Prestwick Capital Management, Ltd. v. Peregrine Financial Group, Inc.

Peregrine Financial Group, Inc. (Peregrine) (defendant) was a futures commission merchant (FCM) under the Commodity Exchange Act (CEA). In 2004 Peregrine entered into a guarantee agreement with Acuvest, an introducing broker registered with the Commodity Futures Trading Commission (CFTC), pursuant to which Peregrine guaranteed Acuvest’s performance of all introducing-broker obligations under the CEA. Under the 2004 guarantee agreement, Peregrine was liable for any fraudulent conduct by Acuvest. During the term of the guarantee agreement, Acuvest advised Prestwick Capital Management, Ltd., Prestwick Capital Management 2, Ltd., and Prestwick Capital Management 3 Ltd. (collectively Prestwick) (plaintiff) to become a limited partner in a commodity trading pool for which Acuvest served as introducing broker. In 2006 Peregrine and Acuvest mutually terminated the 2004 guarantee agreement, entering into a superseding clearing agreement under which Acuvest was recognized as an independent introducing broker, as opposed to a guaranteed introducing broker. The parties’ 2006 agreement explicitly stated that it “supersedes and replaces any and all previous agreements.” Acuvest thus assumed financial responsibility for its own actions. Acuvest and Peregrine later entered into yet another agreement with an effective date of July 8, 2008, pursuant to which the parties restored Acuvest’s status as a guaranteed introducing broker. By then, however, Prestwick had learned that the majority of its investment in the commodity pool was unavailable, allegedly due to fraud on the part of Acuvest that occurred in between the two guarantee agreements. Prestwick filed suit in federal district court against Peregrine, Acuvest, and two of Acuvest’s principals, alleging violations of the Commodity Exchange Act (CEA). Prestwick’s claim against Peregrine was based on guarantor liability. On that claim, the district court awarded summary judgment to Peregrine, and Prestwick appealed. In addition to Prestwick’s arguments relating to contractual interpretation, Prestwick also argued that the district court’s ruling undermined the CFTC’s consumer-protection policies.