Amacker v. RENAISSANCE ASSET MANAGEMENT LLC

Case: 08-41217 Document: 00511604682 Page: 1 Date Filed: 09/16/2011

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
September 16, 2011

No. 08-41217 Lyle W. Cayce
Clerk

WILLIAM E AMACKER; LINDY R BIANCHI; JOSEPH DELBOVE; ET AL,

Plaintiffs–Appellants,
v.

RENAISSANCE ASSET MANAGEMENT LLC, also known as RAM I LPM,
also known as RAM I LLC; ANTHONY MICHAEL RAMUNNO; MAN
FINANCIAL (IL); MF GLOBAL INC.; LIND-WALDOCK & CO LLC; VISION
LP; VISION FINANCIAL MARKETS LLC (NY); R.J. O’BRIEN &
ASSOCIATES INC (NY), doing business as Tradestation; TRADESTATION
TECHNOLOGIES INC (IL); MAN FINANCIAL INC (NY); MF GLOBAL INC
(IL); SARINNA CHIANG; KARIN MADDOX; CAREN I JOSEPHS,

Defendants–Appellees.

Appeal from the United States District Court
for the Southern District of Texas

Before OWEN and SOUTHWICK, Circuit Judges.*

PRISCILLA R. OWEN, Circuit Judge:

*
This case is being decided by quorum due to the death of Judge William L. Garwood
on July 14, 2011. 28 U.S.C. § 46(d).
 Case: 08-41217 Document: 00511604682 Page: 2 Date Filed: 09/16/2011

No. 08-41217

Appellants brought suit alleging that futures commission merchants
violated the Commodity Exchange Act1 by aiding and abetting an investment
pool operator in his scheme to defraud investors. The district court dismissed
the complaint for failure to state a claim against the futures commission
merchants. We affirm.
I
The plaintiffs in this case were investors in a commodity pool operated by
defendant Anthony Ramunno. They invested under the impression that
Ramunno would use their money to trade in the commodities markets.
Ramunno, however, operated his company Renaissance Asset Management as
a classic Ponzi scheme: he paid “profits” to investors with monies provided by
new investors.
In executing this scheme, Ramunno would solicit funds, pool them into
brokerage accounts, and trade the pooled funds in the commodities futures
markets through various futures commission merchants. Ramunno represented
to the merchants that he was trading for his own personal account through an
unincorporated sole proprietorship.
Eventually, a potential investor alerted the Commodity Futures Trading
Commission (CFTC) to irregularities in reporting generated by Ramunno and his
company. The CFTC initiated an investigation and, within a week, froze
Renaissance Asset Management’s assets, ceased all trading by the company in
the commodities market, and initiated a civil action alleging numerous violations
of the Commodity Exchange Act (CEA). Subsequently, Ramunno was criminally
indicted and pled guilty to wire fraud and mail fraud.
The investors filed a civil suit against the futures commission merchants
under 7 U.S.C. § 25(a), which authorizes a private right of action against any

1
7 U.S.C. §§ 1-27f.

2
 Case: 08-41217 Document: 00511604682 Page: 3 Date Filed: 09/16/2011

No. 08-41217

person who aids and abets a violator of the act. The investors’ complaint alleged
that the merchants “willfully” aided and abetted the fraud by not conducting
background investigations into Ramunno and his company as required by the
Patriot Act amendments to the Bank Secrecy Act (BSA). While acknowledging
that the merchants had no actual knowledge of Ramunno’s scheme, the investors
argued that the failure to investigate nevertheless demonstrated extreme
recklessness. The investors asserted that, had an investigation been conducted,
the merchants would have discovered in a week (the same time it took the CFTC
to uncover the fraud) that Ramunno was not trading for his own accounts, but
was investing for a commodity pool, while unregistered as either a commodity
trading advisor or a registered commodity pool operator. Further, the investors
argued that this discovery would have prompted the merchants either to close
Ramunno’s accounts or report their findings to the CFTC, preventing the loss of
millions of dollars.
The district court granted the merchants’ motion to dismiss, finding that
actual knowledge and specific intent to further the principal’s violations are
required to establish aiding and abetting liability under the CEA. The investors
timely appealed.
II
We review de novo a district court’s dismissal for failure to state a claim
under Rule 12(b)(6).2 Under Rule 12(b)(6), a claim may be dismissed when a
plaintiff fails to allege sufficient facts that, taken as true, state a claim that is
plausible on its face.3 “A claim has facial plausibility when the pleaded factual

2
Taylor v. Books A Million, Inc., 296 F.3d 376, 378 (5th Cir. 2002).
3
Hershey v. Energy Transfer Partners, L.P., 610 F.3d 239, 245 (5th Cir. 2010).

3
 Case: 08-41217 Document: 00511604682 Page: 4 Date Filed: 09/16/2011

No. 08-41217

content allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.”4
III
The CEA creates a private right of action for “actual damages” caused by
“[a]ny person . . . who violates this chapter or who willfully aids [or] abets . . . the
commission of a violation of this chapter.”5 The key point of dispute is the
definition of “willfully.” The merchants urge this court to adopt an
interpretation that requires actual knowledge and specific intent. By contrast,
the investors advocate interpreting “willfully” to mean “extreme recklessness,”
a lower standard than knowledge and intent.
The investors rely primarily on this court’s decision in Abbott v. Equity
Group, Inc.6 to argue that “extreme recklessness” is sufficient to satisfy the
scienter requirement of § 25(a) under the facts of this particular case. Our
decision in Abbott involved a claim for aiding and abetting violations of § 10(b)
of the Securities Exchange Act of 1934 (SEA) and related Rule 10b-5.7 This court
explained that “[t]o establish liability the plaintiff must show (1) that the
primary party committed a securities violation; (2) that the aider and abettor
had ‘general awareness’ of its role in the violation; and (3) that the aider and
abettor knowingly rendered ‘substantial assistance’ in furtherance of it.”8 The
Abbott court further explained that underlying “general awareness” and knowing
“substantial” assistance:

4
Id. (quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)).
5
7 U.S.C. § 25(a)(1).
6
2 F.3d 613 (5th Cir. 1993).
7
Id. at 621.
8
Id. (citing Abell v. Potomac Ins. Co., 858 F.2d 1104, 1126 (5th Cir. 1988), vacated on
other grounds by Fryar v. Abell, 492 U.S. 914 (1989)).

4
 Case: 08-41217 Document: 00511604682 Page: 5 Date Filed: 09/16/2011

No. 08-41217

is a single scienter requirement that varies on a sliding scale from
“recklessness” to “conscious intent.” The plaintiff must show
conscious intent, unless there is some special duty of disclosure, or
evidence that the assistance to the violator was unusual in
character and degree. In the latter two instances, a recklessness
standard applies.9
Thus, Abbott establishes that, in the context of securities fraud, recklessness can
be the proper scienter for civil aiding and abetting liability, assuming certain
prerequisites are met. However, this court has never held that the elements of
aiding and abetting in the SEA context are applicable in the CEA context.
Therefore, although informative, Abbott is not controlling.
The only two circuit courts to have considered this particular question
make no reference to the SEA standard for aiding and abetting liability.10 Both
held that “willfully aids” as used in § 25(a) requires actual knowledge.
In Damato v. Hermanson, the Seventh Circuit held “that a plaintiff
seeking to state a cause of action for aiding and abetting liability
under[7 U.S.C.§ 25(a)] must allege that the aider and abettor acted knowingly.”11
The court reasoned that this standard is “clearly required by the plain wording
of the statute” due to its use of the word “willfully.”12 The court also observed
that this interpretation comports with the “traditional understanding of aiding
and abetting liability, i.e., the aider and abettor knowingly assists the principal
in the attainment of the illegal objective and therefore is sanctioned as the
principal.”13

9
Id. (internal citations omitted).
10
See Nicholas v. Saul Stone & Co., 224 F.3d 179 (3d Cir. 2000); Damato v. Hermanson,
153 F.3d 464 (7th Cir. 1998).
11
153 F.3d at 472.
12
Id.
13
Id.

5
 Case: 08-41217 Document: 00511604682 Page: 6 Date Filed: 09/16/2011

No. 08-41217

Most significantly, the Damato court analyzed the elements of aider and
abettor liability under § 25(a)(1) as being identical with those contemplated by
the federal criminal aider and abettor statute, 18 U.S.C. § 2.14 It therefore
concluded that “in order to state . . . a claim against [a defendant,] . . . plaintiffs
must allege that [the defendant] (1) had knowledge of the principal’s . . . intent
to commit a violation of the Act; (2) had the intent to further that violation; and
(3) committed some act in furtherance of the principal’s objective.”15 This
interpretation is consistent with both the traditional understanding of what is
meant by “aiding and abetting” and with the language of § 25(a)(1), which
contemplates liability for one “who willfully aids [and] abets . . . the commission
of a violation” of the CEA.16 Because the plaintiffs in Damato failed to allege
that the defendants knew of the Ponzi scheme perpetuated by the primary
violator of the CEA, the Seventh Circuit held that the plaintiffs had not stated
a claim under § 25(a).17
The Third Circuit, faced with the same question two years later, “agree[d]
with the Seventh Circuit that aiding and abetting in the context of the CEA is
congruent with aiding and abetting as defined by 18 U.S.C. § 2,” for
substantially the same reasons.18 Accordingly, it ruled that the plaintiffs “f[e]ll
short” of stating a claim under § 25(a) because they failed to allege “that the
defendant FCMs had the required knowledge and guilty intent.”19 As in the
present case, the plaintiffs merely alleged that the merchants “did not

14
Id. at 473.
15
Id.
16
7 U.S.C. § 25(a)(1) (emphasis added).
17
Damato, 153 F.3d at 472.
18
Nicholas v. Saul Stone & Co. LLC, 224 F.3d 179, 189 (3d Cir. 2000).
19
Id.

6
 Case: 08-41217 Document: 00511604682 Page: 7 Date Filed: 09/16/2011

No. 08-41217

adequately supervise” the primary violators and “knew or recklessly disregarded
facts showing that [the primary violators] were engaged in various activities
violative of the CEA.”20 The Third Circuit concluded that this “alleged, at most,
that the FCMs acted recklessly,” and that “these allegations [were] a far cry from
an allegation that the FCMs not only had knowledge of the intent of the
[primary violators] to violate the CEA, but . . . [also], the intent to further that
violation.”21
We find that the reasoning of the Seventh and Third Circuits is
persuasive. However, even were the “extreme recklessness” construct set forth
in Abbott applicable to claims brought under 7 U.S.C. § 25(a), an issue we do not
decide, the defendant merchants could only be held liable if their conduct met
the basic requirements of aiding and abetting. Normally under Abbott, aiding
and abetting liability cannot be established without a showing of conscious
intent.22 The recklessness standard is applied only if one of two exceptions is
demonstrated: (1) that there is “some special duty of disclosure” or (2) that the
assistance provided the primary violator was “unusual in character and
degree.”23 The investors have not sufficiently alleged that either of these two
exceptions apply here.
The investors argue that the merchants’ failure to conduct more than a
cursory investigation into Ramunno’s identity and registration status was in
such clear violation of duties imposed on them by the Bank Secrecy Act as to
amount to assistance “unusual in character and degree.” Although the BSA does

20
Id. (internal quotation marks omitted).
21
Id. at 190 (internal quotation marks omitted).
22
Abbott v. Equity Group, Inc., 2 F.3d 613, 621 (5th Cir. 1993).
23
Id.

7
 Case: 08-41217 Document: 00511604682 Page: 8 Date Filed: 09/16/2011

No. 08-41217

impose investigative duties on the merchants,24 their failure to conduct more
than a cursory investigation into Ramunno and his company does not constitute
assistance “unusual in character and degree” under this circuit’s precedent. The
reach of this exception is limited, and “only a narrow band of cases can travel
this path.”25 This court has “often reiterated that, ‘[i]f the evidence shows no
more than transactions constituting the daily grist of the mill, [it] would be
loathe to find [aiding and abetting] liability without clear proof of intent to
violate the . . . law.’”26
The merchants did no more than execute regular trades requested by
Ramunno, who represented that he was trading for his own personal account.
These are clearly “grist of the mill” transactions.27 The routine execution of
trades does not amount to substantial assistance.28 Moreover, even if the
relevant inquiry is the degree of investigation conducted by the merchants, the
investors have not alleged that any omission in this regard was so unusual as

24
Under the BSA, the Secretary of Treasury is instructed to promulgate regulations
that shall, at a minimum, require financial institutions to implement reasonable procedures
for verifying the identity of persons seeking to open an account. See 31 U.S.C. § 5318(l)(1).
The regulations promulgated by the CFTC require, among other things, that futures
commodities merchants adopt procedures for identity verification that would allow them to
form a reasonable belief that they know the true identity of each customer. See 31 C.F.R.
1026.220(a)(2). When such a belief cannot be formed, the merchants must determine whether
to refuse to open an account, close an account, or file a Suspicious Activity Report with the
federal government. See 31 C.F.R. 1026.220(a)(2)(iii).
25
Akin v. Q-L Invs., Inc., 959 F.2d 521, 526 (5th Cir. 1992).
26
Abbott v. Equity Group, Inc., 2 F.3d 613, 621 n.24 (5th Cir. 1993) (quoting Abell v.
Potomac Ins. Co., 858 F.2d 1104, 1126 (5th Cir. 1988)).
27
See Abbott, 2 F.3d at 623 (quoting Ins. Co. of N. Am. v. Dealy, 911 F.2d 1096, 1101
(5th Cir. 1990) (finding that routine assistance, “even if substantial,” is “merely ‘grist of the
mill’”)).
28
Id.

8
 Case: 08-41217 Document: 00511604682 Page: 9 Date Filed: 09/16/2011

No. 08-41217

to amount to substantial assistance. The complaint reveals that Ramunno
provided enough plausible information to avoid raising suspicion.
Likewise, the investors have not established a special duty of disclosure.
This court has previously held that § 6k(1) of the CEA does not impose a duty on
merchants to inquire into the registration status of its customers “merely
because that customer may be acting on behalf of other individuals.”29 Further,
the BSA disclosure requirements are owed to the State, not private investors.30
Accordingly, the investors have not established that either of the two exceptions
to aiding and abetting liability applies, even assuming those exceptions are
pertinent under 7 U.S.C. § 25(a).
Finally, even if a BSA-imposed duty did exist, the investors have failed to
allege sufficient “extreme recklessness” to state a claim. This court has defined
“recklessness” in the context of aiding and abetting violations of securities laws
as follows:
Severe recklessness is limited to those highly unreasonable
omissions or misrepresentations that involve not merely simple or
even inexcusable negligence, but an extreme departure from the
standards of ordinary care, and that present a danger of misleading
buyers or sellers which is either known to the defendant or is so
obvious that the defendant must have been aware of it.31
This “degree of recklessness in one’s disregard for the truth necessary to serve
as scienter is extremely high.”32

29
Brown v. Royce Brokerage, Inc., 632 F.2d 652, 654 (5th Cir. 1980).
30
See Marlin v. Moody Nat’l Bank, N.A., No. H-04-4443, 2006 WL 2382325, at *7 (S.D.
Tex. Aug. 16, 2006) (unpublished) (stating that the duty of disclosure must be owed to the
plaintiffs), aff’d Marlin v. Moody Nat’l Bank, N.A., 248 F. App’x 534 (5th Cir. 2007).
31
Abbott, 2 F.3d at 621 n.25 (quoting Broad v. Rockwell Int’l Corp., 624 F.2d 929, 961-
62 (5th Cir. 1981)).
32
SEC v. Sw. Coal & Energy Co., 624 F.2d 1312, 1321 n.17 (5th Cir. 1980).

9
 Case: 08-41217 Document: 00511604682 Page: 10 Date Filed: 09/16/2011

No. 08-41217

The investors argue that the merchants acted recklessly in not conducting
an adequate investigation into Ramunno’s registration status and identity.
However, they also allege that Ramunno provided the merchants with
information that he was trading only for his own personal benefit. Moreover, the
investors allege that Ramunno initiated a registration process in order to
obfuscate his trail. Thus, the allegation is not that the merchants simply
accepted Ramunno and his company as a customer without any explanation, but
that the merchants should have conducted a more extensive investigation,
required new documentation prior to executing every trade, and compared
Ramunno’s losses in the market to the additional funds placed in his accounts
to surmise that he was not trading for himself.
The investors have not alleged such extreme departures from standards
of care under the BSA that it can be inferred that the danger of misleading
buyers must “have been actually known or so obvious that the [aider and
abettor] must have been aware of it.”33 The merchants in this case executed
unexceptional trades requested by a customer who represented that he was
trading on his own account. The merchants had no reason to know that
Ramunno was operating as a commodity pool or trading on behalf of other
investors, let alone that Ramunno was running a fraudulent Ponzi scheme.
Even if the merchants actions could be construed as negligent, they were not
“severely reckless.”
* * *
We conclude that the district court acted properly in dismissing the
investors’ aiding and abetting claims. We AFFIRM.

33
Id.

10