Acting in response to a lawsuit filed by the Commodity Futures Trading Commission, a San Francisco federal judge late Wednesday ordered the liquidation of First International Trading Corp. But an attorney for the San Francisco seller of gold and silver futures contracts said Thursday that FITC plans to appeal the ruling because it has filed for protection from creditors under federal bankruptcy laws.
The government has said that FITC, with offices in Irvine, Dallas and Houston, collected about $15 million from 2,500 investors in the last 18 months through illegal sales of deferred-delivery contracts for gold and silver.
U.S. District Judge Eugene Lynch also ordered FITC President Christopher Rubenstrunk to withdraw the company's bankruptcy petition by 3 p.m. today or face criminal contempt charges. Hours after Lynch placed FITC in temporary receivership on Feb. 27, the company, incorporated in Nevada, filed for protection under Chapter 11 of the U.S. Bankruptcy Code in a Las Vegas court.
In his ruling, Lynch said the bankruptcy action was a "sham" designed to stave off receivership and said there has been a "systematic attempt by FITC and its officers to conceal records and assets and to impede this court and its receiver in this action."
Rubenstrunk received checks totaling $964,273 between August and February, according to documents filed by the CFTC in U.S. District Court in San Francisco. The checks were drawn from investor funds "without any reasonable explanation or indication that they were appropriate," according to the court-appointed receiver, San Francisco attorney Frederick Wyle.
According to court records, FITC required investors to make a down payment for fixed quantities of precious metals to be delivered within five years at a predetermined price. Lynch ruled that these deferred-delivery contracts were illegal because they were not offered through a regulated commodity exchange. The ruling said that FITC also violated federal anti-fraud laws and misrepresented itself to the public as a registered commodities broker.
Lawrence Merryman, a Newport Beach attorney representing FITC, said: "We plan to ask the U.S. 9th Circuit Court of Appeals to prohibit Judge Lynch from ordering Rubenstrunk to dismiss the bankruptcy."
FITC filed for bankruptcy protection because the company "intends to pay everybody off," Merryman said in a phone interview Thursday. He said FITC officials believe that the company, which employed 250, has assets of $5.1 million and liabilities of $4.1 million. FITC has closed its offices and dismissed its employees.
"The whole thing is in a state of confusion," Merryman said, adding that conflicting orders are being issued by the three federal court judges involved in the case--two in San Francisco and one in Las Vegas.
One federal judge is handling a lawsuit filed by an FITC investor, while Lynch is handling the suit filed last month by the Commodity Futures Trading Commission. Meanwhile, U.S. Bankruptcy Judge Robert Clive Jones set a hearing on FITC's bankruptcy petition for April 2 in Las Vegas.