Commodity Futures Trading Commission v. Lake Shore Asset Management Ltd.

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 10-1666, 10-1915
COMMODITY FUTURES TRADING COMMISSION,
Plaintiff,
v.
LAKE SHORE ASSET MANAGEMENT LTD., et al.,
Defendants.
ANDORRA BANK AGRICOL RIEG, S.A. and
GAMAG BLACK & WHITE, LTD.,
Appellants,
v.
ROBB EVANS & ASSOCIATES, LLC,
Appellee.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 07 C 3598—Blanche M. Manning, Judge.
ARGUED OCTOBER 1, 2010—DECIDED MAY 11, 2011

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2 Nos. 10-1666, 10-1915
Before POSNER, KANNE, and SYKES, Circuit Judges.
POSNER, Circuit Judge. In 2007 and 2008 the Commodity
Futures Trading Commission sued Lake Shore Asset
Management and other operators of commodity trading
pools, all controlled by Philip J. Baker, for fraud and
related violations of the Commodity Exchange Act.
After proceedings described in our two previous
opinions, see 496 F.3d 769 (7th Cir. 2007), and 511 F.3d
762 (7th Cir. 2007), the district court entered a default
judgment against the remaining two defendants (which
we’ll refer to jointly as Lake Shore). Lake Shore’s con-
siderable remaining assets ($104 million—39 percent
of the amount Lake Shore owed the investors in the
pools), were placed in the control of a receiver, Robb
Evans & Associates, appointed by the district court.
The receiver asked the district judge to approve its
proposed allocation of the seized assets among the in-
vestors. The proposal excluded as untimely the claim
filed by an Andorran bank known as Andbanc. The
district judge rejected Andbanc’s request to be allowed
to file an untimely claim, and Andbanc appeals. We
have jurisdiction under 28 U.S.C. § 1291 because the
judge’s order completely disposed of Andbanc’s claim
and there would be no benefit to Andbanc from ap-
pealing after the receiver’s proposed allocation was
approved and executed. See St. Louis & San Francisco R.R.
v. Spiller, 274 U.S. 304, 314-16 (1927); SEC v. Enterprise
Trust Co., 559 F.3d 649, 651-52 (7th Cir. 2009); Callahan v.
Moneta Capital Corp., 415 F.3d 114, 120 (1st Cir. 2005);
SEC v. Hardy, 803 F.2d 1034, 1038 (9th Cir. 1986).

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Nos. 10-1666, 10-1915 3
Ten days later the judge approved the receiver’s pro-
posed allocation and at the same time denied the objec-
tion of another investor, GAMAG, which had an
allowed claim but placed a higher value on it than the
receiver had. GAMAG has appealed the denial of its
objection to the receiver’s valuation. Both orders chal-
lenged in these consolidated appeals were entered
without an evidentiary hearing, so we construe any
factual disputes in favor of the appellants.
Andorra is a minute principality in the Pyrenees (180
square miles, population less than 90,000), wedged be-
tween France and Spain (each country supplies one
of the two co-princes who are the nominal rulers of An-
dorra, today a parliamentary democracy). It is of
ancient lineage, having been created by Charlemagne as
a buffer against Moorish invasions of France—and more
to the point it’s a financial haven, like many other
tiny nations. Andbanc, one of Andorra’s five banks, is
privately owned, provides a variety of sophisticated
financial services, and has total assets of more than
€8 billion. It had invested some $7.5 million on its
own account (rather than on a customer’s account) in
Lake Shore’s commodity pool in 2006, the year before
Lake Shore collapsed. It says the receiver should have
allowed it a claim for $6.7 million (based on the receiver’s
method of calculating claims filed by Lake Shore’s credi-
tors). That would have resulted in its receiving
$2.6 million, because the assets of the commodity pool
were, as we said, sufficient to pay the creditors 39 cents
on the dollar.

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4 Nos. 10-1666, 10-1915
The bank, after making its investment in the com-
modity pool, had not received regular account state-
ments from Lake Shore, but instead would review its
account from time to time on Lake Shore’s website. The
website was taken down, however, in October 2007; and
Andbanc, alarmed, called Lake Shore and learned that
it was under investigation for fraud and that its assets
had been frozen. Analogizing to Andorran law, which
Andbanc strangely believed to be similar to U.S. law,
Andbanc concluded that the U.S. government would
distribute Lake Shore’s remaining assets to the
defrauded investors in due course and that Andbanc
need do nothing in the meantime to protect its entitle-
ment to a share of the assets.
So matters stood when, on March 10, 2009, more than
two years after Lake Shore’s collapse, the receiver sent a
notice to Lake Shore’s creditors, including Andbanc,
telling them they had to file a claim with the receiver
within 45 days or be excluded from the distribution of
the receivership’s assets. The name and address to
which the letter containing the notice was sent to
Andbanc (via Federal Express) were the correct name
and address but no employee of the bank was named as
an addressee, presumably because the bank’s name
was the only name on Andbanc’s account with Lake Shore.
In an affidavit submitted to the district court, signed
by Santiago Mora Torres, the bank’s chief investment
officer, Andbanc denied having received the receiver’s
letter. The FedEx “Customer Support Trace” states that
it was signed for by “C. Stamp” at the bank’s address, but

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Nos. 10-1666, 10-1915 5
the bank claims, plausibly enough, that no one by that
name is employed by it. The customer-trace document,
dated months later, states that no image of the signature
on the receipt for the FedEx delivery is “currently” avail-
able; and none has turned up since.
Signatures acknowledging receipt of deliveries by
FedEx often are unintelligible scribbles, so “C. Stamp”
may be an inaccurate transcription of the signature of
one of the bank’s employees. Or maybe “C. Stamp” is an
abbreviation for “Customer Stamp,” indicating that the
delivery was acknowledged by a stamp rather than
by a signature—though it seems odd that an English-
language abbreviation would be used in Andorra. We’ll
never know; and there is no evidence concerning
Andbanc’s procedures for internal delivery of the mail
it receives. All that is reasonably clear is that, if Andbanc
is telling the truth (as we must assume in the procedural
posture of the case), the receiver’s letter, whether or not
received by the bank, did not come to the attention of
any bank employee who would have recognized its
significance.
There had been no further communication between
the receiver and Andbanc when, in November 2009,
deciding to divest itself of its share of Lake Shore’s
frozen assets, Andbanc employees searched the Internet
for news about Lake Shore. They found the receiver’s
website, which had links captioned “Investor Notices” and
“Receiver Reports and Documents.” Andbanc doesn’t
deny having clicked on the links and read the notices,
but it contends that the deadline for submitting claims
wasn’t mentioned in any of them. But Andbanc was

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6 Nos. 10-1666, 10-1915
sufficiently concerned, upon learning of the receivership,
to email the receiver its Lake Shore account statement
and retain U.S. counsel. The receiver replied that
Andbanc would not receive any share of the frozen
assets unless it obtained the district judge’s permission
to file a late claim, as the deadline for filing claims had
expired seven months earlier. Andbanc tried to obtain
that permission but as we know failed.
The parties duel over the correct standard for deter-
mining whether Andbanc should have been allowed to
file a late claim. The receiver’s order said that late claim-
ants would be barred “unless they can demonstrate to
the [District] Court good cause for the delay, all rea-
sonable diligence in submitting the information at the
earliest possible date thereafter, and absence of any
prejudice to the receivership estate.” Yet, oddly, it is
Andbanc that thinks that’s the applicable standard and
the receiver that argues that “excusable neglect,” one of
the grounds for vacating a final judgment under Fed. R.
Civ. P. 60(b)(1), should apply instead. The oddity lies in
the fact that “good cause” implies justification rather
than excuse (negligence can be excused but not justi-
fied) and “any prejudice to the receivership estate” is a
higher bar than prejudice sufficient to make neglect
excusable. So the receiver’s original standard was more
favorable to it than the standard it is now urging, and
less favorable to Andbanc yet embraced by Andbanc.
It might seem that in abandoning a standard more
favorable to it than the one it is urging on us, the
receiver was disserving the interests of the other
claimants to the receivership estate and might be sued

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Nos. 10-1666, 10-1915 7
by them for breach of fiduciary duty. 28 U.S.C. § 959;
Federal Savings & Loan Ins. Corp. v. PSL Realty Co., 630
F.2d 515, 521 (7th Cir. 1980); cf. Fogel v. Zell, 221 F.3d 955,
966 (7th Cir. 2000). But the receiver can’t be criticized;
we’re about to see that the more lenient standard—
“excusable neglect,” rather than “good cause”—is clearly
the correct one.
“Excusable neglect” was said in Pioneer Investment
Services Co. v. Brunswick Associates Limited Partnership,
507 U.S. 380 (1993), to have the same meaning in bank-
ruptcy that it has in Rule 60(b)(1), which governs the
vacation of ordinary civil judgments. See also In re
O’Brien Environmental Energy, Inc., 188 F.3d 116, 124-25
(3d Cir. 1999). Given the similarity between an in-
solvency receivership and a bankruptcy proceeding, see
Old Colony Trust Co. v. Medfield & Medway Street Ry.,
102 N.E. 484, 487 (Mass. 1913); Leonard Levin Co. v. Star
Jewelry Co., 175 Atl. 651, 653 (R.I. 1934), and the
infrequency of the former relative to the latter now-
adays, it should mean the same thing in this case.
Pioneer describes “excusable neglect” as an “equitable”
standard, one that requires the court to take “account of
all relevant circumstances surrounding the party’s omis-
sion . . . includ[ing] . . . the danger of prejudice to the
debtor, the length of the delay and its potential impact
on judicial proceedings, the reason for the delay,
including whether it was within the reasonable control
of the movant, and whether the movant acted in good
faith.” 507 U.S. at 395. But invariably when a court an-
nounces an “all relevant circumstances” standard to

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8 Nos. 10-1666, 10-1915
govern some issue and then starts listing the circum-
stances, redundancy ensues; we think it a sufficient gloss
on “excusable neglect” that a judge asked to waive or
extend a deadline must evaluate the excuse offered by
the party seeking the waiver or extension and the conse-
quences to all persons affected by the granting or
denying of it. The stronger the excuse and the graver
the adverse consequences of rejecting it relative to the
adverse consequences to the opposing party if the
excuse is allowed, the more the balance leans toward
granting. See, e.g., Mommaerts v. Hartford Life & Accident
Ins. Co., 472 F.3d 967 (7th Cir. 2007). This is essentially
the approach the district judge took, and because “excus-
able neglect” is vague and the finality of judgments
important, appellate review of a judge’s denial of a
Rule 60(b) claim is deferential, United States v. Golden
Elevator, Inc., 27 F.3d 301, 303 (7th Cir. 1994); Utah ex rel.
Division of Forestry, Fire & State Lands v. United States,
528 F.3d 712, 722-23 (10th Cir. 2008), as is appellate
review of denial of the equivalent claim in either a bank-
ruptcy proceeding, Biesek v. Soo Line R.R., 440 F.3d 410,
412 (7th Cir. 2006); In re Marinez, 589 F.3d 772, 775-76
(5th Cir. 2009); In re Racing Services, Inc., 571 F.3d 729, 731-
32 (8th Cir. 2009), or a receivership proceeding. Callahan
v. Moneta Capital Corp., supra, 415 F.3d at 120; SEC v.
Hardy, supra, 803 F.2d at 1037.
The judge said that Andbanc’s failure to comply with
the 45-day deadline had been “flatly unreasonable and
can only be attributed to an utter lack of diligence given
what Mr. Mora . . . admits he knew in 2007 and Andbanc’s
failure to take any reasonable steps to act on that knowl-

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Nos. 10-1666, 10-1915 9
edge until late 2009.” The judge added that Mora’s “pur-
ported assumption that United States and Andorra sub-
stantive and procedural rules governing court pro-
ceedings are alike so he did not have to take any action
(such as retaining counsel in the United States to verify
his assumption) is equally mind boggling.” In short,
Andbanc did not have a good excuse, which is the first
part of the test.
As to the second—the relative consequences, to plaintiff
and defendant, of granting and of denying relief—the
judge correctly observed that the harm to Andbanc
would be considerable—the loss of $2.6 million. The
judge added: “Because Andbanc precipitated its present
pickle due to its own inaction, however, this factor does
not help its cause.” The judge was mistaken; she was
confusing the strength of the excuse with the con-
sequences of failing to allow it. But the mistake was not
serious enough to invalidate her ruling.
Andbanc’s loss would be gain to the other claimants, but
there is an important asymmetry: no one doubts that
Andbanc’s claim would have been allowed had it been
timely. The prejudice to the other claimants that is perti-
nent to an equitable determination is not the loss of a
windfall that would have resulted from their receiving
an increased share of Lake Shore’s assets solely because
an otherwise valid claim had been forfeited. Rather, as
the district judge recognized, it is the delay that those
claimants would have encountered, in receiving the
money due them, if the receiver had to recompute their
shares of the asset pool, which it would have to do

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10 Nos. 10-1666, 10-1915
because it had not created a reserve adequate to cover
Andbanc’s share. No money had yet been distributed,
but the proposed distribution order listed the amounts
that each approved claimant would receive; if those
amounts were reduced, some claimants would be
bound to squawk, further prolonging the receivership
proceeding.
The receiver might be thought to bear part of the blame
for the failure of notice and the resulting delay in
Andbanc’s submission of its claim because according to
Mora’s affidavit the receiver sought from the National
Futures Association, with which Andbanc was
registered, contact information about Andbanc before
sending the notice—and Andbanc is registered with
the association under Mora’s name. The receiver ought
to have realized, Andbanc argues, that a letter addressed
merely to the name of a company might not come to
the attention of the responsible employee and that if it
did not the company would lose millions of dollars. But
the receiver’s failure to address the notice to Mora was
not culpable even if the receiver did ask the futures
association for contact information (as apparently it
did, for Mora produced an email from the receiver that
says that the receiver got the address from the associa-
tion). The receiver couldn’t have known that Mora was
the responsible employee on the Lake Shore account
just because he was Andbanc’s listed representative in
the association’s files.
Andbanc perversely insists that the issue is not the
adequacy of the notice but the fact of nonreceipt. That

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Nos. 10-1666, 10-1915 11
a notice does not arrive does not signify a breach of the
duty of notice. The duty is to employ a method of notice
that is reasonably calculated to reach the intended recipi-
ent, and sometimes entirely proper notice fails to do so.
It’s apparent from FedEx’s customer-trace report that
FedEx was given the correct address, so if the letter was
not delivered the fault was either entirely FedEx’s or
mainly Andbanc’s (and certainly not the receiver’s) for
having failed to name a contact person on its account
with Lake Shore and to have adequate procedures
for sorting mail received by it. It should at least have
submitted evidence concerning its procedures for dis-
tributing its mail. Laouini v. CLM Freight Lines, Inc., 586
F.3d 473, 478-79 (7th Cir. 2009); In re Longardner & Associ-
ates, Inc., 855 F.2d 455, 459 (7th Cir. 1988); In re Williams,
185 B.R. 598, 600 (9th Cir. BAP 1995).
An obvious case in which failure of receipt is not a
failure of notice is where the recipient had given the
notice giver the wrong address. But that is almost this
case. By failing to list a person’s name on its Lake Shore
account statement (Andbanc accessed the statement on
Lake Shore’s website and probably expected all its com-
munications with Lake Shore to be electronic), Andbanc
increased the risk of nondelivery—not to Andbanc’s
headquarters but to the responsible employee within
Andbanc, namely Mora.
The issue of delivery, which preoccupies the parties, is
thus a red herring. Either FedEx delivered the receiver’s
letter to Andbanc, or it did not. All that matters is
whether the failure to include Mora’s name in the

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12 Nos. 10-1666, 10-1915
address of the FedEx package was a breach of the
receiver’s duty to notify potential claimants to Lake
Shore’s assets; the district judge was entitled to con-
clude that it was not.
Andbanc’s negligence went beyond the omission
of Mora’s name on the account statement. Its casual as-
sumption, when it learned that Lake Shore’s assets had
been frozen, that it need do nothing in order to recover
its share of the assets—an assumption based in part on
the fantastic belief, for an Andorran bank to entertain,
that Andorran and U.S. law coincide (the bank’s
Andorran lawyer must have known that Andorran law
is a compound of French, Spanish, Catalan, and even
ancient Roman law, A.H. Angelo, “Andorra: Introduction
to a Customary Legal System,” 14 Am. J. Legal Hist. 95
(1970))—is inexcusable. Andbanc is not the corner grocery
in which to buy cunillo, xai, or cocques; it is a sophisticated
financial enterprise and one would think that having
learned that millions of dollars that it had invested in a
commodity pool were frozen as a result of a criminal
investigation, it would designate one of its financial
officers to keep tabs on the matter.
Even if the prejudice to Andbanc of losing its entire
claim—solely because of untimeliness, as there was no
other objection to it—might exceed the inconvenience to
the other parties of what might be only a slight delay in
the receiver’s recomputation of the relative shares and
obtaining the judge’s approval of the revised distribu-
tion order resulting from that recomputation, the
balance is evened by the likelihood that the recomputa-

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Nos. 10-1666, 10-1915 13
tion would stir a hornet’s nest, the hornets being the
hundreds of other creditors whose claims would have to
be cut down to make room for Andbanc’s. So we cannot
say that the district judge “abused her discretion” (the
rude expression for an appellate court’s emphatic con-
viction that a trial judge’s ruling was erroneous) in
denying Andbanc’s motion to be allowed to file a late
claim.
A final twist is worth noting. After the district judge’s
decision approving the proposed allocation of the assets
of the receivership estate, the receiver distributed the
approved amounts to the other claimants but held back
a reserve large enough to cover Andbanc’s claim
should Andbanc prevail on appeal. This was done at
Andbanc’s request, to prevent its appeal from being
rendered moot by the dissolution of the estate. Were
that reserve now to be handed over to Andbanc, the
receiver would actually incur less expense than it would
by mailing checks to the hundreds of claimants whose
claims have been accepted and who therefore are
entitled under the district judge’s ruling to a pro rata
share in whatever assets have not yet been distributed.
Rarely, however, is a judgment that was correct on the
basis of the then existing facts when entered by the trial
court reversed on appeal because of events (other than
a change in law) that occurred after judgment, though a
case can become moot as a result of such events. In re
UAL Corp., 468 F.3d 456, 460 (7th Cir. 2006). Andbanc’s
procuring a reserve to protect its appeal after it lost in
the district court would be a perverse basis for reversing
that court. It would amount to pulling the rug out
from under the court.

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14 Nos. 10-1666, 10-1915
GAMAG’s quarrel with the district court, to which we
now turn, is unrelated to Andbanc’s. GAMAG filed a
timely claim for some $600,000. The receiver’s distribu-
tion order gave it the same 39 percent share of the
frozen assets as the other approved claimants got. But
GAMAG insists that it should get 100 percent because
it’s a creditor of Lake Shore’s commodity pools and the
other claimants (or most of them) are mere share-
holders; creditors are usually paid ahead of shareholders
in insolvency proceedings, whether the proceedings take
the form of bankruptcy, Bank of America National Trust &
Savings Ass’n v. 203 N. LaSalle Street Partnership, 526 U.S.
434, 441-42, 444-45 (1999); In re Wabash Valley Power Ass’n,
72 F.3d 1305, 1313 (7th Cir. 1995); In re Lett, 632
F.3d 1216, 1220 n. 6 (11th Cir. 2011), or of receivership.
Louisville Trust Co. v. Louisville, New Albany & Chicago
Ry., 174 U.S. 674, 683-84 (1899); Northern Pacific Ry. v. Boyd,
228 U.S. 482, 508 (1913); SEC v. Enterprise Trust Co., supra.,
559 F.3d at 653.
Lake Shore offered each investor in its commodity
pools a choice between the investor’s buying shares of
the pools and having his investment placed in a
separate “portfolio management account,” consisting of
a custodial account in the futures commission merchant
in which Lake Shore deposited the investors’ money.
GAMAG chose the second arrangement and claims
that having a portfolio management account entitled it
to withdraw its investment (the amount of the with-
drawal being computed from the current market value
of the investment) from the futures commission mer-
chant at will, whereas the investments of the shareholders

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Nos. 10-1666, 10-1915 15
were commingled and a procedure established for re-
demption of their shares only after “notice” and only on a
designated “Redemption Day.” But actually GAMAG and
the shareholders had essentially the same withdrawal
rights: each could redeem its investment each week on
Friday provided it gave notice Thursday. The only poten-
tially significant difference was that a “portfolio manage-
ment account” investment was to be held in a separate
account. That wasn’t done; GAMAG’s investment was
commingled with the investments of the shareholders.
Nevertheless the district judge rightly rejected
GAMAG’s claim to priority over the shareholder inves-
tors. GAMAG’s investment, like theirs, was not directed
by the investor, as GAMAG understood and agreed.
All investment decisions were made by Lake Shore, and
they were the same decisions for GAMAG as for the
shareholders. GAMAG’s expected gain (or loss) was
identical to that of the other investors because the
market value of its investment moved in tandem with
that of the shareholders’ investments, all the invest-
ments being treated as if pooled.
The priority that lenders enjoy in bankruptcy (and
likewise in receiverships) over owners is a function of the
difference in their relation to the enterprise. Lenders
bear less risk because they have the first claim on the
borrower’s assets in the event of insolvency, and they
pay for this by surrendering all upside risk to the bor-
rower’s owners (who in that way are compensated for
bearing more downside risk than the creditors). The
creditors’ priority in bankruptcy mirrors the contractual

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16 Nos. 10-1666, 10-1915
allocation of risk and reward between creditors and
shareholders. Thomas H. Jackson, “Bankruptcy, Non-
Bankruptcy Entitlements, and the Creditors’ Bargain,” 91
Yale L.J. 857, 871 (1982). GAMAG’s contract with Lake
Shore was not intended to give it priority over its co-
venturers. See In re Telegroup, Inc., 281 F.3d 133, 142-43 (3d
Cir. 2002). It had not agreed to accept a lower return on
its investment in exchange for priority in the distribution
of assets. See In re SeaQuest Diving, LP, 579 F.3d 411, 422-
23 (5th Cir. 2009). It thus had not been “subjected to
involuntary and uncompensated risk.” SEC v. Enterprise
Trust Co., supra, 559 F.3d at 652; compare In re
American Wagering, Inc., 493 F.3d 1067, 1073 (9th Cir.
2007). And its loss would have been the same without
the commingling, as it was just as easy for Lake Shore
to steal from GAMAG’s account as it was to steal from
the pool.
The two orders challenged in these appeals are
AFFIRMED.
5-11-11

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