Historic Rule 11 Dismissal and Fee Victory Against the Commodity Futures Trading Commission in Hotly Contested Fraud Case

In August 2023, the Commodity Futures Trading Commission filed a complaint against Traders Global Group, Inc. (doing business as “My Forex Funds”) and its founder, Murtuza Kazmi, alleging that the defendants had carried out a massive fraud in connection with their simulated foreign exchange and commodities trading business.  CFTC v. Traders Global Group., Case No. 1:23-cv-11808 (D.N.J.).  Concurrently, the CFTC filed under seal an ex parte motion for a restraining order against My Forex Funds and Mr. Kazmi, urging the court to freeze immediately all of defendants’ corporate and personal assets and to institute a temporary receiver to take over defendants’ business.  In support of the CFTC’s ex parte restraining order request, the CFTC’s lead investigator declared under penalty of perjury that defendants had transferred CAD $31.55 million from a corporate account to an unidentified account controlled by Mr. Kazmi.  Taking the CFTC at its word, the Court granted the CFTC’s restraining order request without a hearing and without any prior notice to defendants.  After defendants were finally served with the complaint and the executed restraining order, they came to Quinn Emanuel to defend them in this existential crisis.

            Immediately, Quinn Emanuel developed an aggressive strategy to dissolve the restraining order, to oppose the CFTC’s parallel motion for a preliminary injunction, and to fight the CFTC’s overreach on the merits.  In an early emergency motion to modify the restraining order, Quinn Emanuel brought to the Court’s attention that the CAD $31.55 million transfer was not a deposit to an “unidentified Kazmi account,” as the CFTC’s investigator had affirmed under oath, but a legitimate payment to Canadian tax authorities.  Even when confronted with this significant discrepancy, the CFTC did not admit fault, and it remained intransigent in its campaign to destroy Mr. Kazmi and his business.

            During a contested evidentiary hearing on the CFTC’s motion for a preliminary injunction in November 2023, the CFTC investigator who signed the declaration in support of the ex parte motion testified that he had learned the CAD $31.55 million transfer was a tax payment only after the CFTC had filed its ex parte motion and complaint.  Finding that the CFTC had offered little to no evidence showing that defendants would dissipate assets pending the litigation, the Court significantly pared back the scope of the initial restraining order and dismissed the temporary receiver from the case—a rare outcome in and of itself.

            After the preliminary injunction hearing, Quinn Emanuel discovered that the CFTC’s lead investigator had lied under oath again.  Contrary to the investigator’s testimony during the hearing, the CFTC later conceded that the Ontario Securities Commission had informed the CFTC that the CAD $31.55 million transfer was a tax payment before the CFTC had filed its complaint and ex parte motion.  Shortly thereafter, Quinn Emanuel moved for sanctions under Rule 11 of the Federal Rules of Civil Procedure.

            After months of discovery and a contentious multi-day evidentiary hearing, the Court dismissed the entire case with prejudice and ordered the CFTC to pay our clients over $3 million in attorneys’ fees and costs—the largest monetary sanction to date against a U.S. government agency.  The Court explained:

            The CFTC’s conduct, which was undertaken over the course of a year and involved numerous instances of sanctionable behavior, was willful and undertaken in bad faith. It likely affected the Court’s decision to order the [restraining order] or, at the very least, maintain it, and it likely affected the Court’s decision on the [preliminary injunction] Motion, because the Court did not have the full, complete and truthful information before it. The CFTC’s conduct was undertaken for the purpose of gaining a tactical advantage, that is, restraining all or substantially all of Defendants’ assets, and has caused significant expense and diversion of Court and party resources. Without the imposition of sanctions, this conduct appears likely to repeat itself.  Dkt. 258 at 40.

            This total victory brought to light issues of national importance regarding due process rights, government accountability, and attorney ethics.