CFTC v. Equity Financial Group, LLC

An investment firm named Tech Traders allegedly solicited over $47 million in investment funds under the pretext that they were able to use a system to guarantee significant profit. Although Tech Traders reported to its investors that it was earning such profits, in reality the firm lost a substantial amount of money. Losses exceeded $20 million, $7 million of which came from losses associated with the trading of commodity futures. The Commodity Futures Trading Commission (CFTC) (plaintiff) filed an action in federal district court, alleging that Equity Financial Group, LLC (Equity), along with Robert W. Shimer and Vincent J. Firth (defendants), operated a related entity called Shasta Capital Associates, LLC (Shasta). Equity, Shimer, and Firth allegedly solicited investors’ funds for Shasta and then transferred those funds first into Shimer’s attorney escrow account, and then to Tech Traders. Shimer was an attorney who had previously been registered as an associated person of a commodity-pool operator (CPO) under the Commodity Exchange Act. Shimer researched whether Shasta or Equity was required to register with the CFTC, concluded that neither was required to register, and then had his findings verified by a firm. Although Firth was primarily the lead marketing sales representative, Shimer also played a role in soliciting investors for Shasta. Shimer personally referred potential investors to Shasta, and he also used his credentials as an attorney to make Shasta seem more legitimate to other potential investors. Additionally, Shimer drafted the private-placement memorandum for Tech Traders. The district court held both that Shasta was a CPO and that Equity was the CPO for Shasta. The CFTC then moved for partial summary judgment on the charge that Shimer, as an associated person, aided and abetted Equity’s failure to register as a CPO.