UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
COMMODITY FUTURES :
TRADING COMMISSION, :
:
Plaintiff, : Civil Action No.: 11-00187 (RMU)
:
v. : Re Document No.: 6
:
GIGFX, LLC, :
:
Defendant. :
MEMORANDUM OPINION
GRANTING THE PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT
I. INTRODUCTION
This matter comes before the court on the plaintiff’s motion for default judgment,
pursuant to Federal Rule of Civil Procedure 55(b)(2). The plaintiff, the Commodity Futures
Trading Commission (“CFTC”), alleges that the defendant, GIGFX, LLC (“GIGFX”), has
violated the Commodity Exchange Act (“CEA”), codified at 7 U.S.C. §§ 1 et seq., and the
corresponding CFTC Regulations. More specifically, the CFTC claims that GIGFX unlawfully
failed to register with the CFTC before soliciting or accepting orders from certain customers
during retail foreign exchange transactions. The defendant, though properly served with the
complaint, has not filed an answer. The plaintiff now seeks an entry of default judgment and
requests injunctive relief and a civil monetary penalty. Because the defendant has been
unresponsive and has thereby halted the adversary process, the court grants the plaintiff’s motion
and awards it the injunctive relief and civil monetary penalty requested.
II. BACKGROUND
A. Statutory Framework
In October 2010, after the passage of the CFTC Reauthorization Act of 2008 (“CRA”)
and the Dodd-Frank Act, the CFTC enacted new regulations (“CFTC Regulations”) to govern,
inter alia, retail foreign exchange or “forex” transactions. 7 U.S.C. § 1(a); 17 C.F.R. §§ 5 et seq.
In a typical forex transaction, a party exchanges a particular quantity of one country’s currency
for a specified quantity of another country’s currency. 17 C.F.R. § 5.1(m). This transaction
occurs between a retail customer and an eligible counterparty. See 7 U.S.C. § 2(c)(2)(B)(i)(II).
Retail customers1 are individuals who possess a particular amount of assets and who are not
registered as futures or securities professionals. Id. § 1a(12)(A)(xi). By contrast, an eligible
counterparty is either a regulated financial institution such as an investment firm, credit
institution or central bank, or a retail foreign exchange dealer (“RFED”). 17 C.F.R. § 5.1(h)(1).
An RFED is an otherwise unregulated entity that must meet certain criteria, including retaining
membership in the National Futures Association and filing specific forms. Id. § 5.12.
Under the CRA and the Dodd-Frank Act, the CFTC can write and enforce rules and
regulations to implement CEA provisions that govern forex transactions. 7 U.S.C. § 6; 12 U.S.C.
§ 5517(j)(1). One such regulation requires RFEDs to register with the CFTC before serving as a
counterparty in forex transactions. 17 C.F.R. § 5.3(a)(6)(i).
B. Factual and Procedural Background
According to the CFTC, GIGFX solicits United States customers through its website to
open forex trading accounts. Compl. ¶ 4; Pl.’s Mot. for Def. J. (“Pl.’s Mot.”) at 9. The CFTC
1
Under the CEA, retail customers are also known as “non-Eligible Contract Participants.” 7
U.S.C. § 1a(12)(A).
2
alleges in this action that GIGFX solicited orders from retail customers during forex transactions
without first registering as an RFED, in violation of the newly-enacted CFTC Regulations and
the CEA. Compl. ¶ 2.
The plaintiff served the defendant with the summons and complaint on January 28,
2011. Return of Service/Affidavit, Aff. of Adam Golden (“Golden Aff.”). After the defendant
failed to respond to the complaint, on February 24, 2011, the plaintiff requested an entry of
default against the defendant. Aff. in Supp. of Default at 1. On February 25, 2011, the Clerk of
the Court entered default against the defendant. See generally Entry of Default. Shortly
thereafter, the plaintiff filed this motion for default judgment under Rule 55(b),2 seeking both
injunctive and monetary relief. Pl.’s Mot. at 1. The court now turns to the plaintiff’s request for
relief and the applicable legal standard.
III. ANALYSIS
A. Legal Standard for Entry of Default Judgment Under Rule 55(b)(2)
A court has the power to enter default judgment when a defendant fails to defend its case
appropriately or otherwise engages in dilatory tactics. Keegel v. Key W. & Caribbean Trading
Co., 627 F.2d 372, 375 n.5 (D.C. Cir. 1980). Rule 55(a) of the Federal Rules of Civil Procedure
provides for entry of default “[w]hen a party against whom a judgment for affirmative relief is
2
Rule 55 specifies a two-step process for a party seeking to obtain a default judgment. First, the
plaintiff must request that the Clerk of the Court enter a default against the party who has “failed
to plead or otherwise defend” against an action. FED. R. CIV. P. 55(a). Second, if the plaintiff's
claim is not for a certain amount, the party must apply to the court for an entry of default
judgment. Id. 55(b)(2). This two-step process allows a defendant the opportunity to move to set
aside a default previously entered by the clerk before the court enters judgment. Id. 55(c); see
also H.F. Livermore Corp. v. Aktiengesellschaft Gebruder Loepfe, 432 F.2d 689, 691 (D.C. Cir.
1970) (stating that “[t]he notice requirement contained in Rule 55(b)(2) is . . . a device intended to
protect those parties who, although delaying in the formal sense by failing to file pleadings . . .
have otherwise indicated to the moving party a clear purpose to defend the suit”).
3
sought has failed to plead or otherwise defend as provided by these rules.” FED. R. CIV. P. 55(a).
Upon request of the party entitled to default, Rule 55(b)(2) authorizes the court to enter against
the defendant a default judgment for the amount claimed and costs. Id. 55(b)(2).
Because courts strongly favor resolution of disputes on their merits, and because “it
seems inherently unfair” to use the court’s power to enter judgment as a penalty for filing delays,
modern courts do not favor default judgments. Jackson v. Beech, 636 F.2d 831, 835 (D.C. Cir.
1980). Accordingly, default judgment is available “only when the adversary process has been
halted because of an essentially unresponsive party . . . [as] the diligent party must be protected
lest he be faced with interminable delay and continued uncertainty as to his rights.” Id. at 836
(quoting H.F. Livermore Corp. v. Aktiengesellschaft Gebruder Loepfe, 432 F.2d 689, 691 (D.C. Cir.
1970)).
Default establishes the defaulting party’s liability for the well-pleaded allegations of the
complaint. Adkins v. Teseo, 180 F. Supp. 2d 15, 17 (D.D.C. 2001); Avianca, Inc. v. Corriea,
1992 WL 102999, at *1 (D.D.C. Apr. 13, 1992); see also Brock v. Unique Racquetball & Health
Clubs, Inc., 786 F.2d 61, 65 (2d Cir. 1986) (noting that “default concludes the liability phase of
the trial”). Default does not, however, establish liability for the amount of damage that the
plaintiff claims. Shepherd v. Am. Broad. Cos., Inc., 862 F. Supp. 486, 491 (D.D.C. 1994),
vacated on other grounds, 62 F.3d 1469 (D.C. Cir. 1995). Instead, “unless the amount of
damages is certain, the court is required to make an independent determination of the sum to be
awarded.” Adkins, 180 F. Supp. 2d at 17; see also Credit Lyonnais Secs. (USA), Inc. v.
Alcantara, 183 F.3d 151, 155 (2d Cir. 1999) (stating that the court must conduct an inquiry to
ascertain the amount of damages with reasonable certainty). The court has considerable latitude
in determining the amount of damages. Jones v. Winnepesaukee Realty, 990 F.2d 1, 4 (1st Cir.
4
1993). In order to fix the amount, the court may conduct a hearing. FED. R. CIV. P. 55(b)(2).
The court is not required to do so, however, “as long as it ensure[s] that there [is] a basis for the
damages specified in the default judgment.” Transatlantic Marine Claims Agency, Inc. v. Ace
Shipping Corp., Div. of Ace Young Inc., 109 F.3d 105, 111 (2d Cir. 1997).
B. The Court Grants the Plaintiff’s Motion for Default Judgment
1. The Defendant Is Liable for Two Violations
The plaintiff asserts that it is entitled to default judgment because the defendant has failed
to answer the complaint or otherwise defend itself in this action. Pl.’s Mot. at 1. Specifically,
the plaintiff claims that the court should find the defendant liable for violating the CEA and the
corresponding CFTC Regulations. Id. According to the plaintiff, the defendant committed two
distinct violations, one for failing to register with the CFTC as an RFED, and one for soliciting
and accepting orders from retail customers without having first registered. Id.
Default judgment is appropriate when, as previously mentioned, “the adversary process
has been halted because of an essentially unresponsive party.” H.F. Livermore Corp., 432 F.2d
at 691. In this case, the plaintiff served the defendant with the summons and complaint on
January 28, 2011. Golden Aff. Since that date, the defendant has failed to plead or otherwise
defend itself in this action. Moreover, the defendant has responded neither to the plaintiff’s
request for default nor to its motion for default judgment. Given the defendant’s
unresponsiveness, the court concludes that the entry of default judgment is appropriate. See
Fanning v. Permanent Solution Indus., Inc., 257 F.R.D. 4, 7 (D.D.C. 2009) (concluding that the
defendant was liable to the plaintiff because the defendant had failed to respond to the complaint
or otherwise defend itself); Adkins, 180 F. Supp. 2d at 17 (explaining that the court could enter a
5
default judgment because the defendant did not file or serve any objection or responsive pleading
within twenty-one days of being served with the complaint).
As a result of the entry of default, the court construes all well-pleaded allegations in the
complaint as admitted. See, e.g., Int’l Painters & Allied Trades Indus. Pension Fund v. R.W.
Amrine Drywall Co., 239 F. Supp. 2d 26, 30 (D.D.C. 2002) (accepting as admitted the
defendant’s failure to make pension fund contributions as required by ERISA (internal citations
omitted)). As previously noted, the plaintiff alleges that the defendant committed two
violations, one of the CEA, and one of the corresponding CFTC Regulations. Pl.’s Mot. at 1.
Under the CEA, a retail foreign exchange dealer can be liable for each violation of the
statute or of any “rule, regulation or order thereunder.” 7 U.S.C. § 13a-1(a). The CFTC
Regulations require an entity to register with the CFTC as an RFED. 17 C.F.R. § 5.3(a)(6)(i).
(“Any retail foreign exchange dealer, as defined in § 5.1(h)(1) of this part is required to register
as a retail foreign exchange dealer . . . .”). Failure to do so constitutes a violation of the CFTC
Regulations. 7 U.S.C. § 13a-1(a). In addition, an unregistered RFED may not “solicit or accept
orders” from retail customers. 7 U.S.C. § 2(c)(2)(C)(iii)(I)(aa). Engaging in forex transactions
by soliciting or accepting orders without properly registering with the CFTC is a violation of the
statute. Id. Accordingly, because the plaintiff has sufficiently pleaded that the defendant
solicited and accepted orders without registering as an RFED, the court accepts these well-
pleaded allegations as establishing the defendant’s liability for two violations. See Fanning, 257
F.R.D. at 7 (concluding that the plaintiffs sufficiently alleged facts to support their claims,
entitling them to default judgment as to the defendant’s liability); see also Commodity Futures
Trading Comm’n v. Prime Forex, LLC, Civ. No. 11-189 (D.D.C. 2011) (determining that the
defendant’s failure to register as an RFED and soliciting or accepting orders as an unregistered
6
RFED constituted distinct violations of the statute); Commodity Futures Trading Comm’n v.
Kingdom Forex Trading & Futures, Civ. No. 11-190 (D.D.C. 2011).
2. The Plaintiff Is Entitled to Injunctive Relief
The plaintiff seeks a permanent injunction prohibiting the defendant from engaging in
any further commodity-related activity that violates CFTC Regulations or the CEA. Pl.’s Mot. at
13, 15. According to the plaintiff, the injunction will (1) prohibit GIGFX and all entities who act
in concert with GIGFX from engaging in any further conduct that violates the CEA and CFTC
Regulations (including operating the GIGFX website); (2) prohibit GIGFX from entering into
forex transactions; and (3) permanently prohibit GIGFX from registering as an RFED, seeking
exemption from registration with the CFTC in any capacity or engaging in any activity requiring
registration or exemption from registration. Id.
The CEA allows the CFTC to seek permanent injunctive relief under the following
circumstances:
Whenever it shall appear to the Commission that any registered entity or other
person has engaged in, is engaging in, or is about to engage in any act or practice
constituting a violation of any provision of this CEA or any rule, regulation or
order thereunder . . . the Commission may bring an action in the proper district
court of the United States . . . to enjoin such action or practice, or to enforce
compliance with this CEA, or any rule, regulation or order thereunder . . . .
7 U.S.C. § 13a-1(a). As indicated earlier, the defendant is required, pursuant to both 7 U.S.C. §
2(c)(2)(C)(iii)(I)(aa) and 17 C.F.R. § 5.3(a)(6)(i), to register as an RFED with the CFTC prior to
soliciting or accepting orders from retail customers in forex transactions. Because the defendant
has failed to register with the CFTC, and because it has declined to participate in this litigation,
the court grants the plaintiff’s request for injunctive relief. See Commodity Futures Trading
Comm’n v. Wilshire Inv. Mgmt. Corp., 531 F.3d 1339, 1346-47 (11th Cir. 2008) (holding that it
7
was appropriate for the district court to enjoin the defendants from engaging in “commodity-
related activity” based on the defendants’ past conduct and potential for future violations of the
CEA and CFTC Regulations).
3. The Court Awards a Civil Monetary Penalty
The plaintiff also seeks a civil monetary penalty against the defendant for its two
violations of the CEA. Pl.’s Mot. at 17. Pursuant to 7 U.S.C. § 6c(d)(1), the plaintiff asserts that
the court should impose a penalty of $140,000 for each violation, or a total of $280,000 plus
post-judgment interest. Id. at 16-17.
When moving for default judgment, a plaintiff must prove that it is entitled to the
requested damages. R.W. Amrine Drywall Co., 239 F. Supp. 2d at 30 (citing Oberstar v. Fed.
Deposit Ins. Comm’n, 987 F.2d 494, 505 n.9 (8th Cir. 1993)). Unless the amount of damages is
certain, the court must make an independent determination of the sum to be awarded. Adkins,
180 F. Supp. 2d at 17. Under the CEA, the CFTC can seek to impose a civil monetary penalty of
$140,000 for each violation of the statute or of the corresponding CFTC Regulations. 7 U.S.C. §
13a-1(a); 17 C.F.R. § 143.8(a)(1)(iii) (“the inflation-adjusted maximum civil monetary penalty
for each violation of the Commodity Exchange Act…[f]or violations committed on or after
October 23, 2008, [is no] more than the greater of $140,000 or triple the monetary gain to such
person for each such violation”). Accordingly, this court imposes a $280,000 civil monetary
penalty plus post-judgment interest for the defendant’s two violations. Commodity Futures
Trading Comm’n v. Levy, 541 F.3d 1102, 1110-11 (11th Cir. 2008) (upholding the district
court’s imposition of a separate civil monetary penalty for each violation of the statute); Prime
Forex, LLC, Civ. No. 11-189 at 9, 12 (imposing separate penalties plus post-judgment interest
8
for the defendant’s failure to register as an RFED and for soliciting or accepting orders as an
unregistered RFED); Kingdom Forex Trading & Futures, Civ. No. 11-190 at 9 (same).
IV. CONCLUSION
For the foregoing reasons, the court grants the plaintiff’s motion for default judgment.
An Order consistent with this Memorandum Opinion is separately and contemporaneously issued
this 22nd day of February, 2012.
RICARDO M. URBINA
United States District Judge
9