Nicholas v. Saul Stone & Co. LLC

A group of investors (plaintiffs) agreed to invest money in a commodity trading pool managed by Chuck Kohli, Nungambukkam Swamy Ramchandran, and a group of subordinates to Kohli and Ramchandran known as Sigma. Kohli, Ramchandran, and Sigma used the funds to invest in various commodities futures and options, using futures commissions merchants (FCMs) (defendants) to help carry out the trades. The bulk of the investments lost money, but early investors who sought to withdraw funds were paid out of the funds provided by later investors, falsely suggesting that the investments were profitable. Kohli later pleaded guilty to federal criminal charges, and Ramchandran filed for bankruptcy, leaving the investors with little recourse. In an attempt to recoup some of their losses, the investors filed suit in federal district court against the FCMs used by Kohli, Ramchandran, and Sigma, alleging that the FCMs violated the Commodity Exchange Act (CEA), including through aiding and abetting. The district court dismissed the complaint on the basis that the FCMs did not have the necessary direct relationship with the investors. The investors appealed, first arguing that Kohli, Ramchandran, and Sigma were the agents of the investors, and because the FCMs had a direct relationship with Kohli, Ramchandran, and Sigma, there was a sufficient link to establish liability. Alternatively, the investors argued that the FCMs could have liability under the CEA based on an aiding-and-abetting theory.