Investor loses appeal of ruling in favor of futures association

A derivatives investor whose longtime association with a trader soured before the trader was barred from dealing in commodity futures lost his appeal of a ruling in favor of the entity that regulates those traders.

Dennis Troyer invested hundreds of thousands of dollars in financial derivatives through National Futures Association members and associates, including Thomas Heneghan, with whom he first invested in 2008 while Heneghan was an associate of Statewide FX Inc. While that company was investigated by the NFA and eventually withdrew its NFA membership, Heneghan moved to another company, then another, but Troyer continued to invest with him under the same terms. While the NFA had placed an “approval hold” on Heneghan in 2012, the hold was lifted after a few months.

In 2013, Heneghan was working as a registered associate of Portfolio Managers Inc. “Troyer began sending money to Heneghan personally in April 2013, allegedly to take advantage of trading firm employee discounts,” Judge Joel Flaum wrote. “Between April 2013 and April 2015, these back-channel investments written to Heneghan personally (and delivered to his home) totaled approximately $82,000. In contrast to the monthly account statements he received during his first investment period, Troyer neither received nor asked for any investment documentation during his second investment period.

“Again, NFA scrutiny followed Heneghan to his new role at PMI. On November 10, 2014 and September 8, 2015, the NFA’s Compliance Department initiated examinations of PMI,” Flaum continued. “Despite Troyer’s alleged substantial investment, no accounts were listed with PMI for either Troyer or Heneghan at that time. On December 21, 2015, the NFA issued a complaint against PMI, Heneghan, and others, alleging routine use of high-pressure sales tactics and materially misleading and deceptive statements during customer sales solicitations.

“Although Troyer was comfortable during his initial investment period not knowing every detail of his investments with Heneghan, his comfort waned toward the end of his second investment period. During the summer of 2015, Heneghan boasted to Troyer the account had increased to about $525,000. When Troyer directed Heneghan to cash out the fund and return the increased investment to him, ‘all hell broke loose,’” Flaum wrote.

Heneghan was permanently barred from NFA affiliation a short time later, after which Troyer sued several parties, but only NFA remains in the instant case. On Wednesday, the 7th Circuit Court of Appeals affirmed the Indiana Northern District Court’s grant of summary judgment for NFA in Dennis Troyer v. National Futures Association, 20-1422.

“Alleging Heneghan was ‘a cause of’ the ‘expulsion’ of Statewide, Troyer claims that the NFA was required to immediately terminate Heneghan’s membership as of July 28, 2011, the date of the Statewide settlement. Troyer thus contests the district court’s … position that Statewide’s agreement not to reapply represented a distinct sanction from expulsion, one that does not trigger Bylaw 301(a)(ii)(D),” Flaum wrote.

“Because Bylaw 301(a)(ii)(D) is triggered only by a suspension, expulsion, or order, Troyer’s claim that factual contents within the order accepting Statewide’s settlement offer almost certainly establish good cause is irrelevant … and therefore we see no reason to deviate from the district court’s logic,” the 7^th Circuit panel ruled.