Filed: Oct. 27, 2020
Latest Update: Oct. 27, 2020
Summary: USCA11 Case: 19-12509 Date Filed: 10/27/2020 Page: 1 of 9 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 19-12509 _ D.C. Docket No. 1:14-cv-22739-JLK U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellee, versus ROBERT ESCOBIO, Defendant-Appellant. _ Appeal from the United States District Court for the Southern District of Florida _ (October 27, 2020) Before WILSON, NEWSOM, and ANDERSON, Circuit Judges. USCA11 Case: 19-12509 Date Filed: 10/27/2020
Summary: USCA11 Case: 19-12509 Date Filed: 10/27/2020 Page: 1 of 9 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 19-12509 _ D.C. Docket No. 1:14-cv-22739-JLK U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellee, versus ROBERT ESCOBIO, Defendant-Appellant. _ Appeal from the United States District Court for the Southern District of Florida _ (October 27, 2020) Before WILSON, NEWSOM, and ANDERSON, Circuit Judges. USCA11 Case: 19-12509 Date Filed: 10/27/2020 ..
More
USCA11 Case: 19-12509 Date Filed: 10/27/2020 Page: 1 of 9
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 19-12509
________________________
D.C. Docket No. 1:14-cv-22739-JLK
U.S. COMMODITY FUTURES TRADING COMMISSION,
Plaintiff-Appellee,
versus
ROBERT ESCOBIO,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(October 27, 2020)
Before WILSON, NEWSOM, and ANDERSON, Circuit Judges.
USCA11 Case: 19-12509 Date Filed: 10/27/2020 Page: 2 of 9
PER CURIAM:
Robert Escobio appeals the district court’s disgorgement award imposed
after remand from this Court. He first argues that the Commodities Futures
Trading Commission (“CTFC”) waived disgorgement by not properly raising it
before the first appeal and then argues that it was improperly proved and violated
the Excessive Fines Clause.
Because we write for the parties, we assume familiarity with the facts and
set out only those necessary for the resolution of this appeal. The CFTC began
investigating Southern Trust Metals, Inc., Loreley Overseas Corporation, and
Robert Escobio (“Defendants”) in response to a customer’s complaint. Pursuant to
that complaint, the National Futures Association (“NFA”)—a private, self-
regulatory organization for the futures industry—also began an investigation,
which ended in a settlement. Afterwards, the CFTC filed this lawsuit, alleging that
the Defendants violated the Commodities Exchange Act (“CEA”) when they failed
to register as futures commission merchants, transacted the purchase and sale of
contracts for the future delivery of a commodity (futures) outside of a registered
exchange (“unregistered futures scheme”), and promised to invest customers’
money in precious metals but instead invested the funds in so-called “off-exchange
margined metals derivatives”(“fraudulent metals scheme”).
2
USCA11 Case: 19-12509 Date Filed: 10/27/2020 Page: 3 of 9
Both parties filed motions for summary judgment. The district court granted
the CFTC’s motion in part, holding that the Defendants had conducted off-
exchange transactions and had failed to register as futures commission merchants.
It denied the Defendants’ motion in full. The CFTC’s fraudulent metals scheme
claim then proceeded to trial. After a bench trial, the district court found that the
Defendants had engaged in fraud, ordered them to pay restitution in the full
amount of the customers’ losses, and imposed fines. The court also permanently
enjoined the Defendants from employment in the commodities-trading industry.
Specifically, the court ordered Defendants pay $1,543,892 as restitution to the
investors for the metals derivative scheme and $559,725 as restitution for
unregistered futures scheme transactions.
On appeal, we affirmed the judgment but vacated the restitution amount for
the unregistered futures scheme because there was insufficient proof of loss. U.S.
Commodities Futures Trading Commission v. Escobio, 894 F.3d 1313, 1331 (11th
Cir. 2018). The Court remanded with instructions:
“[t]he court may order disgorgement of gains, in appropriate
circumstances, without regard to proximate cause. See 7 U.S.C. § 13a
1(d)(3) (“[T]he court may impose . . . on any person found . . . to have
committed any violation[] equitable remedies including . . .
disgorgement of gains received in connection with such violation.”).
The district court may, but need not, consider on remand whether
disgorgement is appropriate in the present case.”
Id. at 1331-1332.
3
USCA11 Case: 19-12509 Date Filed: 10/27/2020 Page: 4 of 9
On remand, the CFTC sought disgorgement via a motion and relied on the
existing record. The CFTC pointed to the district court’s findings at summary
judgment and trial that $360,337 was the amount of commissions Southern Trust
Metals and its broker charged to its futures and options customers, and argued this
was the appropriate amount for disgorgement. The district court agreed and
awarded the amount the CFTC sought.
Escobio argues on appeal (1) that the CFTC had abandoned this claim; (2)
that there was insufficient proof of the commissions; (3) that he could not be held
personally responsible for the disgorgement; (4) that CFTC failed to show that the
commissions were proximately caused by the futures violations; (5) that the district
court erred by using the same commissions both as a basis for disgorgement and a
civil penalty; and (6) that the disgorgement at issue would cause a violation of the
Excessive Fines Clause. We address each argument in turn, and affirm.
I. WAIVER
First, we reject Escobio’s argument that the CFTC did not preserve its
request for disgorgement. Escobio acknowledges that the CFTC requested
disgorgement in the amount of $360,334 1 during its closing argument at the bench
trial. He points to no law that supports his claim that this was insufficient to
1
The CFTC concedes that it misspoke at closing argument when it asked for $360,334 and
not $360,337.
4
USCA11 Case: 19-12509 Date Filed: 10/27/2020 Page: 5 of 9
preserve the issue. Further, that there was no waiver when the CFTC failed to
pursue disgorgement on appeal is especially understandable in this case, where the
CFTC sought and the district court awarded a larger sum in restitution, and this
Court in the first appeal – when vacating the larger restitution amount – suggested
that disgorgement might be appropriate on remand. Cf. Mosher v. Speedstar Div.
of AMCA Int’l, Inc., 52 F.3d 913 (11th Cir. 1995) (rejecting waiver argument
when issue was initially rejected at summary judgment, not raised on first appeal,
and then decided on remand).
II. SUFFICIENT PROOF OF COMMISSIONS
Turning to Escobio’s argument that the CFTC failed to prove the amount
ultimately awarded was appropriate, we note that Escobio waived this argument.
On summary judgment, before the first appeal, the district court found that
Southern Trust Metals charged $360,337 in commissions for its futures customers.
On remand, Escobio cited that fact without contesting it; his argument below was
merely that he did not personally benefit. Thus, he waived his ability to contest
that determination on appeal.
III. PERSONAL RESPONSIBILITY FOR THE DISGORGEMENT
Escobio argues that there was no proof that he personally benefitted from the
commissions and so should bear no responsibility for the disgorgement. Like the
district court, we reject this argument because Escobio was the controlling person
5
USCA11 Case: 19-12509 Date Filed: 10/27/2020 Page: 6 of 9
of Southern Trust Metals. In order to demonstrate control person liability, the
Commission must show that Escobio: (1) had “general control” over the primary
violator; and (2) lacked good faith, or knowingly induced the acts constituting the
violation. CFFC v. RJ Fitzgerald & Co., Inc., 310 F.3d 1321, 1334 (11th Cir.
2002). Escobio was the CEO and largest shareholder of Southern Trust Securities
Holding Corporation (“Holding Corporation”). The Holding Corporation owns
Loreley, which in turn owns Southern Trust Metals; Escobio created Southern
Trust Metals and served as its director and CEO. According to the district court,
Escobio was “a signatory to ST Metals and Loreley’s bank accounts, and had
authority to transfer money to and from those accounts.” Further, the evidence at
trial showed that Escobio opened Loreley’s accounts at Hantec and Berkeley, and
was aware of Southern Trust’s representations to customers. This Court, in the
earlier appeal, affirmed the district court’s findings regarding scienter that Escobio
knew he was participating in
fraud. 894 F.3d at 1327.2
2
Additionally, for two reasons, Escobio has waived any argument that the commissions
should be reduced by expenses so that disgorgement would extend only to net ill-gotten gain.
First, although raised and addressed in the district court, and although suggested in the language
of a heading in his initial brief on appeal, no such argument was made in the text following that
heading, and no authority was cited. Second, Escobio failed to provide any evidence of what
such expenses were or how the amount should be calculated.
6
USCA11 Case: 19-12509 Date Filed: 10/27/2020 Page: 7 of 9
IV. PROXIMATE CAUSE
Escobio argues that the CFTC failed to show the commissions were
proximately related to the futures violation. The CEA codifies the equitable
remedies that may be imposed for violations of the statute. It reads:
In any action brought under this section, the Commission may seek,
and the court may impose, on a proper showing, on any person found
in the action to have committed any violation, equitable remedies
including—
(B) disgorgement of gains received in connection with such
violation.
7 U.S.C. § 13a-1(d)(3)(B). Relying on a case that interprets instead the Securities
Exchange Act, Escobio argues that the evidence must show the amount of gains
must be causally related to the wrongdoing. However, § 13a-1(d)(3)(B)’s “in
connection” is a more flexible standard. The district court found that the
commissions were charged for its futures transactions; this clearly satisfies the “in
connection” standard.
V. DISGORGEMENT AND PENALTY
Escobio’s argument that the district court erred by awarding both
disgorgement of the full amount of the commissions and a civil penalty of one
third of the same commissions ignores the plain language of the statute. The
statute permits the award of both disgorgement in the amount of the ill-gotten gains
7
USCA11 Case: 19-12509 Date Filed: 10/27/2020 Page: 8 of 9
and a civil penalty in up to three times the monetary gain for each violation. See 7
U.S.C. §§ 13a-1(d)(1)(A) & (d)(3)(B).
VI. EXCESSIVE FINES CLAUSE
We also reject as wholly without merit Escobio’s argument that the
disgorgement at issue in this appeal would cause the total punishments imposed
upon him to violate the Excessive Fines Clause of the Eighth Amendment. This
argument is wholly without merit for numerous reasons of which we need mention
only two. First, the vast majority of the amounts which Escobio asserts are
“punishments” for the purposes of the Excessive Fines Clause are comprised of
either restitution amounts or the instant disgorgement amount. We doubt that
either of those should be considered a punishment for purposes of the Excessive
Fines Clause. However, we need not decide that because, even assuming they
should thus count, they are directly correlated to the scope of the wrongdoing. In
other words, both restitution and disgorgement seek to recover only money to
which Southern Trust Metals and/or Escobio were never entitled. See Fla. Med.
Center of Clearwater, Inc. v. Sebelius, 614 F.3d 1276, 1282 (11th Cir. 2010).
Thus, the third factor in the traditional excessive fines analysis – the harm caused
by the defendant – points strongly against a violation of the Excessive Fines
Clause. Similarly, the second factor – other penalties authorized by the legislature
– points strongly against such a violation. The applicable statute here authorized
8
USCA11 Case: 19-12509 Date Filed: 10/27/2020 Page: 9 of 9
civil penalties in the amount of triple the losses suffered by the customers.
Whether one considers only the losses suffered by the customers of the futures
trades ($559,000+) or whether one also considers Escobio’s violations in
connection with the fraudulent metals derivatives scheme or violations (an
additional $779,000+), the amounts Escobio has been ordered to pay, even
assuming all should count as punishments for purposes of the excessive fines
clause, total far less than the trebled losses for customers, an amount specifically
authorized by the relevant statute.
For the foregoing reasons, the opinion of the district court is
AFFIRMED.
9
