. 2/14/2018,) In Troyer v. NFA, plaintiff, Mr. Troyer alleges that his broker Heneghan defrauded him over many years by encouraging Mr. Troyer to make commodities future investments that eventually lost their entire value of approximately $500,000.00. Heneghan was registered as an NFA Associated Person ("AP") bver the years through various Members including in 200 1 by PFG, and later by a firm called statewide FX and Vision. Heneghan hopped from Member to Member following the industry Play book which is to defraud customers into thinking their investments are sound and valid, recording outrageous fees and commissions, and then booking false losses and/or pocketing customer's moneys. This scenario therefore appears not to be unique to the Oelwein group. In each case, although NF A eventually barred the conduct and the Member firm after the Member firms presumptively profited. Applying the reasoning in Troyer, in this case, NF A failed to identify the underlying Ponzi Scheme despite years of PFG audits and where each customer's account was being defiled unlawfully, as is described in the SAC ,-r926. As such, an inference of 9 NF A By-Law 301 ( a)(ii)(D) specifically states in relevant part that " ... No person shall be eligible to become or remain a member or associated with a Member who. (D) Whether before or after becoming a Member or associated with a Member, was by the person's conduct while associated with a Member, a cause of any suspension, expulsion or order described in paragraphs (a)(ii)(A)-© above that is in effect with respect to the person ... [Emphasis Supplied.] -7- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 16 of 40 bad faith can be established, because such conscious avoidance can rise to the level of intent or in this case bad faith. See Powers v. British Vita, P.L. C., 57 F.3d 176, 186 (2d Cir. 1995.) In Troyer, Magistrate Judge Collins held that questions of fact existed regarding NFA's conduct in continually allowing AP-Heneghan to re-register as an Associated Person in violation ofNFA By-Law 301(a)(ii)(D) even though Statewide FX, the principal was permanently barred from the industry. See NF A Basic Print out for Portfolio Managers, Inc., NFA, 15-BCC-0034 (March 14, 2016.) Here, as in Troyer, application ofNFA By-law, 301(a)(ii)(D) was mandatory not discretionary based on the language "No person shall." See Bosco v. Serhant, 836 F. 2d 271 (71h Cir.1987.) Therefore, the SAC fairly describes facts to allege a violation under By-law 301(a)(ii)(D) and of §22(b)(2) based on negligence which should be all that is required since this provision is mandatory. See BFG Order dated March 16,2007, Levy Dec. Exh. 6. b. NFA alternatively failed to enforce NFA By-Law 301(c)(i) as to Steven Brewer and BFG, thus violating 7 U.S.C.§25(b)(2). NFA also breached it obligation to enforce By-law 301(c)(i) to stop Brewer and BFG from acting as IBs for Plaintiffs' accounts in 2007 after NFA's Order of suspension against BFG and Brewer was issued on March 16,2007. 10 Applying NFA By-Law 301(c)(i) to BFG and Brewer in good faith would have meant that their expulsion from NF A membership as Commodity Pool Operators would have also required them to be permanently suspended from membership or associate membership as 10 NFA By-law 30l(c)(A)(l) provides in relevant part: "(c) Restrictions on Becoming or Remaining a Member or Associated with a Member." A person may be deemed disqualified to become a member or remain a Member or associated with a Member- (i) If a prior registration under the Act os such person in any capacity has been suspended (and the period of such suspension has not expired) or has been revoked." -8- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 17 of 40 Introducing Brokers as well. NFA's refusal to enforce By-Law 301(c)(i) actually permitted more felony conduct to continue unabated, as defined under 7 U.S.C. 13(a). Thus, NFA's continuation ofBFG/Brewer's membership status in any capacity in 2007, coupled with NFA's strong self- interest to earn membership fees, dues and fines shows that NFA let its regulatory duties fall-by- the-way-side.'' Thus, questions offact exist as to NFA's Bad Faith. Troyer v. NFA, 290 F. Supp. 3d 874, 885-886 (N.D.Ind. 2018.) 2. NF A did not properly enforce Compliance Rule 2-30 against Defendants to warn about the risks of investing in naked puts and calls; therefore violating §17(b )(7) and §22(b )(2) and ( 4). Because NF A did not enforce Compliance Rule 2-30 according to its Interpretative Notice 9013, NFA acted in bad faith by doing absolutely nothing to prevent its members PFG, Brewer, Comeau and others to allow Plaintiffs to be invested in out-of-the money naked puts and calls which NF A should known lose 95% of the time. SAC ,-r,-r 511, 662; See NFA Rule 2-30 and Interpretative Notice annexed to the Levy Dec. as Exhs.4, 7. Even PFG admist, although buried in small font, in its customer agreement that the success of deep out-of- the money options are "remote." Naked Puts and Calls are the perfect vehicle to cover up the prior theft of customer funds, because Wasendorf, Sn. could just shadow trade Plaintiffs' accounts to make it appear as though Plaintiffs were invested in real trades that just ended-up losing value due to market volatility. SAC ,-r,-r 18, 36, 46, 917. The Scheme also shows that in many cases it appears that stolen customer proceeds are recorded as "commissions." See In Re Statewide Fx. Inc., 10-BCC-036 pp. 5-12, annexed to the Levy Dec. as Exh. 1. Any review of CME clearing members books and records could have shown whether such trades were 11 In 2010, NF A finally expelled Brewer and BFG based on failure to satisfy its fine of $100,000.00. SAC ~558 -9- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 18 of 40 occurring, and if so in what amounts; and certainly in PFG's case, PFG was so severely under segregated and undercapitalized that not very many trades could have occurred upon information and belief. SAC,~~ 32, 36,432, 501, 816©, 733(xix); see NFA By-Law 1001 Financial Requirements annexed to the Levy Dec. as Exh. 8. The SAC alleges that thanks to the Bank Defendants alleged participation in this alleged Scheme, PFG stayed afloat by stealing customer segregated funds for its routine expenses and other expenses for over 20 years. SAC, ~~ 22, 481- 484, 111, 711, 715. NF A should clearly be charged as an Industry Regulator with ample actual knowledge of the widespread use of out-of-the-money naked puts and calls in so many of its members' account. Rather, NF A without acknowledging this doomed strategy head-on, prefers to expel its members by euphemistically calling these naked positions "deceptive trading practices." Levy Dec. Exh. 1. NFA continues to ignore the real problem and diverts attention from the problem by pointing out the high-break even points due to exorbitant commissions. NFA considers the break-even point important because it shows where a trade has to end-up in order to overcome the broker's commissions that are charged on the each trade. Levy, Exh. 1. NFA's rationale does nothing to expose the alarming fact that no matter what the break-even point would be, and even if the brokers waived their commissions; these out-of-the-money naked puts and calls would still lose at least 95% of the time. SAC ~~ 511, 662. Jury questions exists as to why NF A never passed rules to limit broker fees. Rule 2-30 and its Interpretive notice 9013 require NFA Registrants to also warn customers that such naked puts and calls are too risky based on the customers' age and -10- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 19 of 40 experience and other factors. 12 PFG, the Wasendorfs, Comeau and Brewer should not have been allowed to place these naked put and call options in Plaintiffs portfolio without proper warnings. 13 See Levy Dec. Exh. 7. The SAC demonstrates the warning that the positions were too risky for these accounts were never given to Plaintiffs, and supports the allegation that NF A breached 2-30 in violation of§ 17(b )(7) and §22(b )(2), because NF A had the affirmative obligation to enforce 2-30 and its Interpretive notice 9013, and make sure NFA Registrants were compliant. By NF A's failing to hold its Registrants to these standards, Plaintiffs accepted these recommendations that caused their loses. NF A appears to have no excuse for failing to enforce 2-3 0 and 9013 other than its own self-interest to keep the volume of trading high to earn assessment fees for itself. This interest to gain profits is a proper basis to show bad faith where motive and intent are also alleged as in this case. See DGMv. NY Fut. Exch. Inc., 265 F. Supp.2d 254,263 (S.D.N.Y. 2003.) Despite NFA's actual knowledge of the use of naked puts and calls in a losing portfolio, NFA never stopped the brokers' conduct or required these disclosures or limited such usurious fees, as it had the power to do all along. Therefore, good faith appears to be lacking, and questions of fact exist as to NF A's exercise of discretion under these circumstances. See Bosco v. Serhant, 836 F. 2d 271, 277-278 (71h Cir. 1987). 12Compliance Rule 2:30 states in relevant part: "2:30 CUSTOMER INFORMATION AND RISK DISCLOSURE (a) Each Member or Associate shall, in accordance with the provisions of this Rule, obtain information from all individual customers and any other customers who are not eligible contract participants (as defined in Section l(a)(l8) ofthe Act) and provide such customers with disclosure of the risks of futures trading." 13NFA's Interpretive Notice 9013 explains a member's obligation under Rule 2:30 in relevant part: "Inadequate Risk Disclosure: ... [T]here may be instances where, for some customers, the only adequate risk disclosure is that futures trading is too risky for that customer. Once adequate disclosure is given, however, the customers are free to decide whether to trade in futures and the Member is free to accept the account."[Emphasis Added.] See Levy Dec. Exhibit 7. -11- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 20 of 40 Any competent expert will testif); that the use of naked puts and calls is a recipe for disaster, because all options expire worthless, and based on the time value of money, these naked puts and calls will lose 95% ofthe time. SAC ,-r,-r 511, 662. Therefore, naked puts and calls are an excellent strategy to lose money and perfectly structured for Wasendorfs' Ponzi scheme. Experts will also explain that the legitimate use of a Put or Call option contract is in combination with the underlying futures contract to hedge a transaction. 14 However, in this case and many others, Naked Puts and Calls were being purchased without the underlying Futures Contracts in place. Such positions are referred to as "Naked." Since all Puts and Calls lose all value over their lifetime, 3. NF A violated §22(b )(2) by failing to enforce compliance rules 2-2, 2-4,2-10,2-29, and 2-30 against Perry Comeau, an NFA Associate. Because the allegations in the SAC make clear that at no time did NF A ever enforce any of its rules against Perry Comeau, upon information and belief, who was acting as an Investment Advisor or CTA for Plaintiffs, NFA's failure constitutes a violation of §22(b)(2). Although Comeau was unregistered in the Spring of 2007 when these accounts were introduced to PFG, by October 31, 2008 Perry Comeau was granted NF A registrant status. See NF A Basic Record for Perry Comeau annexed to the Levy Dec. as Exh. 9. Even though conflicted Attorney Paul Thomas, Esq. did nothing to protect the Plaintiffs' rights with respect to Comeau's conduct, NF A was on actual and constructive notice that Comeau, an NF A Registrant, had been engaged in conduct violative ofthe above-listed rules. NFA's other arm, the Business Conduct 14So, for example, if a customer buys a long corn contract when corn is trading for $20 per bushel, believing corn will rise to $60 per bushel in three months, that customer may also buy a Protective Put on corn with a strike price of $40 per bushel. She pays the premium for that Put which is not much at all compared to the value of the underlying contract; and if corn rises to $50 a bushel, the customer will let the Put expire worthless. If corn rises to $60 dollars a bushel but then drops back to $30 dollars, the customer will exercise the put at the strike price to Jock in his $40 profit per bushel. This "Protective Put" like a "Covered Calls" protects the underlying investments. -12- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 21 of 40 Committee ("BCC") appears to have done nothing to investigate Comeau who was allowed to re-register at NFA in 2015. C. Because NFA Enforced Its Own Rules Only Against NFA "Registrants," Not All "Persons," NFA Caused Violations of 7 U.S.C. §2(a)(1)(B), 7 U.S.C. §6(o), 7 U.S.C. § 13, 7 U.S.C. § 21, 17 C.F.R. 4.15; and 7 U.S.C § 22(b)(2). Although the cornerstone ofNFA's regulatory framework is based on Mandatory NF A Membership, NF A allows non-member CTAs such as Defendants Maxwells, to practice freely in the Commodities Markets without any regulatory oversight by NF A in clear violation of its mandate to protect the Public. 15 See Levy Dec. Exh. 10. When Congress directed NF A to enact rules to govern all members and "persons associated with members," Congress and the CFTC ("the Commission") defined the terms "persons" and "associated persons" broadly to include all commodities advisors, brokers and others whether or not they were registered or unregistered. 16 Under 7 U.S.C. § 1(a)(38) and 17 C.F.R. 1.3, Congress as well as the CFTC defined a "person" in the commodities industry very broadly to include: "individuals, associations, partnerships, corporations and trusts." See 7 U.S.C. § 1(a)(38) and 17 C.F.R. 1.3. Additionally, an "associated person" or "persons associated with its [NF A] members" is also intended to be broadly defined under 17 C.F .R. 1.3 to reach a wide variety of individuals and other entities doing business in the commodities markets. 17 157 U.S.C.§2I(b)(8) states: "(8) [T]he rules ofthe association [NFA] provide that its members and persons associated with its members shall be appropriately disciplined, by expulsion; suspension, fine, censure, or being suspended or barred from being associated with all members, or any other fitting penalty, for any violation of its rules 16Even unregistered CT As who have a valid exemption must file an exemption, which the Maxwells appeared not to have done at all. 1717 C.F .R. 1.3 states: "Associated person. This term means any natural person who is associated in any of the following capacities with ... (I) A futures commission merchant as a partner, officer, or employee (or any natural person -13- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 22 of 40 However, NF A defines an "Associate" much more narrowly only to include those who are "required to be registered" with NF A. See NF A Compliance Rule 1-1 (d), Definitions Section, Levy Dec. Exh.4. NFA's narrow definition of"Associates" also appears to be in direct contrast with Congressional intent specifically to apply the CEA's Anti-fraud statute to all persons or all CT As whether associates and whether or not registered or exempted from registration. Section 4(o) of the CEA, codified as 7 U.S.C. §6(o), et. seq. proscribes Fraud by Commodities Trading Advisors such as the Maxwells. 7 U.S.C.§ 6(o) has two Sections proscribing Fraud. 18 The difference between Section §4(o)(l) and §4(o)(2) clearly demonstrates that Congress understood that the proscription against fraudulent conduct by CTAs and their agents was not just limited to registered CTAs, but related to all persons and/or associated persons whether registered or not. In fact, in 1978, Congress amended §4( o )(1) to broaden its reach to apply to all occupying a similar status or performing similar functions), in any capacity which involves (i) The solicitation or acceptance of customers' orders (other than in a clerical capacity) or (ii) the supervision of any person or persons so engaged ... and ... (4) A commodity trading advisor as a partner, officer, employee, consultant, or agent (or any natural person occupying a similar status or performing similar functions), in any capacity which involves: (i)The solicitation of a client's or prospective client's discretionary account, or (ii) the supervision of any person or person so engaged ... " 18Section 4( o) states: "§6(o). Fraud and misrepresentation by commodity trading advisors, commodity pool operators and associated persons." (1) It shall be unlawful for a commodity trading advisor, associated person of a commodity trading advisor, commodity pool operator, or associated person of a commodity pool operator, by use of the mails or any means or instrumentality of interstate commerce, directly or indirectly- ( A) to employ any device, scheme, or artifice to defraud any client or participant or prospective client or participant; or (B) to engage in any transactions, practice, or course of business which operates as a fraud or deceit upon any client or participant or prospective client or participant. (2) It shall be unlawful for any commodity trading advisor, associated person of a commodity trading advisor, commodity pool operation, or associated person of a commodity pool operator registered under this chapter to represent or imply in any manner whatsoever that such person has been sponsored, recommended, or approved, or that such person's abilities or qualifications have in any respect been passed upon, by the United States or any agency or officer thereof .... " -14- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 23 of 40 persons acting as CT As whether registered or exempted from registration by removing the restrictive words that limited §4( o) to only those CTAs "registered under this chapter." See Public Law 95-405- September 30, 1978, See Levy Dec. Exh. 11; accord 17 C.P.R. 4.15. By removing this restrictive language that required CTAs to be "registered under this Chapter," Congress emphatically mandated that CTA's exempted from Registration, like the Maxwells, were still liable under § 4( o )(1) for acts of Fraud in connection with advice given to the investing public such as Plaintiffs herein. SAC~~ 22, 119, 196, 199,240-247. However, NF A ignored this statutory provision, §4( o )(1 ), and preferred to enforce its Rules in such a way to completely avoid imposition of any regulation or liability on unregistered CTA's such as the Maxwells; thus, a violation of §22(b)(2) has occurred. NFA's violation of§ 22(b)(2) is also evident with respect to 17 C.F.R. 4.15 where the CFTC also mandated that all persons acting as CTAs are liable for Fraud under the Commodities Exchange Act, §4(o)(1). Even NF A acknowledged that it could have exercised jurisdiction over all persons under By-Law 301(a)(i) including the Maxwells by allowing even those CTAs who are exempted from Registration to still become NF A members which would have solved this intentional problem. See NF A By-Law 301 (a)(i) "Eligibility for membership," annexed the Levy Dec. as Exh. 5. However, in reality NF A has applied its other Rules and By-Laws in such a way so as to prevent Plaintiffs from ever exercising their rights including the exercise of jurisdiction over persons such as the Maxwells who happened to be non-NFA registrants by virtue ofthe fact that they were ostensibly exempted under 17 C.F.R. 4.14(a)(10). SAC ~684. For example, NFA's Code of Arbitration 2(a)(l) excludes the Maxwells from jurisdiction, and Rule 2(a)(l) only allows for the exercise of jurisdiction over Registered NF A members, Associates or Employees -15- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 24 of 40 and not over all persons despite Congress's clear ~andate under §4(o)(1) to hold all persons acting as CTAs liable for Fraud, such as the Maxw~lls. See NFA Code Rule 2(a)(1) annexed to the Levy Dec as Exh. 12. 19 NFA refused to exercise its discretion to include exempted registrants such as the Maxwells from NFA Membership under By-Law 301(a)(i)'s Eligibility-Rule. Rule 301(a)(i) rule appears to be a mandatory not discretionary, thus holding NFA to a negligence standard under Bosco. Even ifNFA was just negUgent, it still violated of§ 22(b)(2) & (4) because of 301(a)(i)'s mandatory terms. to include the exempted CTAs like the Maxwells as NFA members and associates. See Bosco v. Serhant, 836 F. 2d 271,277-278 (71h Cir. 1987). Instead, NF A Rules excluded all exercise jurisdiction over the Maxwells, as exempted CTAs depriving Plaintiffs of any chance satisfaction in their NF A Arbitration. Therefore, NF A' restricted application of its own jurisdictional and substantive rules demonstrates Plaintiffs' valid claims under §22(b )(2) and § 17(b )(2) based violations of By-law 301(a)(i) and Code §2(a)(l). 1. NFA's knowing exclusion of non-registered CTAs for many years and not by accident establishes bad faith conduct pursuant to §22(b)(4). The obvious exclusion of the Maxwells from NFA rules shows bad faith, since it was the NFA's purpose to protect customers from bad actors. The Maxwells gave investment advice and earned substantial fees, but the NF A had no jurisdiction over them. SAC ~~196, 198. It appears as if the NF A did not want to know about how the Maxwells allegedly aided and abetted Wasendorf, Sn. in his RICO conspiracy. By excluding the Maxwells, NFA allowed Wasendorf, Sn. to accomplish his 20 year Ponzi Scheme by using in part unregistered agents as 19 NFA Compliance Rule 2-2, 2-4. 2-29, 2-30, 2-10 only apply to NFA Members and Associates based on their clear language. Therefore, NF A has fallen down on its duty by passing and enforcing its restrictive Compliance Rules that only apply to selected NF A members and associates and not to all Persons as defined by Congress and the Commission. Thus, §22(b)(2) has been violated. See Levy Dec. Exh. 4. See Levy Dec. Exh.4. -16- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 25 of 40 his a pawns in some cases. So, if Wasendorf, Sn. wanted to steal from a large group of investors, like Plaintiffs, Wasendorf, Sn. was much better off using unregistered CT As like the Maxwells who just flew under the radar. NF A's refusal to enforce its rules on the books to regulate or punish the Maxwells by failing to apply By-law 301(a)(i) establishes bad faith in light ofNFA's profit-motives described in the SAC.~~ 545-555. In fact, the Maxwells although unregistered were supposed to file an Exemption with NF A which they did not do either apparently. See NF A CT A Rules for Registration and Exemptions, annexed to the Levy Dec. as Exh. 13. 2. Application ofNFA By-Law 1110 caused a §22(b)(2) violation with respect to 7 U.S.C. §2(a)(1)(B) and 17 C.F.R. 4.15. Had the Maxwells been joined as NFA-Respondents in the Arbitration proceedings, Plaintiffs would have had a much better chance of receiving an award, because PFG would have been held vicarious liable under 7 U.S.C. §2(a)(1)(B). 7 U.S.C. §2(a)(l)(B) imposes broad vicarious liability on principles like PFG for misconduct of agents, like the Maxwells, not just employees. See, In re Amaranth, 587 F. Supp.2d 513, 531-532 (S.D.N.Y. 2008.) The Maxwells would have had trouble escaping liability under §4(o) and 17 C.P.R. 4.15, as well, had they been subject to NF A jurisdiction. NFA limited the broad reach of7 U.S.C. §2(a)(1)(B) by replacing it with NFA By-law 1110 which narrowed Congress's intent and only imposed vicarious liability on NFA Members for the acts of persons "required to be registered." Nevertheless, had the Maxwells been joined as party-respondents, Plaintiffs could have proven that the Maxwells had more than 15 customers in any calendar year and/or held themselves out to the public as CTAs. If so, the Arbitrators could have held that the Maxwells were not at all exempted under 17 C.F .R. 4.14(a)(10). Based on this potential factual finding, By-law 1110 could have applied to hold PFG vicariously liable. See SAC ~~683-688. However, by not even being able to join in the -17- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 26 of 40 Maxwells as Respondents, NF A rules were structured to truncate Plaintiffs' rights making it palatable for the Arbitrators to toss these meritorious cases premised on By-law Ill 0 rather than the more protective standard in 7 U.S.C. §2(a)(l)(B). Thus, a clear inference can and should be drawn that NF A applied its rules against the direct intent of Congress and the Commission, and therefore was acting in Bad Faith. D. Because NFA Breached Its Obligation To Provide A Fair Arbitration Forum Under §17(b)(10), A Valid Violation of §22(b)(2) Has Been Alleged. Because NF A did not fulfill its mandate to provide a fair arbitral forum for aggrieved investors such as Plaintiffs who tried to achieve justice at NF A, §22(b )(2) has been violated because 7 U.S.C. §2l(b)(10) required NFA to provide for "a fair, equitable and expeditious procedure through arbitration." Pursuant to its Rule-making Authority, NF A set up an Arbitral Forum and established a Code of Arbitration to help resolve customer disputes. However, as alleged the procedural and substantive unfairness that plagued Plaintiffs Arbitrations' was palpable including NF A's refusal to severely reprimand Mr. Ivarone from bringing multiple court cases while the same issues were pending at the NF A, See SAC ~545(f). NF A also appears to have acted in bad faith by not exercising its discretion to consolidate Plaintiffs' Arbitrations into one joint arbitration pursuant to NF A Code of Arbitration 6(M) and to hear this case in Oelwein, Iowa where all Plaintiffs resided. SAC ~625, See Rule 6(M), Levy Dec. Exh. 12. Rather, in an alleged bad faith exercise of discretion, NFA preferred to make each and every Claimant travel a far distance to Chicago where Mr. Ivarone was located. As such, questions of fact exist regarding violations of §22(b)(2) and §22(b)(4). SAC ~619(b). 1. The SAC properly alleges unfairness where NFA applied Code 6(M) and other rules to deprive Plaintiffs of consolidating their Hearings. To understand the procedural unfairness rising to the level of bad faith, one must -18- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 27 of 40 understand Rule 6(M) ofNFA's Code of Arbitration and see how NFA abused its discretion.20 NF A did not act negligently because it remembered Rule 6(m), and did allow for a consolidation for the Preliminary Hearing in the claimants' matter, since all the issues were identical. Clearly with respect to the Preliminary Hearing, NF A did not want to risk having inconsistency of results and piecemeal and costly treatment of the same exact claims by six Panels. However, jury questions exist as to why NF A changed course. Did not NF A fear more inconsistent awards with respect to the Final Hearings which were broken down into six separate yet identical proceedings? NF A appears to have terribly abused its discretion by refusing to consolidate these six group hearings, that combined 3 to 4 sets of claimants into one hearing. Despite the obvious commonality of issues and despite Rule 6(m) authorizing this Consolidation, NF A did nothing to offer a "fair, equitable and expeditious procedure," because it forced the claimants to travel to Chicago from their homes in Oelwein. NF A then told Claimants that NF A did not have 18 Arbitrators to send to Iowa to preside over 6 separate yet identical Hearings. Therefore, NF A required Claimants to travel to Chicago, Illinois on a shoe-string budget instead of just consolidating the entire case and sending three Arbitrators up to Oelwein, Iowa.Z1 Ironically, Chairman Peppard who presided over the Schefferts' Arbitration was 2°Code of Arbitration Rule 6(M) states in relevant part: "When Arbitration Claims involving common questions of fact or arising from the same act or transactions are received by the Secretary, the Secretary may, whether or not at the request of any party, order any or all of the proceedings to be consolidated for hearing in the interest of providing fair, equitable and expeditious procedure [sic] and may take such action concerning the proceedings herein as may tend to avoid unnecessary or unreasonable delay." See NFA Code of Arbitration 6(m) annexed to the Levy Dec. as Exh. 12. 21 Because there is power in numbers, the three arbitrators hearing one consolidated cases would have probably better understood the deceptive nature of the investments, and would have had the time and opportunity on a fully developed record to review the account statements or hear expert testimony about the impossibility of the trades to see that these statements did not add up. However, NFA, by breaking down the cases into 6 groups was able to diffuse the group's power and wear down each Claimant by requiring these rural folks to travel to an unfamiliar and large venue after they colllectively gave NF A approximately $48,000.00 in fees. These fees were in consideration of the Rules set forth by NF A in its broucheurs which should have been upheld in good faith. -19- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 28 of 40 not even from Chicago, upon information and belief, and probably could have just as easily flown to Iowa than Illinois from his office in Wisconsin. See Internet Printout of Terry Peppard annexed to the Levy Dec. as Exh. 14. NF A's conduct shows not just bad faith but actual malice or so a jury can find and is one basis for the claim of intentional infliction of emotional distress. Certainly, only disturbed minds like WasendorfSn, and his cronies would be so cruel to uproot people, who have lost their life-savings and have gone through a lot, to travel to Chicago from Oelwein for no good reason-especially when NF A had millions of dollars in its bank accounts based on membership fees to pay for the travel and lodging expenses of three Arbitrators. NF A did the opposite in the Matter of Engel, 193 Misc. 2d 91, 746 N.Y.S.2d 826 (Sup Ct. N.Y. Co. 2002), where at least 14 claimants were all consolidated into a solitary NF A arbitration and all held in New York with one solitary Panel. NF A violated the policy in its Customer Arbitration Guide, page 15 that:" NF A usually schedules the hearing in a city of the customer's choice ... ,m Now, NF A will be asked to explain to a jury why it could not round up 3 arbitrators out 2,000 to preside in Iowa which could have saved thousands of dollars in costs for the clients.23 NF A also has unpublished rules that hurt claimants terribly, like refusing to allow for extensions of time and arrogating to its own discretion the days and dates of the Hearings. Here, NF A scheduled the Schefferts' hearing on a Friday, Monday, and Tuesday, in Chicago 22NF A states in its guide entitled "Resolving Customer Disputes p. 10: "NF A maintains a list of qualified arbitrators in most states so that, generally any necessary hearings can be scheduled at a location convenient for the parties NFA's roster of more than 2,000 arbitrators is comprised of futures industry professionals, lawyers, accountants, professors, and other business professionals located in 47 states." See Levy Dec. Exh 15. 23Rather, NFA picked arbitrators such as Donald Horwitz to be one of the presiding arbitrators in the Schefferts' case. Donald Horowitz was a close personal friend for over 30 years of Howard Schneider the expert witness who testified for PFG against the Schefferts. SAC ,-r645. NFA saw no problem with that disclosure. The head Arbitrator, Terry F. Peppard is located in Wisconsin, upon information and belief. Levy Dec. Exhibit 14. Why would NFA incur travel expenses to pay for the travel time and lodging of Terry Peppard when NFA had access to arbitrators in Chicago? A jury will be asked to evaluate this evidence in its totality. -20- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 29 of 40 instead of 5 straight days. SAC ~632. Therefore, NF A just rescheduled the Schefferts and the others to return twice to Chicago, Illinois for their doomed proceedings. These examples all demonstrate NFA's failure to enforce its published and unpublished NF A rules, e.g. 6(M) in good faith in violation of§ 17(b )(1 0) and §22(b )(2) and ( 4 ). 2. Other Examples Demonstrate Violations of7 U.S.C. 25(b)(2)(4). Other valid allegations in the SAC showing a §22(b )(2)&( 4) violation are that NF A failed to apply its rules to include Illinois State law's Rules of Professional Conduct to disqualify conflicted attorneys based conflicts of interest; SAC ~648(a); SAC Exh.17 and that NFA enforced its rules to violate 7 U.S.C. § 21(b)(10) by forcing parties to accept the NFA- selected arbitrators, although in other Arbitral Fora, the participants have roles in selecting their own arbitrators, such as with FINRA, JAMS End dispute or AAA. As such it is no surprise that in the 1 7 years NF A has kept statistics, no claimant ever prevailed where against PFG in any claim in excess of$100,000.00. NFA should now be liable based on such unfairness. SAC ~698. 3. A fair inference is that the Panel did not consider the account statements. Because at least one ofthe Schefferts' Arbitrators was a CFA, Mr. Gocek, he could have read and understood the account statements admitted into evidence to show that the statements were inaccurate; the account statements revealed the use of outrageous out-of-the- money, naked puts and calls, and some of the positions violated margin requirements and did not add up thus supporting aponzi scheme. SAC~~ 32,36,151, 297, 305©, 79,488,902. Therefore, it appears that absent a consideration of the account statements, there was a lack of fairness. See Levy Dec. Exh. 14. However, it appears that the Arbitrators did not review the account statements, because the Plaintiffs' cases were thrown out. Therefore, it appears that the Arbitrators did not fairly hear the entire case as required by NF A Code of Arbitration 4( d). Thus, -21- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 30 of 40 the SAC demonstrates a violation under §22(b)(2) based on a violation ofNFA Code 4(d) and § 17(b )(1 0). Because the Arbitrators do not have to give reasons for their decisions, pursuant to NF A Rules, we do not know why these falsified account statements were not understood by at least one of the three Arbitrators. With respect to the Chairman, he allegedly misapplied the law and refused to consider the motion regarding Paul Thomas's conflict oflnterest.24 SAC 658(a). Exh.17. NF A states unapologetically that the arbitrators are not expected to know the law, notwithstanding NF A's exorbitant fees for this privilege. See NF A Legal and Procedural Issues, p. 21, Levy Dec., Exh. 16. Application ofthis NFA Rule also shows a violation of7 U.S.C. §21(a)(10) because a fair arbitral forum requires knowledgeable arbitrators25 II. QUESTIONS OF FACT EXIST REGARDING NFA'S BAD FAITH UNDER 22(b)(4). Bad Faith can and should be inferred on the basis of extreme recklessness and probably more. See DGM v. NY Fut. Exch. Inc., 265 F. Supp. 2d 254,263 (S.D.N.Y.2003.) A. Because NFA Allowed PFG and the Wasendorfs to Engage in Felonious Conduct for Over 20 years, There is A Valid Inference of Bad Faith The SAC establishes that NF A refused to acknowledge the long-standing and 24 The SAC alleges that Mr. Ivarone attempted to have a waiver of conflict signed. Mr. lvarone cited to the Illinois Statute proscribing dual representation of conflicted parties. The Panel denied Mr. Ivarone's request. Chairman Peppard, refused to acknowledge or apply Illinois Code of Professional Responsibility presented to him that should have been considered in addition to the N FA Code of Arbitration Section 7 which did not cover conflicts of interest. Because Arbitrator Peppard was acting as an agent for NF A, his refusal to apply rllinois Law , establishes a claim against NFA under §22(b)(2) and §2(a)(l)(B). In addition, application ofNFA Code of Arbitration Section 7 to exclude any State Laws regarding Conflicts of Interest also establishes a violation under §22(b)(2), based on a violation of7 U.S.C.§ 21. 25NF A states in its Brochure entitled "Legal and Procedural Issues" at page 21 : "Arbitrators are not required or expected to independently research the law in order to make their decision and are not obliged to know what the law is with respect to the issues presented by the parties .... However, if the arbitrators know what the law is, or if the parties argue the law to the arbitrators and the arbitrators have no reason to believe the law was argued incorrectly, they are bound to follow or apply it. [Emphasis Added]. Some courts will vacate an award if the arbitrators know what the law is but intentionally choose not to apply it." Levy Aff, Exh. 16 -22- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 31 of 40 continuous felonious violations by PFG and therefore the Wasendorfs as defined under the Commodities Exchange Act under 7 U.S.C. §13(a); thus, consciously avoided the plain facts. SAC ,-r12 Furthermore, an inference of Bad Faith Conduct can be inferred based on the long- standing nature ofthe misconduct that went unabated from approximately 1996 to 2012. 1. Because the SAC alleges facts to establish NFA's self-interest and ulterior motive to earn exorbitant profits, bad faith has been properly alleged.' Because this Court can reasonably infer that NF A had knowledge of the wrongful trading practices engaged in by PFG and many others and stood to earn extraordinary fees on each and every transaction that occurred over the CME (Assessment Fees) whether fraudulent or not including each and every trade including naked puts and calls, NFA was self-interested and had an ulterior motive to allow as much trading as possible to continue. See Troyer v. NF A, 290 F. Supp. 3d 874 (N. Ind. 2018)(Issues of fact existed as to NFA's bad faith conduct to sustain a claim under §22(b)(4)); DGMv. NY Fut. Exch. Inc., 265 F. Supp. 2d 254,263 (S.D.N.Y.2003)(Claim alleged that Chairman of the Settlement Committee of Futures Exchange acted with ulterior motive for personal gain thus establishing an inference of Bad Faith.) This Court should also take judicial notice of facts in the public record to support NFA's ulterior motive for profit making including its exorbitant income and fees that translated into salaries and benefits for the NF A. 26 See DGM v. N YFuturte Exchange, Inc., 265 F. Supp. 2d 254, 262 (S.D.N.Y. 2003)(0ne must plead facts to sustain Ulterior Motive or Self-Interest to establish bad faith); Levy Dec. Exh. 2. 26For example, this Court should take judicial notice of NFA's 2018 Annual Review, https://www.nfa. futures.org/about/annual-reviews-files/20 18 _ Annua!Review.PDF, NF A showing NF A spent $73,251,414.00 on Salaries and $4,003,643.00 on traveling expenses in 2018. NFA's 2018 annual revenue consisted in part of $38,920.794.00 from membership dues and $44,942,335.00 from Assessment which appear to mean income from NFA fees for each trade that occurs over an Exchange, including naked puts and calls upon information and belief. NFA's total assets in 2018 was $1 01,999,661.00--not bad for a regulatory agency. Upon information and belief, NF A has approximately 500 to 650 employees to compensate. -23- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 32 of 40 2. The SAC also establishes constructive bad faith. The facts alleged in the SAC also establish that NF A acted recklessly with respect to regulating the conduct of its registrants based on all the years that NF A failed to stop the abusive conduct occurring in Plaintiffs' and other's accounts. Thus, this case satisfies applicable pleading standards regarding constructive bad faith conduct. See Brawer v. Options Clearing Corp., 807 F.2d 297, 303 n.9 (Cir.1986)("We do not mean to foreclose the possibility that [defendants' conduct] might be so arbitrary as to constitute constructive bad faith.) cert denied, 484 U.S. 819, 108 S.Ct. 76 (1987), Bosco v., Serhant, 836 F. 2d 271,277-278 (71h Cir. 1987.) a. Because NFA failed to expel PFG back in 1996 and allowed such felonious conduct to continue, it acted in bad faith. The SAC alleges that as far back as 1996 that PFG led by Wasendorf Sn. and many others were committing felonies as defined by 7 U.S.C.§ 13(a)(3).27 SAC ,-r,-r431-437. A review of the NF A Basic printouts as well as other public records show years of misconduct which supports an inference of bad faith. Questions of fact exist as to why NF A, exercising discretion in good faith did not expel PFG and Wasendorfprior to 2007. See Levy Dec. Exh. 3. In 1996, PFG and eight of its brokers were disciplined for a variety of felonious activity including under reporting segregated funds which is the same charge that occurred in 2012 that brought the firm down finally. See PFG Basic Printouts, Levy Dec. Exh. 3. In 1996, 27 7 U.S.C. § 13(a)(3) makes it a felony for any person to make a false statement regarding its reporting requirements: "(a) Felonies generally-It shall be a felony punishable by a fine of not more than $1,000,000 or imprisonment for not more than 10 years, or both, together with the costs of prosecution, for: any person knowingly to make, or cause to be made, any statement in any application, report, or document required to be filed under this chapter or any rule or regulation thereunder or any undertaking contained in a registration statement required under this chapter, or by any registered entity or registered futures association in connection with an application for membership or participation therein or to become associated with a member thereof, which statement was false or misleading with respect to any material fact, or knowingly to omit any material fact required to be stated therein or necessary to make the statements therein not misleading." -24- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 33 of 40 NF A accepted a settlement, and PFG paid a fine of $75,000.00 without admitting nor denying liability. Why did the NFA ignore felony conduct without even an admission ofliability? Then, in 1999, the CFTC brought a similar proceeding against PFG also for misstating customer segregated funds showing PFG's undercapitalization as ofMarch 26, 1999, 9 years before the Plaintiffs total losses. PFG's 1999 misconduct also resulted in a fine of $90,000.00. PFG's under reporting of funds would have suggested to a savvy regulator that Wasendorf, Sn. was pocketing customer monies handed to him by U.S. Bank and J.P. Morgan because there simply was not enough money in the customers' accounts to even place trades. Then in 2000, NF A, doing an annual audit, passed PFG when such continuing violations should have caused a cessation of operations. See Levy Dec. Exhibit 17. NF A Audit, 2000. 28 In 2004, NF A fined PFG again for failing to comply with a prior NF A order. In early 2012, prior to the PFG Bankruptcy, NFA coincidentally levied a $700,000.00 fine against PFG. SAC, 437, Exh 10. It is unfathomable and certainly in bad faith, that NF A allowed PFG to continue in existence from 1996 to 2012 when NF A could have shut down PFG as early as 1996 because under segregated firms such as PFG simply cannot maintain positions or place trades over the CME Exchang~ without adequate margin as was seen in 2000 by the NFA audit29• NFA had notice in 2000 that PFG was not posting Margin which is essential to sustain a trading position 28Some of irregularities discovered in the NF A Audit in 2000 include PFG 's ability to place trades without collecting proper margin. This fact seems impossible since all trades require margin and was another clear sign of a Ponzi Scheme as described in the SAC. Certainly, at this point, NFA should have opened a full-blown investigation by the latest in 2000. See NF A Margin Requirements, annexed tot he Levy Dec as Exh.l8. 29The only missing link is to discover who the Clearing members were that facilitated this situation. How did the CME clearing member firms account for this fraud? That will be an easy question to answer because once books and records are produced, it should reveal exactly how or when these trades or phantom trades occurred in each Omnibus sub-account. -25- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 34 of 40 over an exchange. Therefore, NF A had constructive knowledge that PFG was putting through trades without proper margin in 2000. See NFA Rule requiring Performance Margin, annexed to the Levy Dec. as Exhibit 18 and Exh. 17 showing PFG's failure to collect Margin (Number 7.) b. Other Cases Show NFA's Bad Faith Conduct under §22(b)(4). Other cases also demonstrate NFA's bad faith in this case based on such similarities. For example, the NFA's decision in Statewide FX, Inc. shows extreme recklessness in the enforcement of its rules because despite conclusive evidence of wrongdoing, NF A allowed brokers Collin and Hennequin who participated in these felonious schemes just to wait a number of years and pay a $30,000 fine to re-register. In fact, these two brokers Colin and Hennequin had already been registered with the other firms of Siegel Trading Co., Inc. and American National Trading Corp.-- both of which had been permanently barred from NFA for misconduct. See Levy Dec. NF A BCC Memo dated October 26, 2010 page 2, n.1. Exh. 1. Because Firms can only operate through their broker's conduct, it is unfathomable that NF A let Henneguin and Collin re-register and do more harm to customers. NF A also allowed Heneghan to re-register in Troyer v. NFA allegedly in a breach of its rules as well. Thus, a claim under §22(b)(4) exists. A review ofNFA's investigation of Statewide FX found that in 2009,477 out of 504 customers lost 94.6% of their investments or sustained total losses in the amount of $5,041,828.00 and the other customers (5.4%) experienced a total gain of only $56,000.00. Thus, clearly most customers sustained total losses using naked puts and calls just like in this case and every case studied. See Levy Dec. Exh. 1. See SAC. ~~306-322. On page 7 of the NF A-Statewide Complaint, the NF A observed that one Statewide customer sustained losses nearly equal to the commissions earned. That Defendant sustained net losses of$59,871.47, and the commissions charged to his account were $54,097.58. Now even a novice NFA auditor -26- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 35 of 40 knows that ones' investments cannot nearly equal the commissions, absent Fraud. NF A should have immediately called the Clearing member to clear up what was happening and to understand how those commissions were generated. How could $54,097.58 fees have been earned on a $59,871.47 investment? And if such fees were taken, why did not NFA exercise it rule-making authority to limit these usurious fees? These questions require jury resolution. NF A did not act to deeply investigate and turned a blind eye time and again in the face of overwhelming signs of continuous misconduct by Statewide Fx that could also support the existence of a Ponzi Scheme.30 Such recklessness is inexcusable and certainly a basis to find ample allegations ofbad faith conduct. Thus, Plaintiffs claim under 7 U.S.C. 25(b)(4) is valid and the Claim against NF A should proceed. III. PLAINTIFFS' CLAIMS ARE VALID BASED ON TOLLING PROVISIONS. The SAC properly pleads all elements to support a claim for Equitable Tolling, based on Fraudulent Concealment See, Behrens v. JPMorgan Chase Bank, Et. Al. Plaintiff Memo law In Opp to Def Mot Dismiss, 16-cv 5508 Docket #157-1 pp.8-40 (S.D.N.Y 02/12/2018.) A. This Case Qualifies for Equitable Tolling Based on Fraudulent Concealment. The SAC establishes that NFA's bad faith conduct was also self-concealing. SAC ~706, and therefore subjects this case to Equitable Tolling. In the Second Circuit, claims against SROs like NF A have been subject to Equitable Tolling based on Fraudulent concealment because such bad faith conduct could not be discovered by the members of the public because SROs do 30 Another example of PFG' s on-going Ponzi Scheme is seen with Atlantis Trading Corp. who was an Introducing Broker for PFG in 2010 and showed a Net loss of customer funds of $643,044.00 and a Total gain of $896.00. During this time, Wasendorf, Sn. allegedly has taken $643,044.00 out of customer segregated accounts from JPMorgan and US Bank's transfer to Wasendorf, Sn; then the naked puts and calls are ostensibly placed, but never really executed, nor put into the market, upon information and belief; and then the clients are all sent home broke. In Atlantis, the fact that the total loss almost equals the total amount invested is not an uncanny coincidence, but circumstantial evidence of a well-oiled scheme underway for many years. Had NF A investigated beter, it would have seen that PFG was severely under segregated and could not have placed these trades based on lack of margin. See Levy Dec. Exhibit 19. -27- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 36 of 40 not always need to make public disclosures. See, State of New York v. Hendrickson, 840 F.2d 1065, 1083-1085 (2nd Cir. 1988); In re Silver London Fixing Anti Lit., 213 F. Supp. 3d 530, 572- 573 (S.D.N.Y. 2016)(SRO's conduct in regulating Silver Fix held to be inherently self- concealing). The First element of the Equitable Tolling Doctrine is also met because there were public misstatements that NF A enjoyed absolute immunity from any suits which clearly is not case: NFA is governed by 7 U.S.C. §25(b). Therefore, NFA had no right to float the argument of Absolute Immunity in signed legal pleadings to bar claims against it, and such statements delayed the commencement of this case.31 The second element of Equitable Tolling is also met because Plaintiffs could not have discovered NFA's role in Plaintiffs' case within the two year statute of limitations. Plaintiffs' Hearings concluded in 2012. The BGR was never seen by Plaintiffs in any published news articles. When it was reviewed in 2016 or 2017, it did not disclose any triggering data to identify the Fraud alleged in the SAC and such failure is also alleged to be a material omission to satisfy equitable tolling. See Lentell v. Merrill & Co., Inc., 396 F.2d 161 (2d Cir. 2005.) Rather, NF A records were gathered from 2015 to 2017. In 201 7 after the NF A files were gathered and fully reviewed in combination with the other evidence, and the fact that NF A was not subject to Absolute Immunity based on the public filing of the Troyer v. NFA case in 2016. This public filing can be considered the triggering of Inquiry Notice giving Plaintiffs two more years to commence their instant suite. When it became apparent that there was a valid claim against NF A, the case was timely interposed. Therefore, reasonable diligence exists, and the claim should be tolled. See FrontPoint Asian Even Driven Fund, LP, Et. al. v. Citibank, Et. Al. 16-cv- 31 No attorney wants to get sanctioned for suing a quasi-governmental agency like NFA, when NFA represents in public records that it has absolute immunity from suit. But, NFA never had any immunity at ali. -28- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 37 of 40 5264 (S.D.N.Y, 2017.) B. This Case Is Timely Under The Discovery Accrual Rule ("DAR") Because Triggering Data Existed in 2017, and This Case Was Filed Within 2 Years Thereof. It appears that Defendant NF A in failing to address this argument has waived it. However, the DAR allows for the commencement of the Statute of Limitations to be delayed until the claims accrue not when the claims occur. See In Re Merrill Lynch Ltd. Partnerships Litig, 154 F.3d 56, 60 (2d Cir. 1998) ("[E]ven if investors' injury occurred at the time they invested, the limitations period does not begin to run until they have actual or inquiry notice of the injury") see also, CSAM Capital Inc. v. Lauder, 67 A.D.3d 149, 885 N.Y.S.2d 473 (1st Dep't 2009.) Thus, a claim with a two year statute of limitations, like in this case, would not have been deemed to have accrued until there was Inquiry Notice to alert the public of a cause of action. Although such triggering data need not establish each element of the claim, the public data must provide sufficient information to state a claim. And in this case, the claim includes bad faith conduct. See In Re Foreign Exchange Benchmark Rates Anti. Liti, 2016 WL 5108131 * 16 (S.D.N.Y.2016),(2003 Claims were tolled until2013 where the only data publically disclosed did not trigger inquiry notice of the claim.) Here, Defendants have not identified any public disclosures to trigger these bad faith claims. Plaintiffs discovered NFA's Bad Faith Conduct, after a full review of the records and when the Indiana Court allowed such claims to proceed in Troyer v. NF A, and showed no Absolute Immunity for NF A. Therefore, Defendant NF A has not met its burden of proof on the affirmative defense of Statute of Limitations and has failed to point out any timely triggering data that would have alerted Plaintiffs to their Bad Faith Conduct. -29- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 38 of 40 IV. BECAUSE THE SAC STATES A PENDANT STATE LAW CLAIM FOR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS, THIS CLAIM SHOULD PROCEED. Because the facts taken as true show intentional conduct based on bad faith, there is no reason to dismiss this valid claim that has been recognized in New York for a very long time and is part ofNew York's jurisprudence. Battalla v. State of New York, 10 N.Y.2d 237,240 (1961). Additionally, because the claim does not appear to be preempted and the doctrine of complete preemption does not seem to apply to the CEA in the Second Circuit. See Strax v. Commodity Exch. Inc., 524 F. Supp. 936 (S.D.N.Y. 1981)(Court held CEA did not exempt State Antitrust Claims) Therefore, whether what happened to these Plaintiffs deserve recompense for their emotional distress with some physical manifestations should be up to a jury based on the long- standing nature ofthe intentional conduct alleged. A jury on a fully developed record could better evaluate whether the conduct described caused enough harm to warrant damages. The New York Court of Appeals noted in recognizing these types of claims that: "It is fundamental to our common-law system that one may seek redress for every substantial wrong. 'The best statement of the rule is that a wrong-doer is responsible for the natural and proximate consequences of his misconduct; and what are such consequences must generally be left for determination of the jury. (Ehrgott v. Mayor City ofN.Y. 96 N.Y. 264,281.) Battalla v. State of New York, 10 N.Y.2d 237,240 (1961) Therefore, Plaintiffs respectfully requests that this claim proceed so that others will think twice before acting in such a devastating fashion; and this claim should proceed since the facts do allege adequately Plaintiffs' entitlement to relief. CONCLUSION Based on the foregoing, NFA's motion to dismiss should be denied. -30- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 39 of 40 January 13, 2019 Respectfully Submitted, Is/Susan J. Leyy Susan Levy, Esq. Attorney For Plaintiffs New York, New York 40 East 1 Qth S~reet Suite 2K New York, New York 10003 (212) 962-1782 (Tel) (212) 962-3711 (Fax) -31- Case 1:16-cv-05508-VSB Document 234 Filed 01/13/19 Page 40 of 40