Commodity Futures Trading Commission v. Equity Financial Group LLC

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 08-1558, 08-1838 & 08-2495
COMMODITY FUTURES TRADING COMMISSION
v.
EQUITY FINANCIAL GROUP LLC;
TECH TRADERS, INC.;
VINCENT J. FIRTH; ROBERT W. SHIMER;
J. VERNON ABERNETHY; COYT E. MURRAY;
MAGNUM CAPITAL INVESTMENTS, LTD.;
MAGNUM INVESTMENT, LTD; TECH TRADERS, LTD.
Robert W. Shimer,
Appellant at No. 08-1558
Vincent J. Firth,
Appellant at No. 08-1838
Equity Financial Group, LLC,
Appellant at No. 08-2495

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2
On Appeal from the United States District Court
for the District of New Jersey
D.C. Civil Action No. 1-04-cv-01512
(Honorable Robert B. Kugler)
Argued March 3, 2009
Before: SCIRICA, Chief Judge,
SLOVITER and HARDIMAN, Circuit Judges.
(Filed: July 13, 2009)
ROBERT W. SHIMER, ESQUIRE (ARGUED)
414 Allendale Way
Camp Hill, Pennsylvania 17011
Appellant, Pro Se and Attorney for Appellant,
Equity Financial Group, LLC
VINCENT J. FIRTH
3 Aster Court
Medford, NJ 08055
Appellant, Pro Se
MARTIN B. WHITE, ESQUIRE (ARGUED)
LYNN A. BULAN, ESQUIRE
Commodity Futures Trading Commission
Three Lafayette Centre

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3
1155 21st Street, N.W.
Washington, D.C. 20581
Attorneys for Appellee,
Commodity Futures Trading Commission
JEFFREY A. CARR, ESQUIRE
Pepper Hamilton
301 Carnegie Center, Suite 400
Princeton, New Jersey 08543-5276
Attorney for Appellee,
Stephen T. Bobo
J. VERNON ABERNETHY
100 Glenway Street
Belmont, NC 28012
Appellee, Pro Se
OPINION OF THE COURT
SCIRICA, Chief Judge.
This case involves a civil enforcement action under the
Commodity Exchange Act, 7 U.S.C. § 1 et seq., and related
regulations. Defendants were charged with fraud under 7 U.S.C.
§§ 6b and 6o and failing to register with the Commodity Futures
Trading Commission, as required by 7 U.S.C. §§ 6m and 6k,
among other counts. In a bench trial, the District Court

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1We use the name Tech Traders to refer to four entities that
operated in concert: Traders, Inc., Tech Traders, Ltd., Magnum
Investments, Ltd., and Magnum Capital Investments, Ltd. The
distinctions between these companies are irrelevant to this
appeal. All four were named in the Amended Complaint along
4
concluded Equity Financial Group was regulated as a
commodity pool operator, and it found defendants liable for
fraudulent conduct, failing to register, and other violations. The
principal issue on appeal is whether Equity Financial is a
commodity pool operator under 7 U.S.C. § 1a(5), even though
it operated a feeder fund—a fund that did not itself execute
commodity futures transactions but invested in another fund for
that purpose. We will affirm.
I
Defendants are Equity Financial; Vincent Firth, Equity
Financial’s president and sole shareholder; and Robert Shimer,
its lawyer. They created Shasta Capital Associates, an
investment vehicle that raised funds from investors through the
sale of member shares. Equity Financial and Shasta Capital
were distinct legal entities, but Equity Financial was the
manager of Shasta Capital, controlling the Shasta Capital funds.
Defendants solicited more than $15 million into Shasta Capital
to trade futures contracts. Equity Financial did not execute
commodity futures transactions on behalf of Shasta Capital but
it invested the Shasta Capital assets in another fund, Tech
Traders,1 which pooled the Shasta Capital investment with other

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with Coyt E. Murray, the president, chief executive officer, or
registered agent of the Tech Traders companies, and J. Vernon
Abernathy, a certified public accountant who was retained by
Murray and Tech Traders.
These companies, Murray, and Abernathy have settled
with the agency and are not parties to this appeal. In a consent
order, Tech Traders and Murray admitted to fraud in violation
of 7 U.S.C. §§ 6b and 6o, failure to register as a commodity pool
operator and commodity trading advisor in violation of 7 U.S.C.
§ 6m, and violating 17 C.F.R. § 4.30, applicable to commodity
trading advisors, for trading client funds in its own accounts,
among other violations. Tech Traders and Murray were
enjoined from engaging in commodity trading and were ordered
to pay nearly $18 million in restitution, more than $1.2 million
in disgorgement, and more than $11 million in civil monetary
penalties. Under a separate consent order, Abernathy was found
to have engaged in fraud in violation of 7 U.S.C. § 6o. He was
enjoined from engaging in commodity futures markets,
including accounting practices involving commodity futures.
He was ordered to pay restitution, jointly and severally with
other defendants, up to $5 million, and he was ordered to pay a
civil monetary penalty of $300,000.
5
funds’ investments, and executed transactions on behalf of the
pool of funds. In this arrangement, Shasta Capital was a “feeder
fund,” and Tech Traders a “master pool” or “super fund.”
Tech Traders and Coyt Murray, its president and chief
executive officer, defrauded investors by misappropriating funds

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2As part of their settlement with the agency, Tech Traders
and Murray admitted to violating 7 U.S.C. §§ 6b and 6o by
fraudulently misrepresenting the performance of the Tech
Traders fund.
3Defendants reported returns of more than 130 percent from
March 2003 to February 2004, 92 percent for the year 2003, and
108 percent for 2002. In the two worst-performing months
between June 2001 and February 2004, they reported gains of
4.11 percent and 9.02 percent.
6
and falsely reporting Tech Traders’s performance.2 Defendants,
Equity Financial, Firth, and Shimer, participated in the
fraudulent conduct. They solicited and retained Shasta Capital
investors by misrepresenting their qualifications and the
performance of Shasta Capital’s investments, and they took a
portion of the invested funds for personal use through an
arrangement with Murray that was not disclosed to investors.
Defendants made several false statements to investors,
primarily in monthly and quarterly reports to investors and in
Internet postings. They represented that Shasta Capital was
earning profits every month between June 2001 and February
2004, including double-digit rates of return in twenty-three of
those thirty-three months.3 But during this period, the Shasta
Capital fund, which had invested solely in Tech Traders, was
sustaining losses. Defendants’ reports were based on
information received from Tech Traders about Tech Traders’s
performance, but Firth and Shimer knew at least some of the

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4In June 2002, Firth and Shimer learned Tech Traders’s
September 2001 report was false. In that month, relying on
Tech Traders’s reports, Shasta Capital reported a gain, but it
actually suffered a loss. Neither Firth nor Shimer took any steps
to correct the false September 2001 statements. Firth learned on
at least three occasions that the value of Tech Traders’s funds
was less than the amount, based on Shasta Capital’s own
records, that Shasta Capital had invested with Tech Traders.
These reports were inconsistent with the gains Shasta Capital
was reporting to its investors and potential investors.
7
Tech Traders reports were false or probably false. 4
Additionally, Shimer created a verification procedure that
concealed the falsity of Tech Traders’s reports. At Shimer’s
insistence, Tech Traders hired an accountant, J. Vernon
Abernathy, who calculated and forwarded Tech Traders’s false
rate-of-return numbers to another accountant, Elaine Teague,
hired by Shasta Capital. Teague relied on Abernathy’s numbers
in her own reports to defendants and in communications with
Shasta Capital investors. But Shimer played a more direct role
in the creation of Tech Traders’s false reports. He invented the
method Abernathy used to calculate Tech Traders’s returns—a
method that did not employ standard accounting practices and
was misleading—and he helped Abernathy prepare many of the
reports. Shimer also knew Abernathy lacked access to the
records needed to calculate a proper rate of return. Apparently
Teague was not aware of Shimer’s involvement in the creation
of the reports, the use of a nonstandard accounting procedure, or

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5Under the agreement, Shadetree would receive 5 percent of
Tech Traders’s operating fees and half of the profits Tech
Traders would take after paying other fees, costs, and a premium
to investors. Firth knew Shimer owed money to the prior
investors, and he knew of the agreement between Shimer and
Murray.
6The Private Placement Memoranda, drafted by Shimer and
approved and distributed by Firth, disclosed basic information
about investing with Shasta Capital. Each Shasta Capital
investor received one of these Private Placement Memoranda,
depending on when he or she invested. The first Memorandum
was distributed to investors during the time period between June
8
Abernathy’s lack of access to necessary records. Teague
accordingly provided a front to investors and potential investors,
to verify the false reports.
Moreover, Firth and Shimer benefitted from an
undisclosed arrangement with Murray and Tech Traders.
Murray and Shimer had been involved in a prior business
venture in which two other persons absconded with funds
Shimer raised. Murray agreed to help Shimer repay the earlier
investors if Shimer would solicit funds for Tech Traders. Under
this agreement, Tech Traders would divert a portion of its
“profits” back to Shimer through a trust called Shadetree in
Nevis, West Indies. 5 Neither Firth nor Shimer disclosed the
Shadetree agreement to Shasta Capital investors in statements or
in Shasta Capital’s detailed Private Placement Memoranda.6

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30, 2001, and February 18, 2003; the second between February
18, 2003, and September 2, 2003; the third between September
2, 2003, and April 1, 2004.
Only the first Memorandum made any mention of the
Shadetree trust. It noted the trust would receive 5 percent of
Tech Trader’s operating costs. It did not, however, disclose that
half of Tech Trader’s profits would also be diverted to
Shadetree.
In addition to omitting information about the Shadetree
agreement between Shimer and Murray, the Private Placement
Memoranda contained other misrepresentations or omissions
about Shimer’s and Firth’s qualifications, business history, and
the due diligence they claimed they conducted. The first of the
three Private Placement Memoranda also included false
information about Tech Traders’s rate of return. Shimer
calculated this rate, which was purportedly based on the return
from another entity’s investments with Murray. Murray,
however, would not verify this rate of return, and Shimer’s
calculations were not based on information that would allow
him to calculate a proper rate of return.
9
Tech Traders paid $1,314,930 under the Shadetree agreement
into accounts controlled by Shimer. Some of this money went
to pay the earlier investors, some to pay a mortgage for Firth,
and some to pay a referral fee to a former associate of Shimer.
The District Court concluded that Equity Financial was
a commodity pool operator under 7 U.S.C. § 1a(5), and Firth
and Shimer were statutorily defined associated persons of

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7In 2008, Congress amended § 6b in ways immaterial to this
appeal. Food, Conservation, and Energy Act of 2008, Pub. L.
No. 110-246, § 13102, 122 Stat. 1651, 2194–95. For the sake of
simplicity, we refer to the pre-2008 version of the statute.
8
We review the District Court’s findings of fact for clear
error, and we exercise plenary review over its interpretation of
the law and its legal conclusions. Am. Soc’y for Testing &
Materials v. Corrpro Cos., 478 F.3d 557, 566 (3d Cir. 2007).
The District Court had jurisdiction under 7 U.S.C. § 13a–1, and
we have jurisdiction under 28 U.S.C. § 1291.
10
Equity Financial under 7 U.S.C. § 6k. It found Equity Financial
liable under 7 U.S.C. § 6m for failing to register with the CFTC
as a commodity pool operator, and Firth and Shimer liable under
7 U.S.C. § 6k for failing to register themselves as associated
persons. The court concluded all three defendants had
committed fraud under 7 U.S.C. §§ 6b and 6o.7 Equity
Financial, it held, was liable under 7 U.S.C. § 2(a)(1)(B) for
Firth and Shimer’s violations, and Firth and Shimer liable under
7 U.S.C. § 13c(b), as controlling persons of Equity Financial, for
Equity Financial’s violations, including its failure to register.
Finally, the District Court concluded, Shimer is liable under 7
U.S.C. § 13c(a) for aiding and abetting Tech Traders’s violation
of 17 C.F.R. § 4.30. The court enjoined defendants from
participating in commodity markets, and it ordered restitution,
disgorgement of profits, and civil penalties. Defendants appeal
from the judgment.8

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11
II
The Commodity Exchange Act, 7 U.S.C. § 1 et seq.,
regulates the conduct of participants in commodity futures
markets. These markets allow producers and purchasers of
agricultural commodities and other products to hedge against the
risk of future price movements caused by weather and other
factors. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran,
456 U.S. 353, 357–58 (1982). For example, a farmer may sell
a commodity for future delivery to protect against a price
decrease; a purchaser may want to buy a commodity for future
delivery to protect against a price increase. See id. Because
market prices for these futures contracts shift, the exchanges
provide a profit opportunity for investors who buy and sell the
contracts even though they do not intend to take delivery of the
commodity. Id. at 357–59 & n.11. These investors trade in the
belief the price will change favorably. Id. at 357. Enticed into
the market by the profit opportunity, investors are “willing to
assume the market risk that the hedging farmer or [agricultural
commodity] processor wants to avoid.” Id. at 358.
. . . The speculators’ participation in the market
substantially enlarges the number of potential
buyers and sellers of executory contracts and
therefore makes it easier for farmers and
processors to make firm commitments for future
delivery at a fixed price. The liquidity of a
futures contract, upon which hedging depends, is
directly related to the amount of speculation that

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9Tech Traders traded futures contracts for the S&P 500 and
NASDAQ 100 stock indices. It claimed it had developed
special algorithms to identify trends in the market price of the
futures contracts for these indices.
10Rosenthal & Co. v. CFTC, 802 F.2d 963, 965 (7th Cir.
1986) (“A commodity pool is the commodity-futures equivalent
of a mutual fund; the investor buys shares in the pool and the
12
takes place.
Id. The presence of investors in these markets tends to broaden
the market, reduce price fluctuations, and spread risk. Id. at
358, 359 n.11. Without speculative investors, “the liquidity, so
badly needed in futures markets, simply would not exist.” Id. at
359 n.11 (quoting H.R. Rep. No. 93-975, at 138 (1974)).
Although historically focused on agricultural
commodities, participants in futures markets now exchange
contracts for the future delivery of a range of assets. The CFTC
has jurisdiction over certain futures contracts traded, for
example, on designated contract markets. These include
contracts for several listed agricultural commodities, 7 U.S.C.
§§ 1a(4), 2(a)(1)(A); “all services, rights, and interests in which
contracts for future delivery are presently or in the future dealt
in,” id. §§ 1a(4), 2(a)(1)(A); and contracts of sale for future
delivery of “a group or index of securities,” id. § 2(a)(1)(C). 9
Commodity pools, “the commodity-futures equivalent of
a mutual fund,”10 facilitate the participation of investors in the

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operator of the pool invests the proceeds in commodity
futures.”); see also 13 Jerry W. Markham, Commodities
Regulation: Fraud, Manipulation & Other Claims § 17A:1, at
17A-1 (2008) (“In its features, the typical commodity pool bears
a strong resemblance to mutual funds and similar investment
companies that have operated for decades in the securities
industry.”).
13
market. They are vehicles through which investors can
aggregate their funds, allowing a commodity pool operator to
invest them for a fee. 13 Jerry W. Markham, Commodities
Regulation: Fraud, Manipulation & Other Claims § 17A:1, at
17A-1 to 17A-2 (2008). The aggregation of funds also allows
the pool, and by extension its participants, to hold a diversified
portfolio and ensures individual investors will not have to take
delivery of commodities. Id. at 17A-2 (quoting 1 Philip
McBride Johnson & Thomas Lee Hazen, Derivatives Regulation
§ 1.11, at 1-251 (2004)). Typically the pool is organized in the
form of a business entity that limits the liability of individual
investors. Id. The amount of funds invested in commodity
pools has grown immensely, from $75 million in 1976 to $600
billion in assets in 2005. Id. at 17A-2 & n.4.

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11
The statute defines “commodity pool operator” in § 1a(5)
but does not define the term “commodity pool.” The term
“pool” is defined by regulation as “any investment trust,
syndicate or similar form of enterprise operated for the purpose
of trading commodity interests.” 17 C.F.R. § 4.10(d)(1). This
regulation is not the basis for the agency’s action in this case,
and accordingly is not at issue in this appeal. See infra note 13.
14
III
As noted, Shasta Capital was a feeder fund that did not
execute trades in its own name but instead invested its assets in
the super fund Tech Traders. For this reason, defendants
contend Equity Financial, Shasta Capital’s manager, is not a
commodity pool operator under the statutory definition in 7
U.S.C. § 1a(5). 11 We consider whether the Act requires the
commodity pool operator to trade commodity futures contracts
in its own name and whether Equity Financial is a commodity
pool operator under the definition in § 1a(5).
A
A commodity pool operator is defined in 7 U.S.C. § 1a(5)
as
any person engaged in a business that is of the
nature of an investment trust, syndicate, or similar
form of enterprise, and who, in connection
therewith, solicits, accepts, or receives from
others, funds, securities, or property, either

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12
Highlighting the lack of an explicit trading requirement in
§ 1a(5), the statute defines other market participants’ roles in
ways more obviously associated with trading. Floor brokers and
floor traders are defined as persons who purchase or sell
commodities for future delivery. 7 U.S.C. § 1a(16), (17).
Future commission merchants and introducing brokers are
persons who solicit or accept orders for the purchase or sale of
commodities for future delivery. Id. § 1a(20), (23); see also
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S.
353, 359 (1982) (“[F]utures commission merchants . . . solicit
orders from individual traders, and . . . floor brokers . . . make
15
directly or through capital contributions, the sale
of stock or other forms of securities, or otherwise,
for the purpose of trading in any commodity for
future delivery on or subject to the rules of any
contract market or derivatives transaction
execution facility . . . .
7 U.S.C. § 1a(5). A commodity pool operator must engage in a
business of a particular form; it must solicit, accept, or receive
funds, securities, or property; and the solicitation must have a
particular purpose—trading commodity futures. The
solicitation, acceptance, or receipt of funds must be “for the
purpose of trading,” but nothing in the statute imposes an actual
trading requirement. The plain language of § 1a(5) requires
only that the entity be engaged in a business of the proper form,
and it solicit, accept, or receive funds for the purpose of
trading.12

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the actual trades on the floor of the exchange on behalf of
futures commission merchants and their customers.”). Within
the statutory classification, these roles differ from that of the
commodity pool operator. The language in § 1a(5) neither
requires a commodity pool operator to “purchase or sell” futures
contracts, as floor brokers and traders do, nor does it require it
to place orders, the conduct complementary to that of a futures
commission merchant and introducing broker.
The definition of associated persons of commodity pool
operators in 7 U.S.C. § 6k emphasizes that solicitation of funds,
not trading, is the conduct in which the commodity pool
operator must engage. That provision only requires registration
of persons involved in the solicitation of funds or the
supervision of those who solicit funds.
13We do not decide whether the agency’s regulations defining
and regulating pools deserve deference under Chevron U.S.A.
Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837
(1984). The agency has asserted that “it is unnecessary for the
Court to apply a Chevron . . . analysis in this appeal.” (Br. of
Appellee at 34 n.12.) We note, however, that the regulations
appear to comport with the interpretation we give the statute.
Unlike the statute, the regulations define a pool. The regulations
do not include a trading requirement, defining a pool as “any
investment trust, syndicate or similar form of enterprise operated
16
The absence of a trading requirement is consistent with
the purposes of the statutory scheme.13 The Commodity

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for the purpose of trading commodity interests.” 17 C.F.R. §
4.10(d)(1).
The regulations also cover pools that invest in other
pools. The regulations define an “investee pool” as “any pool
in which another pool or account participates or invests, e.g., as
a limited partner thereof.” Id. § 4.10(d)(4). A commodity pool
operator must disclose the performance of investee pools in
which its pool invests. Id. § 4.25(c)(4), (c)(5). And the
regulations cover those “investor fund commodity pool
operators” that do no trading of their own but invest all funds in
an investee fund. See 17 C.F.R. Part 4 app. A (providing
guidance to a commodity pool operator that “allocates the fund’s
assets to one or more investee funds”).
17
Exchange Act is intended to “deter and prevent . . . disruptions
to market integrity” and “protect all market participants from
fraudulent or other abusive sales practices and misuses of
customer assets.” 7 U.S.C. § 5(b). The specific provisions
governing commodity pool operators are directed toward
regulating activities involving the solicitation of funds.
“Commodity pool operator” was first defined in the 1974 Act,
and testimony included in the House of Representatives Report
accompanying that bill addressed the purposes of the new
provisions:
One of the ways in which unsophisticated
traders have lost substantial amounts of money is
through commodity advisors and commodity pool
operators. This bill will provide for the

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14
The 1936 Act, though not defining commodity pool
operators, had similar aims. The Senate Report accompanying
the 1936 Act suggested that Act would “more adequately”
address “[c]ertain trade practices involving the cheating of
customers.” S. Rep. No. 74-1431, at 3 (1935). “Clearly
Congress has recognized through the years that fraudulent and
deceptive conduct in connection with futures transactions can
and does occur prior to the actual opening of a trading account
. . . .” Hirk v. Agri-Res. Council, Inc., 561 F.2d 96, 104 (7th Cir.
1977) (construing the language of 7 U.S.C. § 6b in light of the
legislative history accompanying the 1936 and 1974 Acts).
18
registration of all such persons, establish
procedures under which they will be permitted to
operate and specifically eliminate certain
undesirable practices which have enticed
unsuspecting traders into the markets with, far too
often, substantial loss of funds.
H.R. Rep. No. 93-975, at 79 (1974) (statement of Dr. Clayton
Yeutter, Assistant Secretary of Agriculture). 14 Accordingly,
when Congress defined commodity pool operator, it sought to
regulate the solicitation of funds from customers and potential
customers. And it intended to protect them from harmful
conduct, especially fraudulent solicitation. The statute would be
undermined if one entity could escape regulation merely by
having another execute its trades.
Defendants contend we should follow Lopez v. Dean

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19
Witter Reynolds, Inc., 805 F.2d 880 (9th Cir. 1986), which, they
maintain, imposes a trading requirement. Specifically, Lopez
describes a commodity pool as
(1) an investment organization in which the funds
of various investors are solicited and combined
into a single account for the purpose of investing
in commodity futures contracts; (2) common
funds used to execute transactions on behalf of
the entire account; (3) participants share pro rata
in accrued profits or losses from the commodity
futures trading; and (4) the transactions are traded
by a commodity pool operator in the name of the
pool rather than in the name of any individual
investor.
805 F.2d at 884. Under this definition, defendants contend a
person must trade in commodity futures to be a commodity pool
operator. Lopez, however, is distinguishable: Dean Witter
traded the funds at issue from its own account. Id. at 882 n.2.
The legal question was whether the Dean Witter investment
vehicle was an entity of the proper form—“a business of the
nature of an investment trust, syndicate, or similar form of
enterprise”—despite the lack of pro-rata sharing of profits and
losses. Id. at 883–84. The Lopez court confronted different
facts and a different legal question. It did not address whether
a commodity pool operator must itself execute commodity
futures transactions.
In conclusion, the statute does not require a commodity

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20
pool operator to execute commodity futures transactions. The
language of the definition lacks an explicit trading requirement,
and the remedial purposes of the statute would be thwarted if the
operator of a fund could avoid the regulatory scheme simply by
investing in another pool rather than trading. If an entity is
engaged in a business in the nature of an investment trust,
syndicate, or similar form of enterprise, and it solicits, accepts,
or receives funds for the purpose of trading, it is a commodity
pool operator. The actual trading of commodity futures is not
required.
B
Under 7 U.S.C. § 1a(5), Equity Financial, as the manager
of Shasta Capital, is a commodity pool operator. A commodity
pool operator must be “engaged in a business that is of the
nature of an investment trust, syndicate, or similar form of
enterprise.” 7 U.S.C. § 1a(5). A business takes this form when
it provides a vehicle for a collective or group investment. Lopez
aides our understanding of this provision. A business falls
within this category when it combines investor funds into a
single, commingled account; participants share pro rata in any
profits and losses; and funds are invested or traded collectively,
on behalf of the entire account, rather than in the name of
individual investors. See Lopez., 805 F.2d at 884; supra Part
III.A. In Lopez, Dean Witter assigned each investor an
individual account number, and not all investors’ funds were
used in each trade. 805 F.2d at 882 n.2. Because “not all
accounts shared a pro rata profit or loss,” the Dean Witter

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21
investment vehicle was not a commodity pool operator. Id. at
884. In this case, defendants collected all investor funds in
Shimer’s attorney escrow account, and Shimer transferred the
commingled funds from his account to Tech Traders. Tech
Traders held Shasta Capital’s funds in Shasta Capital’s name,
not in the names of Shasta Capital’s investors. Under the
Private Placement Memoranda, the Shasta Capital investors
shared profits and losses on a pro-rata basis. Shasta Capital was
accordingly a vehicle for collective, group investment. Because
Equity Financial was the manager of Shasta Capital, it was
engaged in a business “of the nature of an investment trust,
syndicate, or similar form of enterprise.”
A commodity pool operator also must “solicit[], accept[],
or receive[] . . . funds . . . for the purpose of trading in any
commodity for future delivery.” 7 U.S.C. § 1a(5). Firth and
Shimer, acting individually and through Equity Financial,
solicited funds for Shasta Capital. Shimer drafted the Private
Placement Memoranda, and Firth approved these documents and
distributed them to potential customers. Equity Financial, Firth,
and Shimer advertised the Shasta Capital fund on the Internet.
As a result of these efforts, they received more than $15 million
into Shasta Capital. According to the terms of a 2001
investment agreement with Tech Traders and the Private
Placement Memoranda, the funds were to be invested with Tech
Traders for the purpose of trading futures contracts.
Accordingly, the form of the Shasta Capital enterprise
and Equity Financial’s solicitation and receipt of funds for the

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15
As a commodity pool operator, Equity Financial is
regulated by § 6o, which also governs conduct by Firth and
Shimer, who are statutorily defined associated persons of Equity
Financial. See 7 U.S.C. § 6k (requiring registration of persons
associated with a commodity pool operator as a “partner, officer,
employee, consultant, or agent . . . in any capacity that involves
(i) the solicitation of funds, securities, or property for a
participation in a commodity pool or (ii) the supervision of any
person” so engaged). According to § 6o,
(1) It shall be unlawful for a commodity trading
advisor, associated person of a commodity trading
advisor, commodity pool operator, or associated
person of a commodity pool operator . . .
(A) to employ any device, scheme, or artifice
to defraud any client or participant or
prospective client or participant; or
(B) to engage in any transaction, practice, or
course of business which operates as a
fraud or deceit upon any client or
participant or prospective client or
22
purpose of trading futures contracts place Equity Financial
squarely within the definition of a commodity pool operator.
IV
Defendants challenge the District Court’s conclusion that
they committed fraud under 7 U.S.C. §§ 6b and 6o.15

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participant.
7 U.S.C. § 6o. The District Court concluded the defendants
violated this antifraud provision as well as the antifraud
provision in § 6b. Section 6b regulates “any person, in or in
connection with any order to make, or the making of, any
contract of sale of any commodity for future delivery made, or
to be made, for or on behalf of any other person.” 7 U.S.C. §
6b(a)(2) (2006). Defendants do not meaningfully challenge the
applicability of § 6b to them. “[A]ppellants are required to set
forth the issues raised on appeal and to present an argument in
support of those issues in their opening brief.” Kost v.
Kozakiewicz, 1 F.3d 176, 182 (3d Cir. 1993). Defendants failed
to present a proper argument.
16
There are different views about whether the antifraud
provision in 7 U.S.C. § 6o(1)(A) includes a scienter
requirement. Compare First Nat’l Monetary Corp. v.
Weinberger, 819 F.2d 1334, 1341–42 (6th Cir. 1987) (“[Section
6o] does not contain the same scienter requirement as § [6b]. .
. . [T]he complainant need prove only that the commodity
trading advisor intentionally made the statements complained of,
and not that the advisor acted with the intent to defraud.”), and
CFTC v. Savage, 611 F.2d 270, 285 (9th Cir. 1979) (concluding
a violation of § 6o(1) only requires the intent to “employ the
23
Specifically, they contend the evidence does not support a
finding of scienter.16 Scienter is an “intent to deceive,

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‘device, scheme, or artifice’”), with Messer v. E.F. Hutton &
Co., 847 F.2d 673, 677–80 (11th Cir. 1988) (“[W]e conclude
that Section 6o(1)(A) contains the same scienter requirement as
Section 10(b) and Rule 10b–5 of the federal securities laws,
while Section 6o(1)(B) does not require proof of scienter.”).
Because we conclude defendants’ conduct in this case
demonstrates scienter, we do not also decide whether some other
culpability standard would also suffice.
17“The language of [7 U.S.C. § 6b] is similar to that of §
10(b) of the Securities Exchange Act of 1934 . . . .” Merrill
Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353,
389 n.88 (1982). “A reckless statement is one involving not
merely simple, or even inexcusable negligence, but an extreme
departure from the standards of ordinary care, and which
presents a danger of misleading buyers or sellers that is either
24
manipulate, or defraud,” Ernst & Ernst v. Hochfelder, 425 U.S.
185, 193 (1976), and it may be shown either by conscious
behavior or recklessness. See Drexel Burnham Lambert Inc. v.
CFTC, 850 F.2d 742, 748 (D.C. Cir. 1988); First Commodity
Corp. of Boston v. CFTC, 676 F.2d 1, 6–7 (1st Cir. 1982)
(concluding a reckless misrepresentation suffices, “one that
departs so far from the standards of ordinary care that it is very
difficult to believe the speaker was not aware of what he was
doing”); cf. Institutional Investors Group v. Avaya, Inc., 564
F.3d 242, 267 & n.42 (3d Cir. 2009) (noting that under federal
securities law, either reckless or conscious behavior suffices). 17

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known to the defendant or is so obvious that the actor must have
been aware of it.” In re Advanta Corp. Sec. Litig., 180 F.3d
525, 535 (3d Cir. 1999) (internal quotation marks omitted)
(interpreting scienter in the context of federal securities law).
25
Firth and Shimer both knew or recklessly disregarded an
obvious risk that Abernathy’s reports were false. Both Firth and
Shimer learned in 2002 of at least one report, the September
2001 report, that was false. Additionally, Firth learned on at
least three occasions that Tech Traders did not have as much
money in its accounts as the Shasta Capital records reflected.
Defendants nonetheless continued reporting Abernathy’s
performance results as Shasta Capital’s own performance
results. Shimer knew Abernathy did not have access to the
records he would need to calculate a rate of return. He
nonetheless created a system to communicate Abernathy’s false
reports to investors and potential investors in a way that would
appear to be credible, verified by two certified public
accountants. Furthermore, Shimer was a party to and Firth
knew of the Shadetree agreement, which was not disclosed to
investors, and which diverted funds into accounts controlled by
Shimer. In light of their knowledge of the falsity of their
statements and disclosures, these misrepresentations suffice to
show Firth and Shimer acted with scienter.
V
Firth and Shimer challenge the District Court’s
conclusion that they are liable as controlling persons for Equity

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18
If commodity pool operators use the mails or any means or
instrumentality of interstate commerce, they must register with
the agency under 7 U.S.C. §§ 6m and 6n. Equity Financial
violated this provision because it was a commodity pool
operator engaged in interstate commerce and did not register.
In addition to concluding Firth and Shimer were
secondarily liable as controlling persons for Equity Financial’s
failure to register, 7 U.S.C. § 13c(b), the District Court
concluded Shimer was secondarily liable for the same violation
under the aiding and abetting provision, 7 U.S.C. § 13c(a). It is
not clear whether Shimer appeals this latter holding. But if so,
his brief contains no argument to this matter, and accordingly he
has waived it. See Kost v. Kozakiewicz, 1 F.3d 176, 182 (3d Cir.
1993).
26
Financial’s failure to register with the agency.18 Any person
“who, directly or indirectly, controls any person who has
violated any provision of this chapter” is liable for the controlled
person’s violation if he “did not act in good faith or knowingly
induced, directly or indirectly, the act or acts constituting the
violation.” 7 U.S.C. § 13c(b). Here, defendants continued
operating the Shasta Capital fund without registering, despite
knowing Equity Financial was in violation of the registration
requirement. In the fall of 2003, two potential Shasta Capital
investors contacted Firth and Shimer, telling them the CFTC
believed registration was necessary. In light of this information,
Firth and Shimer hired a law firm in October 2003 to consider
Equity Financial’s registration requirements. Disagreeing with

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19The law firm was not privy to information that would have
revealed the fraudulent conduct.
27
Shimer’s own legal analysis, the law firm believed the failure to
register subjected the operation to legal action by the CFTC.19
The law firm repeated its opinion in a December 2003 letter, and
encouraged Firth and Shimer to approach the CFTC, along with
Tech Traders, to cure the defects. If Tech Traders would not
also register, the law firm suggested defendants would have to
end their relationship with Tech Traders. Defendants, despite
knowing by this time that the CFTC was investigating Shasta
Capital and that Shasta Capital was not in compliance with the
registration requirement, wanted to continue the relationship
with Tech Traders and Murray. “[S]o long as the numbers were
still there,” stated Shimer, nobody wanted to jeopardize the
relationship. Despite learning about the registration requirement
in October 2003, Firth and Shimer continued to solicit
investments into the unregistered Shasta Capital fund, and took
in more than $8.5 million between November 2003 and April
2004. Firth and Shimer knew about the registration requirement
and continued to operate the fund without registering. The
failure to register was not a result of a good faith belief that
Equity Financial did not need to register but because “the
numbers were still there,” numbers that furthered the fraudulent
scheme.
VI
The District Court concluded Shimer aided and abetted

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20
In this relationship, Tech Traders was the commodity
trading advisor and Shasta Capital was its client. Tech Traders
violated 17 C.F.R. § 4.30 by receiving Shasta Capital funds and
using them to trade commodity future interests. Had Tech
Traders established a separate fund to serve as a commodity
pool, it could have acted as both a commodity pool operator and
a commodity trading advisor without violating § 4.30.
Accepting and trading the funds itself rather than establishing a
distinct entity ran afoul of the regulation.
28
Tech Traders’s violation of 17 C.F.R. § 4.30. Section 4.30
prohibits a commodity trading advisor from soliciting,
accepting, or receiving client funds to purchase, margin,
guarantee or secure commodity future interests of the client.20
Shimer contends Tech Traders was not a commodity trading
advisor because Shasta Capital neither traded commodity futures
in its own name nor intended to do so. A commodity trading
advisor is any person who (i) “for compensation or profit,
engages in the business of advising others, either directly or
through publications, writings, or electronic media, as to the
value of or the advisability” of trading in any commodity for
future delivery or (ii) “for compensation or profit, and as part of
a regular business, issues or promulgates analyses or reports”
concerning such activities. 7 U.S.C. § 1a(6). This definition
focuses on the conduct of the commodity trading advisor—Tech
Traders in this case. Shasta Capital’s choice to invest in the
Tech Traders fund rather than trade in its own name is irrelevant
to Tech Traders’s status under this definition.

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21Shimer also challenges the District Court’s determination
by claiming Shasta Capital did not seek or obtain a commodity
interest. The evidence, however, amply demonstrates Shimer’s
conduct furthered the relationship between Shasta Capital and
Tech Traders in which Tech Traders received Shasta Capital
funds to “purchase, margin, guarantee or secure” commodity
29
Additionally, Shimer contends he is not liable because he
did not have the requisite mental state under 7 U.S.C. § 13c(a),
the aiding and abetting provision of the Act. Section 13c(a)
establishes liability for a person who “willfully aids, abets,
counsels, commands, induces, or procures the commission of”
a violation of the rules, regulations, or orders promulgated under
the Act; “acts in combination or concert with any other person
in any such violation;” or “willfully causes an act to be done or
omitted which if directly performed or omitted by him or
another would be a violation.” 7 U.S.C. § 13c(a). Shimer’s
actions meet the standard. He drafted a 2001 investment
agreement between Tech Traders and Shasta Capital. Under the
agreement, Tech Traders received Shasta Capital funds for the
purpose of trading commodity future interests in Tech Trader’s
name. Shimer transferred Shasta Capital funds from his attorney
escrow account to Tech Traders for that purpose, and he
continued doing so after being advised by his law firm in
October 2003 that Tech Traders could not trade Shasta Capital
funds from Tech Traders’s account. At least for the period after
October 2003, Shimer’s conduct suffices to establish his liability
for aiding and abetting Tech Traders’s violation.21

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interests. See 17 U.S.C. § 4.30.
30
VII
For the foregoing reasons, we will affirm the judgment of
the District Court.

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