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U.S. Commodity Futures Trading Commission v. Cifuentes

United States District Court, D. New Jersey

April 20, 2018

U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff,
v.
ALCTBIADES CIFUENTES, JENNIFER WEE CIFUENTES, and CIFUENTES FUND MANAGEMENT, LLC, Defendants.

          ORDER GRANTING PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT, PERMANENT EXJUNCTION, CIVIL MONETARY PENALTY, AND EQUITABLE RELIEF

          Hon. Esther Salas United States District Judge.

         Before the Court is Plaintiff U.S. Commodity Futures Trading Commission's ("Plaintiff, " "CFTC, " or "Commission") Motion for Entry of Default Judgment, Permanent Injunction, Civil Monetary Penalty, and Equitable Relief against Defendants Alcibiades Cifuentes ("Cifuentes"), Jennifer Wee Cifuentes ("Wee"), and Cifuentes Fund Management, LLC ("CFM"), (collectively, "Defendants"), pursuant to Federal Rule of Civil Procedure 55(b)(2) and New Jersey Court Rule 4:43-2. For the reasons stated below and good cause having been shown, the motion is GRANTED.

         I. PROCEDURAL HISTORY

         1. On September 30, 2016, the CFTC filed a Complaint for Injunctive and Other Equitable Relief and for Civil Monetary Penalties Under the Commodity Exchange Act and Commission Regulations (“Complaint”) against Defendants for violations of the Commodity Exchange Act (the “Act”), 7 U.S.C. §§ 1-26 (2012), and its implementing regulations (“Regulations”), 17 C.F.R. §§ 1.1-190.10 (2015). (ECF No. 1).

         2. The Complaint alleges that, from at least April 2013 through March 2015 (the “Relevant Period”), Cifuentes and Wee, through CFM, engaged in a fraudulent scheme to solicit funds for a pooled investment vehicle trading in off-exchange leveraged or margined foreign currency (“forex”) contracts. Rather than use customers' funds to trade forex contracts as promised, Defendants misappropriated the money entrusted to them for the benefit of Cifuentes and Wee.

         3. On October 13, 2016, Plaintiff, pursuant to Federal Rule of Civil Procedure 4(e)(1) and 4(h)(1)(B), caused a copy of the Summons and Complaint to be served on CFM's registered agent in Wilmington, Delaware. (Ex. C to Decl. of Daniel J. Grimm (“Grimm Decl.”), ECF No. 3-2).

         4. In addition to serving CFM, Plaintiff undertook significant efforts to serve the Cifuentes and Wee with the Summons and Complaint, including dispatching process servers on numerous occasions to addresses associated with Cifuentes and Wee, sending the Summons and Complaint via Certified Mail to multiple addresses associated with Cifuentes and Wee, contacting current and former counsel in a related criminal proceeding against Cifuentes and Wee, and publishing notices of this action in the print and online versions of The Star-Ledger. (Grimm Decl. at ¶¶ 4-10).

         5. On December 29, 2016, based upon Plaintiff's efforts to serve Cifuentes and Wee and the actual service of process upon Defendants as described in paragraphs 3-4 above, Plaintiff moved for entry of default against Defendants (the “Default Motion”), (ECF No. 3).

         6. On December 31, 2016, Plaintiff's process server personally served Wee with the Summons and Complaint. (ECF No. 4-1, Ex. A).

         7. On January 24, 2017, Plaintiff's process server personally served Cifuentes with the Summons and Complaint. (ECF No. 5).

         8. On February 10, 2017, the Court issued an order granting the Default Motion as to CFM because CFM failed to respond to the Complaint within the time permitted by Federal Rule of Civil Procedure 12(a) and (b). (Order Granting in Part Pls. Mot. for Entry of Default Against All Defs. (the “February 10 Order”), ECF No. 6).

         9. The February 10 Order also concluded that Plaintiff's alternative service of the Summons and Complaint on Cifuentes and Wee (described in paragraph 4 above) was sufficient pursuant to Federal Rule of Civil Procedure 4(e)(1) and New Jersey Court Rule 4:4-3(a), and resulted in Cifuentes being served with the Summons and Complaint by, at the latest, December 8, 2016. (ECF No. 6 at 2). The Court accordingly placed Cifuentes in default for failing to respond to the Complaint within the time allowed by Federal Rule of Civil Procedure 12(a) and (b). (Id. at 3).

         10. While the February 10 Order determined that Wee had also been adequately served with the Summons and Complaint, the Court denied without prejudice entry of default as to her because Plaintiff voluntarily withdrew the Default Motion as to Wee on January 6, 2017. (See ECF No. 4).

         11. On February 21, 2017, Plaintiff renewed the Default Motion as to Wee, on grounds that Wee was personally served with the Summons and Complaint on December 31, 2016, and failed to respond within the time permitted by Federal Rule of Civil Procedure 12(a) and (b). (ECF No. 7-1).

         12. On March 17, 2017, the Court granted the Default Motion as to Wee, placing her in default and granting Plaintiff leave to move for a default judgment as to her. (ECF No. 8). Plaintiff's instant motion followed.

         II. FINDINGS OF FACT

         A. Parties

         13. Plaintiff CFTC is an independent federal regulatory agency charged by Congress with the administration and enforcement of the Act and Regulations. The CFTC maintains its principal office at 1155 21st Street N.W., Washington, D.C. 20581.

         14. Defendant Cifuentes is the spouse of Wee and, along with Wee, is one of two founders and principals of CFM. During the Relevant Period Cifuentes was the Chief Executive Officer, Member, and Managing Principal of CFM. Along with Wee, Cifuentes is a signatory on the bank accounts and forex trading accounts used by and on behalf of CFM. Cifuentes resides in West New York, New Jersey. Cifuentes has never been registered in any capacity with the Commission.

         15. Defendant Wee is the spouse of Cifuentes and, along with Cifuentes, is one of two founders and principals of CFM. During the Relevant Period Wee was the Head of Trading and Risk Management and the Managing Principal of CFM. Along with Cifuentes, Wee is a signatory on the bank accounts and forex trading accounts used by and on behalf of CFM. Wee resides in West New York, New Jersey. Wee has never been registered in any capacity with the Commission.

         16. Defendant Cifuentes Fund Management, LLC is a Delaware limited liability company organized on June 11, 2013. CFM lists its principal place of business as New York, New York. CFM is the alter ego of Cifuentes and Wee. During the Relevant Period Cifuentes and Wee were the sole managers of CFM, Cifuentes and Wee were the only principals and employees of CFM, Cifuentes and Wee comingled their personal funds with the funds of CFM, and CFM held itself out as the “DBA” (doing business as) entity of Cifuentes and Wee. CFM has never been registered in any capacity with the Commission.

         B. The Fraudulent Scheme

         17. During the Relevant Period Cifuentes and Wee, individually and on behalf of CFM, devised a sham forex pool in order to finance their lavish lifestyles with approximately $590, 000 they misappropriated from over 24 members of the public (“pool participants”). To execute their scheme, Cifuentes and Wee knowingly made material misrepresentations and omissions about their forex trading abilities, strategy, and returns to persuade pool participants to transfer funds to Defendants. To prevent their fraud from being uncovered, Cifuentes and Wee fabricated documents, made false statements, and diverted a portion of pool participants' deposits to other victims as “dividends” in the manner of a “Ponzi” scheme.

         18. In or around April 2013, to advance their fraudulent scheme, Cifuentes and Wee established a practice, or demonstration, forex trading account with GFT Global Markets UK Ltd. (the “Demo Account”). Fictitious “trades” placed in the Demo Account were for demonstration purposes only, posed no risk of loss, and did not involve the actual purchase or sale of forex contracts.

         19. Between at least May and June 2014, Cifuentes and Wee lured pool participants to deposit funds with Defendants by selecting fictitious, profitable forex trades from the Demo Account and falsely representing these risk-free trades to be Defendants' actual forex trades. Cifuentes and Wee did not disclose to pool participants that the posted trades were fictitious, or that the Demo Account actually suffered net “losses” exceeding $5 million during the Relevant Period.

         20. On or about May 1, 2013, Cifuentes and Wee registered the internet domain name www.cifuentesfund.com, which they used to host a public website that they at all times managed and controlled (the “CFM Website”). Cifuentes and Wee used the CFM Website to make numerous fraudulent statements to pool participants, including that deposits into the CFM pool were traded by “reputable and financially strong Futures & Commodities Merchants who are registered and regulated internationally, ” that Defendants used “algorithmic trading” strategies to trade pool funds, that customers' deposits were “FDIC Insured, ” and that CFM “FX Certificate[s] of Deposit” yielded “guaranteed” profits of 60% or 120% upon expiration. Cifuentes and Wee knowingly made these false and fraudulent statements for the purpose of inducing pool participants to transfer funds to Defendants.

         21. At the direction of Cifuentes and Wee, pool participants entered into Subscription Agreements with “Alcibiades Cifuentes and/or [sic] Jennifer Wee Cifuentes DBA Cifuentes Fund Management, LLC.” The Subscription Agreements provided that Defendants would transfer “securities” reflecting a “limited partnership interest” to a pool participant in exchange for the pool participant's transfer of funds to Defendants. The Subscription Agreements provided that each pool participant would receive, on a quarterly basis, monthly dividends “guaranteed to be no less than” 10 percent of the pool participant's principal deposits.

         22. At the direction of Cifuentes and Wee, pool participants transferred funds via wire and check payments to bank accounts controlled by Defendants. Once funds were deposited into Defendants' bank accounts, Cifuentes and Wee misappropriated all or most of pool participants' funds - sometimes by transfers the very day they cleared Defendants' bank accounts - to finance Cifuentes's and Wee's lifestyles. Among other fraudulent expenditures, Cifuentes and Wee spent pool participants' funds on luxury vehicles, jewelry, and clothing.

         23. Throughout the Relevant Period, Cifuentes and Wee falsely and fraudulently represented to pool participants that their funds were used to trade or invest in forex contracts and that money deposited with Defendants was safe, insured, and subject to rigorous risk-management procedures. At no point did Cifuentes or Wee disclose to pool participants that they were misappropriating pool participants' funds.

         24. Cifuentes and Wee fabricated account statements that falsely represented to pool participants that their funds were generating significant returns. The fabricated account statements did not disclose that Cifuentes and Wee had stolen all of pool participants' funds.

         25. To prevent their fraud from being uncovered, Cifuentes and Wee diverted pool participants' deposits to other victims as “dividends” in the manner of a “Ponzi” scheme.

         26. Cifuentes and Wee also made false statements to pool participants via face-to-face meetings, e-mail, and telephone, including by blaming delayed “dividend” payments on fictitious international “bankers” and financial institutions.

         27. In total, Defendants fraudulently solicited approximately $590, 000 from at least 24 pool participants. Defendants passed $132, 880 of the funds they stole from some pool participants to other pool participants through “Ponzi”-like payments, and misappropriated the remaining $457, 120 for themselves. (Decl. of Patricia Gomersall (“Gomersall Decl.”), ECF No. 10-4 ¶¶ 27, 36 & Ex. I).

         III. CONCLUSIONS OF LAW

         A. Default Judgment Is Warranted Against Cifuentes, Wee, and CFM

         28. Federal Rule of Civil Procedure 55(b) and New Jersey Court Rule 4:43-2 authorizes litigants to seek, and the Court to enter, default judgment against a party who has failed to plead or otherwise defend an action. Fed.R.Civ.P. 55(b); N.J. Ct. R. 4:43-2.

         29. Three factors determine whether default judgment may be entered: whether (1) defendants have been served with the summons and complaint and the court possesses jurisdiction; (2) the unchallenged facts of the complaint adequately allege a cause of action; and (3) entry of default judgment is proper, based upon certain issues within the Court's discretion. See Dellecese v. Assigned Credit Solutions, Inc., 2017 WL 957848, at *2 (D.N.J. Mar. 10, 2017) ...


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