Filed September 29, 2009
BEFORE THE HEARING BOARD
ILLINOIS ATTORNEY REGISTRATION
|In the Matter of:
Anthony A. Demasi,
Commission No. 08 CH 110
REPORT AND RECOMMENDATION OF THE HEARING BOARD
The hearing in this matter was held on June 19, 2009 at the offices of the Attorney Registration and Disciplinary Commission ("ARDC") in Chicago, Illinois before a hearing panel consisting of Lon M. Richey, Juliette N. Lilie, and Donald A. Pettis Sr.. James A. Doppke represented the Administrator of the Attorney Registration and Disciplinary Commission. Respondent Anthony A. Demasi appeared pro se.
THE COMPLAINT AND PRE-HEARING RECORD
On October 1, 2008, the Administrator filed a one-count Complaint against Respondent. The Complaint alleged that Respondent made misrepresentations and engaged in fraud.
On February 27, 2009 Respondent was personally served with copies of the Administrator's Complaint, Notice of Complaint, Order Assigning Hearing Panel Chairperson, Pre-Hearing Conference Memorandum, and the Supreme Court Rules. Respondent did not file an answer or otherwise respond to the Complaint. On April 13, 2009 an order was entered deeming the allegations of the Complaint admitted and limiting the evidence received at hearing to matters in mitigation and aggravation.
On April 3, 2009 the Administrator filed a notice to appear and produce requiring Respondent to appear for a deposition and produce documents. Respondent did not appear for his deposition or respond to the request.
The record reflects that the pre-hearing orders entered by the Chair of the hearing panel, including the order setting the matter for hearing on June 19, 2009 were sent to Respondent's registration address as well as an apartment address. The envelopes were returned to the clerk's office with no forwarding address.
Respondent appeared on the scheduled date for hearing and informed the hearing panel that he was not aware of the hearing until the previous day at 4:00 p.m. when he received a call from the Administrator's counsel. He further stated that he had not seen the charges against him until immediately prior to the hearing because, due to personal circumstances, he was not in a position to read the papers at the time he was served. He explained that he had been attempting to retain counsel to assist him and he was dealing with many other legal and personal matters. Respondent requested a continuance to familiarize himself with the charges against him and to retain counsel.
Counsel for the Administrator objected to a continuance, pointing out that Respondent had been personally served with the Complaint and had months to examine it and prepare a defense. Further, Respondent did not respond or participate in pre-hearings and had not registered with the ARDC for the past two years. Counsel stated that motions and pleadings were sent to Respondent's last registration address.
The hearing panel Chair noted that attorneys have a duty to make sure the Commission is informed of their whereabouts. The Chair gave a broad interpretation to Respondent's
statements and considered them as a motion to continue the proceedings in order to obtain counsel, a motion to vacate the order deeming allegations admitted, and a motion to stay the proceedings pending a conclusion in other civil or criminal proceedings. All motions were denied and the hearing proceeded.
The Administrator tendered four exhibits which were admitted into evidence. Respondent offered no evidence and stated that, because of a pending case with the Commodities Futures Trading Commission ("CFTC") and the United States government, he was making no comment and asserting his rights under the Fifth Amendment.
The evidence, along with the admitted allegations, established that during the period from May 2003 through July 2005, Respondent was the principal and managing member of Tsunami Capital, LLC ("Tsunami Capital"), which was registered with the CFTC as a commodity pool operator and commodity trading advisor. In a commodity pool, many individuals combine their money and trade futures contracts as a single entity. From October 2002 to September 2006 Respondent, through Tsunami Capital, opened and maintained various commodity futures accounts, two of which were structured as Tsunami Lakeshore Integrated Fund ("Tsunami Lakeshore").
In June 2003, Respondent opened one of the Tsunami Lakeshore accounts and began trading with $287,000, which had been pooled and deposited into that account. Respondent, through Tsunami Capital, was the commodity pool operator for the Tsunami Lakeshore account, and the sole authorized signatory on this account. All of the account statements for the Tsunami Lakeshore account were sent to Respondent's office at 455 N. Cityfront Plaza, in Chicago.
After June 2003 Respondent managed trades made in the Tsunami Lakeshore account. In 2004 the account had a deficit of $4,425 in its trading and in January 2005, the account was closed. Respondent knew or should have known the financial condition of the Tsunami Lakeshore account during the period from June 2003 through January 2005, as he was the sole authorized signatory on the account and the account statements for Tsunami Lakeshore were sent to him.
Sometime after June 2003, Respondent created, or directed the creation of, a document titled "Confidential Private Placement Memorandum Tsunami Lakeshore Integrated Fund, LLC" ("Memorandum"), which identified Tsunami Capital as Tsunami Lakeshore's managing member and commodity pool operator and Respondent as the principal of Tsunami Capital. Respondent created, or caused the Memorandum to be created, to either solicit potential investors and/or to provide information to investors interested in Tsunami Lakeshore.
Sometime after June 2003, Respondent created, or directed the creation of, a profit and loss spreadsheet ("profitability spreadsheet") on Tsunami Capital letterhead for the Tsunami Lakeshore account, which purported to show that Tsunami Lakeshore's trading had been profitable in all but two months in 2003 and 2004, with rates of return as high as 26.85% in April 2003 and 22.21% in May 2003. The purported statements were false because the Tsunami Lakeshore account was not active in April or May 2003, and it had a deficit of $4,425 in its trading in 2004. Respondent created or caused the profitability spreadsheet to be created, to either solicit potential investors and/or to provide information to investors interested in Tsunami Lakeshore.
During the period between December 2004 and January 2005, Respondent engaged in discussions with a potential investor, Brett Simons, regarding investment in Tsunami Lakeshore.
Respondent told Simons that Tsunami Lakeshore was a commodity pool trading futures with $6 million invested, with a minimum investment of $50,000. Respondent provided Simons with a copy of the Memorandum and the profitability spreadsheet. When Respondent told Simons that $6 million had been invested in Tsunami Lakeshore, Respondent knew or should have known that that statement was false, because in 2004 Tsunami Lakeshore had a deficit of $4,425. Respondent knew or should have known that the profitability spreadsheet falsely represented the activity and profitability of Tsunami Lakeshore in April and May 2003, because the Tsunami Lakeshore account was not active in April or May 2003.
In January 2005 Simons invested $50,000 with Tsunami Capital for the purpose of trading in the Tsunami Lakeshore account. In March 2005 Respondent told Simons that his $50,000 investment was profitable and, based on those representations, Simons invested an additional $100,000 with Tsunami Capital for the purposes of trading in the Tsunami Lakeshore account. Respondent's representations to Simons that his $50,000 investment was profitable was false and known by Respondent to be false because the Tsunami Lakeshore account had a deficit of $4,425 in 2004, and the account had been closed since January 2005.
Sometime after March 2005, Respondent created, or directed the creation of, an account statement for Tsunami Lakeshore, on Tsunami Capital letterhead, which purported to show a 17% profit in the Tsunami Lakeshore account. The purported statement was false because the Tsunami Lakeshore account had been closed since January 2005. In April 2005, Respondent gave Simons a copy of the account statement. Respondent knew the statement he tendered to Simons in April 2005 showing a 17% profit in the Tsunami Lakeshore account was a false statement, because the Tsunami Lakeshore account had a deficit of $4,425 in 2004, and the account had been closed since January 2005.
In April 2005, Respondent made oral representations to potential investors Jay Deutsch and Mike Budicak to the effect that Tsunami Lakeshore had been profitable. As a result of Respondent's representations, Deutsch invested $50,000 in April 2005, and Budicak invested $100,000 in early 2005. Respondent knew that his representations to Deutsch and to Budicak were false since the Tsunami Lakeshore account had a deficit of $4,425 in 2004, and the account had been closed since January 2005.
Sometime after April 2005, Respondent created, or caused to be created, account statements for Tsunami Lakeshore which purported to show that Budicak had profited $11,366 by the end of June 2005. Respondent knew or should have known that the account statements he sent to Budicak were false since the Tsunami Lakeshore account had a deficit of $4,425 in 2004, and the account had been closed since January 2005.
In or about December 2005, Respondent made oral representations to potential investor Frank Carbonara to the effect that Tsunami Lakeshore had been profitable. As a result of Respondent's representations, Carbonara invested approximately $92,000 from his Individual Retirement Account. Respondent knew that his representations to Carbonara were false since the Tsunami Lakeshore account had a deficit of $4,425 in 2004, and the account had been closed since January 2005.
Sometime after December 2005, Respondent created, or caused to be created, account statements for Tsunami Lakeshore which purported to show that Carbonara had profited $58,000 by the end of March 2007. Respondent knew or should have known that all of the account statements he sent to Carbonara were false since the Tsunami Lakeshore account had a deficit of $4,425 in 2004, and the account had been closed since January 2005.
In late 2005, Respondent made oral representations to potential investor Peter Tamuzian that Tsunami Lakeshore had been profitable. In or about February 2006, as a result of Respondent's representations, Tamuzian invested $60,000 from his employee retirement savings account. Respondent knew that his representations to Tamuzian were false since the Tsunami Lakeshore account had been closed since January 2005. (Adm. Ex. 4).
Sometime after February 2006, Respondent created, or caused to be created, account statements for Tsunami Lakeshore which purported to show that Tamuzian's investment had earned 7.83% for March 2006. Respondent knew or should have known that the account statements he provided to Tamuzian were false since the Tsunami Lakeshore account had been closed since January 2005. In May 2006, based on the false statements provided to him by Respondent, Tamuzian invested an additional $40,000 to Respondent to invest in the Tsunami Lakeshore account.
From at least April 2002 to at least April 2007, Respondent, by making false oral representations about the profitability of Tsunami Lakeshore and by creating false account statements that reflected profitable track records, solicited and accepted $16,312,100 from 108 individuals for the purpose of trading financial futures, and used those funds for his own personal purposes. (Adm. Ex. 3).
Evidence in Aggravation
The Administrator presented a copy of the complaint in U.S. Commodity Futures Trading Commission v. Anthony A. Demasi and Tsunami Capital, LLC, filed April 25, 2007 in the United States District Court for the Northern District of Illinois. The complaint sought injunctive and other equitable relief for violations of the Commodity Exchange Act and the CFTC's regulations. On May 1, 2008 a consent order was entered restraining and prohibiting
Respondent from cheating or defrauding other persons in connection with the making of any contract of sale of any commodity for future delivery; making false reports; and engaging in any activity related to trading in any commodity, in violation of sections of the Commodity Exchange Act. (Adm. Exs. 1, 2).
An April 30, 2008 declaration of CFTC investigator William Heitner, who was assigned to investigate the activities of Tsunami Capital, LLC, Tsunami Lakeshore Integrated Fund, LLC and Respondent, was also admitted into evidence. Heitner described Respondent's investment activities and reports to investors, and concluded the reports did not accurately reflect the trading in the Tsunami Capital trading accounts. He noted that investor funds were spent on a variety of things including payments to investors, business expenses, futures trading, securities trading, payments to Respondent, payments to Lakeshore's trading advisor, cash withdrawals and transfers to other Tsunami corporations. Some investors were paid back more than they invested; however, ninety-one Tsunami investors are still owed $11,754,099. (Adm. Ex. 3).
Excerpts from Peter Tamuzian's deposition taken February 10, 2008 in connection with the federal court case were admitted into evidence. Tamuzian, a customer of Tsunami Lakeshore, testified at the deposition that he is retired and has no experience in commodity futures trading. He stated he contacted Respondent regarding the investment of his retirement funds and repeatedly inquired about the safety of the investment. Respondent assured him that the Tsunami Lakeshore Integrated Fund dealt only with government securities, which were much safer than the stock market and not as volatile. Respondent never mentioned that the fund was a commodity pool. (Adm. Ex. 4).
The Administrator reported that Respondent has not been the subject of any prior orders or opinions imposing discipline.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
As a preliminary matter, we wish to briefly address the denial of Respondent's motion to continue the hearing. With respect to continuances, Commission Rule 272 states the following:
The Chair may continue a hearing or prehearing conference at the Chair's discretion. No hearing . . . shall be continued at the request of any party except upon written motion supported by affidavit. No hearing shall be continued at the request of a party more than once except under extraordinary circumstances. Engagement of counsel shall not be deemed an extraordinary circumstance.
While Respondent's motion for continuance at the time of hearing was his first request for a continuance, it was not presented in writing nor was it supported by affidavit. Thus his motion was not properly before us, and was subject to denial for that reason.
We do not believe due process considerations dictate a different result. While an attorney must be given notice of the charges and a meaningful opportunity to defend against them, In re Chandler, 161 Ill. 2d 459, 470, 641 N.E.2d 473 (1994), we believe those requirements were met in this case. Respondent admitted he was served with the Administrator's Complaint in February 2009, yet he took no action to respond to the Complaint or to determine the status of the proceedings. In fact, his appearance at hearing was his first and only involvement in the proceeding.
In In re Benhke, 127 Ill.2d 322, 537 N.E.2d 326 (1989) the hearing panel denied a motion to continue where the attorney waited until the day of the hearing and then made an oral motion for a continuance. The Supreme Court found that the hearing board's denial of the motion was not a denial of due process. Compare In re Redell, 03 CH 66 (Oct. 2005) where the hearing chair's denial of Respondent's written motion for continuance, which was presented one week
prior to the hearing and renewed on the day of the hearing, was supported by an affidavit, and was not opposed by the Administrator, was found to be an abuse of discretion. In contrast to Redell, Respondent in this case waited until the last moment and then made an oral request with no supporting affidavit.
We turn now to the charges against Respondent. In attorney disciplinary proceedings the Administrator has the burden of proving the charges of misconduct by clear and convincing evidence. In re Ingersoll, 186 Ill.2d 163, 710 N.E.2d 390, 393 (1999). Clear and convincing evidence constitutes a high level of certainty, which is greater than a preponderance of the evidence but less than proof beyond a reasonable doubt. People v. Williams, 143 Ill.2d 477, 577 N.E.2d 762 (1991).
Having considered the Complaint, Respondent's failure to answer or otherwise respond to the Complaint, the order of April 13, 2009 by which the allegations of the Complaint were deemed admitted, and the evidence presented by the Administrator and admitted at the hearing, we find by clear and convincing evidence that Respondent engaged in the acts alleged and committed the following misconduct:
conduct involving dishonesty, fraud, deceit or misrepresentation, in violation of Rule 8.4(a)(4) of the Illinois Rules of Professional Conduct;
conduct that is prejudicial to the administration of justice in violation of Rule 8.4(a)(4); and
conduct which tends to defeat the administration of justice or to bring the courts or the legal profession into disrepute in violation of Supreme Court Rule 770.
Having found that Respondent engaged in wrongdoing, we must determine the appropriate discipline warranted by the misconduct. In determining the proper sanction, we consider the purposes of the disciplinary process. The goal of these proceedings is not to punish
but rather to safeguard the public, maintain the integrity of the profession and protect the administration of justice from reproach. In re Timpone, 157 Ill.2d 178, 623 N.E.2d 300 (1993). Another factor for consideration is the deterrent value of attorney discipline and the need to impress upon others the repercussions of errors such as those committed by Respondent in the present case. In re Discipio, 163 Ill.2d 515, 645 N.E.2d 906, 912 (1994).
We also take into account those circumstances which may mitigate and/or aggravate the misconduct. In re Witt, 145 Ill.2d 380, 583 N.E.2d 526, 535 (1991). Respondent did not present any evidence of mitigating circumstances, although he was given an opportunity to do so. The Administrator did report, however, that Respondent has not been previously disciplined.
In aggravation, we consider the harm or risk of harm caused by Respondent's misconduct. See In re Saladino, 71 Ill.2d 263, 375 N.E.2d 102 (1978) (discipline should be "closely linked to the harm caused or the unreasonable risk created by the [attorney's] lack of care). In this case Respondent's false representations caused numerous investors to risk their money, including retirement savings, by investing in funds that were not profitable or were no longer open. Respondent used the money for his own purposes and, in some cases, he used new money to repay other earlier investors.
We are particularly concerned that Respondent's misrepresentations were made to so many investors and continued for more than two years after the Tsunami Lakeshore account was closed. Thus, we also consider in aggravation that fact that he did not engage in an isolated instance of misconduct; rather his actions reflect a pattern of misdeeds involving numerous victims over a lengthy time period. See In re Lewis, 138 Ill.2d 310, 562 N.E.2d 198 (1990); In re Smith, 168 Ill.2d 269, 659 N.E.2d 896 (1995).
We also take into account Respondent's failure to make prompt restitution to all of the investors he defrauded. In re Uhler II, 126 Ill.2d 532, 535 N.E.2d 825 (1989). The evidence showed that as of April 2008, he had not made restitution to ninety-one investors who were owed more than $11,000,000. Respondent provided no proof that he has made any repayment since that time.
Respondent's failure to fully participate in these proceedings further aggravates his misconduct. His failure to respond to the Complaint and participate in prehearing matters demonstrates his indifference to his own professional fate as well as disrespect for the disciplinary process. See In re Brody, 65 Ill.2d 152, 357 N.E.2d 498, 500 (1976) (an attorney's failure to cooperate in his or her own disciplinary proceeding demonstrates a want of professional responsibility and is a factor to be considered in aggravation for the purpose of determining an appropriate sanction). In addition, Respondent's inattention to his own proceedings is an indication that he is not fit to represent clients in a responsible and conscientious manner.
The Administrator suggested that the misconduct in this case warrants disbarment. We believe that suggestion is appropriate and adequately supported by precedent. In In re Bledsoe, 99 CH 96, M.R. 16973 (November 22, 2000) the attorney, who did not participate in his disciplinary proceedings, was disbarred for selling stock to acquaintances based upon false representations, converting funds from a family member, and entering into a prohibited business transaction with a client. In In re Lockhart, 07 CH 69, M.R. 22459 (Sept. 16, 2008) the attorney, in a default proceeding, was disbarred for embezzling money from a corporation he formed with a business partner. The Hearing Board, in an opinion approved by the Supreme Court, cited the well-established principle that an attorney can be disciplined for dishonest conduct even though
his conduct does not occur in the course of his representation of clients. See In re Imming, 131 Ill.2d 239, 545 N.E.2d 715, 722 (1989); In re Burnham, 07 CH 22, M.R. 14176 (Jan. 29, 1998).
In In re Gregory, 06 CH 17, M.R. 22102 (Jan. 23, 2008) the attorney engaged in a range of misconduct, including soliciting his clients for investments in a corporation without informing them of his interest in the corporation. Gregory did not participate in the proceedings which led to his disbarment. Finally, in In re Della Rose, 04 CH 2, M.R. 21635 (Sept. 18, 2007) the attorney defrauded his client and then used additional fraudulent means to mask and continue the misconduct. He did not participate in his disciplinary case, and was disbarred.
Disciplinary cases have noted that disbarment is "particularly warranted" where the fraud involved is intentional and "consists of a series of improper acts over an extended period of time." In re Feldman, 89 Ill.2d 7, 13, 431 N.E.2d 388, 390 (1982); In re Lewis, 138 Ill.2d 310, 562 N.E.2d 198 (1990). In the case before us, Respondent set up a fraudulent investment scheme and kept it going by issuing false documents which inaccurately reported the profitability of the investments. Based on the extreme nature of the misconduct in this case, we conclude that Respondent presents a risk to the public and therefore he should not be allowed to practice law. The aggravating circumstances, which are also very serious, further reinforce our conclusion that the most severe discipline is warranted.
Accordingly, we recommend that Respondent Anthony A. Demasi be disbarred.
Date Entered: September 29, 2009
|Lon M. Richey, Juliette N. Lilie, and Donald A. Pettis Sr.|