## Facts

- The CFTC brought a civil enforcement action alleging violations of the Commodity Exchange Act (CEA) and CFTC regulations, including registration and fraud violations tied to pooled commodity-futures investing.
- Shasta Capital Associates, LLC operated as an investment vehicle that gathered investor money and functioned as a “feeder fund” that sent pooled funds to Tech Traders entities for commodity-futures trading.
- Equity Financial Group, LLC managed Shasta and controlled Shasta’s funds, which were placed in an escrow account and transferred in pooled form to Tech Traders.
- The court had previously determined Shasta was a “commodity pool” because investor funds were pooled, transferred en masse for futures trading, gains were expected to be allocated pro rata, and trades were executed for the pool rather than individual investors.
- Vincent J. Firth and Robert W. Shimer solicited investor participation in Shasta in sales/marketing roles connected to the pooled futures-trading program.
- Equity was not registered with the CFTC as a commodity pool operator (CPO), and Firth and Shimer were not registered as associated persons (APs) of a CPO.

## Issues

1. Whether Equity violated 7 U.S.C. § 6m(1) by acting as an unregistered CPO while using instrumentalities of interstate commerce.
2. Whether Firth and Shimer were “associated persons” of Equity as a CPO and therefore subject to AP registration requirements and related liability for the registration violations.
3. Whether the CFTC was entitled to summary judgment on the registration-based counts.

## Decision

- The court granted summary judgment for the CFTC on key registration-based claims.
- The court held Equity was a CPO for Shasta and violated 7 U.S.C. § 6m(1) by operating without CFTC registration while using interstate means (including telephone communications) in connection with its business.
- The court held Firth and Shimer were statutorily defined APs of Equity because they solicited funds for participation in the Shasta commodity pool and performed sales-related functions on behalf of the CPO.
- The court rejected defenses based on alleged good-faith legal research or advice suggesting registration was unnecessary, treating the registration duty as turning on CPO/AP status plus interstate-commerce use.

## Legal Principles

- A feeder-fund structure can constitute a commodity pool, and the entity that manages and controls pooled funds directed to futures trading can qualify as a CPO even if it does not execute futures trades itself.
- Under 7 U.S.C. § 6m(1), a CPO may not use the mails or instrumentalities of interstate commerce in connection with its business unless registered with the CFTC.
- A person who solicits or accepts funds for participation in a commodity pool on behalf of a CPO is an “associated person” and is subject to AP registration requirements.
- Once CPO/AP status and interstate-commerce use are established, failure to register supports liability on registration-based claims and can support aiding-and-abetting theories tied to the principal’s unregistered operation.

## Conclusion

The court held that a manager of a feeder-fund commodity pool violated the CEA by acting as an unregistered CPO while using interstate communications, and that the pool’s principal solicitors were unregistered associated persons, warranting summary judgment for the CFTC on the registration-based counts.


Commodity Futures Trading Comm’n v. Equity Fin. Grp., LLC, No. 04-1512 (RBK), 2006 WL 3751911 (D.N.J. Dec. 18, 2006)