CFTC aims to rebuff binary options marketers’ evidence request in fraud case

Maria Nikolova

Binary options marketers Zilmil, which have sent more than 60 million fraudulent emails, ask the Court to compel the CFTC to provide them with “complete responses” to dozens of interrogatories.

The scale of evidence has come into the focus of a binary options fraud case brought by the United States Commodity Futures Trading Commission (CFTC) in July last year. The case, captioned Commodity Futures Trading Commission v. Scharf et al (3:17-cv-00774), targets several binary options firms, including Citrades.com and AutoTradingBinary.com, as well as their affiliate marketers Zilmil and Zimil’s owner Michael Shah.

As FinanceFeeds reported earlier this month, the CFTC has objected to the requests for admissions and interrogatories made by Zilmil. For example, the CFTC has noted that identifying binary options trades is particularly challenging. The regulator says that it has not identified trades placed by autotrading systems sold or promoted by Zilmil. This is because such trades are placed on illegal, unregistered internet-based exchanges.

The CFTC is now seeking to rebuff a request by Zilmil for detailed responses to interrogatories. In a filing with the Florida Middle District Court on Wednesday, January 31, 2018, the regulator asks the Court to deny the defendants’ request.

The CFTC notes that every interrogatory propounded by the Zilmil Defendants demands that the regulator provide narrative responses describing or identifying “all facts” relating to the CFTC’s claims. According to the CFTC, such all-encompassing interrogatories are prohibited by the Court’s Middle District Discovery handbook and applicable case law as “overbroad and oppressive.” The handbook requires that interrogatories be “reasonably particularized,” and that interrogatories “designed to force an exhaustive or oppressive catalogue of information” are generally improper.

The Zilmil Defendants may not require the CFTC to provide an “exhaustive catalogue” of facts which form the bases for the CFTC’s claims. Indeed, it would be impracticable if not impossible to do so given the expansive scope of the Zilmil Defendants’ misconduct, the CFTC argues.

In lieu of providing “all facts,” the CFTC responded to the Zilmil Defendants’ interrogatories by identifying documents relevant to the subject matter of each interrogatory. For example, Interrogatory No. 4 requests:

“With respect to your allegations on Page 16 of the SRO Motion that “Zilmil has sold numerous binary options autotrading systems through affiliate networks,” identify and describe each such affiliate network and members thereof, the specific transactions through each affiliate network, and all persons with knowledge and all documents reflecting each such transaction”.

In response, the CFTC directed the Zilmil Defendants to documents from four affiliate networks: ClickBank (217 documents), ClickSure (4 documents), ClickBooth (134 documents), and ClickBetter (91 documents).

Nevertheless, Zilmil wants a detailed, narrative response by the CFTC.

It is now up to the Court to decide on the matter.

Let’s recall that, according to the allegations, the Zilmil Defendants acted as third-party ‘affiliate marketers’ who drove internet traffic to the Citrades Defendants by fraudulently soliciting customers to sign up for or purchase binary options autotrading systems. They instructed the customers to send money to the Citrades Defendants and made gross revenues of more than $4 million from sales of its autotrading systems and another $500,000 in commissions from the Citrades Defendants.

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