Full opinion text
MEMORANDUM OPINION AND ORDER ON PENDING MOTIONS KANE, Senior District Judge. The Federal Deposit Insurance Corporation (“FDIC”), as Receiver for Jefferson Bank & Trust (“JBT”), pursues this action against Refco Group, Ltd., Refco, Inc., Refco Capital Corporation, Refco Securities, Inc. (collectively “Refco”), and Kimberley Goodman. FDIC seeks damages, including punitive damages, alleging they arise from Defendants’ conduct and that of certain of their employees or agents during the period December 1989 through December 1991 and resulted in substantial losses to and the ultimate failure of JBT. In what remains of the Third Amended Complaint, FDIC asserts the following claims for relief: 1. First, for violation of § 18-17-104(3) of the Colorado Organized Crime Control Act (“COCCA”) against all Defendants; 2. Second, for violation of section 18-17-104(4) of COCCA against all Defendants; 3. Third, for civil conspiracy against all Defendants; 4. Fourth, for violation of §§ 11-51-125(3) and 11-51-604(4) of the Colorado Securities Act against Refeo; 5. Ninth, for conspiring to commit or aiding and abetting false representation against all Defendants; 6. Tenth, for relief for false representations against all Defendants; 7. Eleventh, for relief for conspiring to commit or aiding and abetting fraudulent concealment against all Defendants; 8. Twelfth, for fraudulent concealment against all Defendants; 9. Thirteenth, for conspiring to commit and aiding and abetting breach of fiduciary duty against all Defendants; 10. Fourteenth, for breach of fiduciary duty against all Defendants; 11. Fifteenth, for conspiring to commit or aiding and abetting conversion against all Defendants; 12. Sixteenth, for conversion against all Defendants; and 13. Seventeenth, for breach of contract against all Defendants except Goodman. In its answer, Refeo denies the allegations in the Third Amended Complaint and asserts thirteen affirmative defenses. No counsel has formally entered an appearance on behalf of Goodman and she has not filed an answer to the Third Amended Complaint. Jurisdiction is based on the diversity of citizenship of the parties, pursuant to 28 U.S.C. § 1332. In its answer to the Third Amended Complaint, Refeo denies FDIC’s averments that personal jurisdiction over Refeo and Goodman is proper pursuant to Colorado Revised Statutes § 13-l-124(l)(a) and (b) because Refeo has transacted business and committed one or more tortious acts within the State of Colorado. . I. Pending Motions. Upon removal of the case to this court, it was assigned to Judge Lewis T. Babcock, who entered a pretrial order on December 17, 1996. In January 1997, Judge Babcock recused himself and reassigned the case to me, vacating a hearing on pending motions and a six week jury trial. I address the pending motions in the following order: I. Refco’s Motion for Summary Judgment to Dismiss Each of Plaintiffs Claims 1, 2, 3, 4, 9, 10, 12, 13, 14, 15, 16 and 17 and the Parties’ cross-motions for partial summary judgment on Seventeenth Claim for Relief; II. FDIC’s Motion for Partial Summary Judgment on Affirmative Defenses 5 through 10 and 13 through 16; III. Refeo’s Cross-Motion to Bifurcate the Alter-ego Claims from the Main Action; IV. Refco’s Motion for Rule 11 Sanctions; and V. FDIC’s Motion for Leave to Call Steven Seelig as a Fact Witness. II. Factual Background. A. Background of Steven Wymer and Denman & Company. In approximately 1985, Steven Wymer formed SDW Asset Management (“SDW’) to conduct an investment advisory business. That company was succeeded by Denman & Company (“Denman”). In 1986, Denman registered as an investment advisor with the Securities and Exchange Commission (“SEC”). Denman’s successor, Institutional Treasury Management (“ITM”) registered with the SEC in December 1990, and by December 1991 had approximately eighty active clients and managed assets totalling nearly $1.2 billion. Wymer was the president and sole stockholder of Denman and ITM and was principally responsible for all activities of those companies. Denman, and later ITM, provided investment advisory services to institutional customers, principally municipal entities and financial institutions, by investing customers’ funds in mid-range United States Treasury securities and related investment products. Denman’s promotional materials and sales presentations described a trading approach which promised to surpass the yield a customer might otherwise receive by passively investing in the same Treasury securities. Customers were told Denman never took custody of customer funds or securities, third party custodial services were used to ensure proper controls and safekeeping of customer assets, and they could achieve the highest current return available while investing in securities backed by the credit of the United States Government or short-term money market instruments. Customers would be provided with monthly reports or “performance reviews” listing assets in the account and all transactions that had occurred during the reporting period. In reality, Wymer was engaged in an ongoing scheme to defraud. In 1986, he began diverting and misappropriating customer assets to cover trading losses in other customers’ accounts. To conceal this activity and encourage customers to place additional funds under its management, Denman employees prepared false “performance reviews” and trade confirmations which seemingly confirmed the enhanced returns Wymer reported. B. Denman’s Involvement with Refco. In 1987, Kimberley Goodman, a registered representative of Refco Securities, Inc. (“RSI”), solicited Denman’s brokerage business. RSI accepted Wymer’s conditions for doing business, namely that RSI would extend credit lines for Wymer and his customers and allow Wymer to trade options on United States Treasuries in those accounts; all communications would be between RSI and Wymer; RSI could not have direct contact with Denman clients; and Wymer would be allowed to share in the premiums earned on options transactions in his customers’ accounts at RSI. When RSI began opening accounts for Denman customers, Wymer provided it with copies of his form ADV, Den-man promotional materials, and copies of management agreements for specific customers. On August 13, 1987, Wymer also forwarded to RSI an “investment advisor’s letter” stating that Denman acted for a number of customers “with full discretionary power to invest on their behalf, including the execution of orders to buy and sell securities.” This claim contradicted the information contained in Denman’s Form ADV and promotional materials. On September 1, 1987, RSI prepared a new “investment advisor letter” for Wymer’s signature, purportedly applying to all current and future Denman customer accounts, which stated that Denman had obtained all necessary agreements and authorization from its customer to issue instructions for transactions in securities. RSI did not attempt to verify the new authority Wymer claimed to have, or to reconsider the representations in that letter in light of conflicting information in Denman’s promotional materials and Form ADV. By August 1987, RSI allowed Wymer to claim whatever portion of his customers’ option premiums he desired without revealing either the amount or percentage to his customers. In October 1987, RSI requested that Wymer obtain written authorization from his customers for payment of these “fees”. Contrary to the authorization form, however, the fees were not paid from customer accounts but from funds held in an RSI account at Refeo Capital Corporation (“RCC”). Also during this period, Wymer opened cash management accounts at RCC for several Denman customers, designating each as a subaccount under the SDW Management master account. RCC employees did not verify Wymer’s authority to open accounts on behalf of his customers. Unbeknownst to JBT, such a cash management subaccount was opened on its behalf in March 1987. As with all other subaccounts, monthly statements and confirmations for the JBT subac-count were mailed only to Denman. At Wymer’s instance, RSI employees Goodman, Douglas Blair (a vice president of Refeo Group, Ltd. and registered representative of RSI who ran an RSI trading desk which conducted over-the-counter options transactions and broker cash transactions in U.S. government securities), and Robert Dantone (an assistant trader on the RSI over-the-counter options desk and a registered representative assigned to certain house accounts) transferred funds between these RCC cash management accounts, thus commingling Denman customer funds. By about May 1988, Blair feared that if Wymer’s portion of the option proceeds continued to increase, Denman customers might no longer be interested in these types of transactions and his desk might lose that business. He discussed Wymer’s escalating fees with Phillip Bennett, the President of RCC, and other unusual activity in the Den-man-management accounts. At Bennet’s instruction, Blair suspended trading in the Wymer-managed accounts, met with RSI’s outside counsel to discuss documenting the Denman accounts, and on May 18, 1988 prepared a memorandum “to the credit file” reflecting these concerns and noting that trading with Denman had been suspended until satisfactory documentation was received. Neither Bennet nor Blair, however, brought their concerns to the attention of any Denman customer. In April 1988, Jeffrey Schwartz, RSI’s compliance director, also concerned, about the size of Wymer’s fees and Denman customers’ lack of awareness thereof, sent a letter to all Denman customers requesting each to confirm that it wanted the fee arrangement to continue. The letter enclosed a copy of an Authorization to Pay Funds from Securities Account each had signed authorizing RSI to pay Advisory Management Fees directly from the customer account to the Investment Advisor (Wymer), and requested each customer to resign the authorization. It did not mention the amount of fees Wymer had and was claiming, at that time as much as 80% of the premium on a single transaction. RSI did not receive re-signed authorizations from several Denman customers, including JBT. Nevertheless, there is no evidence that RSI ever paid these customers those portions of the premiums previously “allocated” to Wymer. In May 1988, Blair visited Denman’s office in California to ascertain that the internal controls, relationships and documentation were adequate and appropriate. Blair discussed the issue of Wymer’s fees and the changes he wanted made to Denman’s form management account. He did not review Denman’s internal controls because his visit was cut short; he believed an SEC examiner was present at Denman’s office doing an examination, and left the SEC examiner “to dig into it.” In fact, no SEC employee was present in Denman’s offices in May 1988. In a letter to Wymer dated May 27, 1988, Blair requested a copy of Denman’s current ADV and indicated RSI would require modifications to Denman’s form management agreement. He said RSI would prepare the proposed changes to the standard contract. RSI then received the document dated April 29, 1988, which stated Denman only managed customer securities portfolios on a non-dis-eretionary basis and did» not have custody over its customers’ funds and securities. RSI’s counsel prepared modifications to Denman’s form management agreement to govern Denman’s relationship with its customers and the management accounts. The re-written agreement empowered Denman to act with full power and authority for the customer, thus directly contradicting the representations in its promotional materials and Form ADV. The new agreement also provided that if a customer wanted confirmations, monthly statements or other reports for its account to be sent directly to Denman, rather than to the customer itself, the customer was to execute a form to that effect. Although no such form was received by RSI from any Denman customer, it continued to send statements and confirmations only to Denman. C. JBT’s Involvement with Denman and Refco. On or about March 17, 1988, pursuant to a written agreement between JBT and Den-man, JBT retained Wymer for one year to act as its investment adviser over a portfolio valued at up to $3 million (the “First Wymer Agreement”). The First Wymer Agreement provided that Wymer could not make purchases or sales for JBT without its advance approval and that JBT’s monies and securities were to be held in an account at a broker/dealer or custodial bank selected by JBT to which JBT would have sole title. Almost immediately after this agreement was executed and contrary to its terms, JBT permitted Wymer to make purchases and sales without its advance approval or involvement. Maurice Grotjohn, who was President of JBT from June 1988 through December 1991 and one of its directors and shareholders, was comfortable with this arrangement. JBT also permitted Wymer to select the broker/dealers through which trades would be made. On December 7, 1989, JBT and Denman signed another management agreement (the “Second Wymer Agreement”). Its provisions defining the responsibilities of Wymer and JBT were virtually identical to those in the First Wymer Agreement, and were similarly ignored. Wymer made purchases and sales for JBT’s account without its advance approval and selected brokers through which trades were made. JBT unquestioningly followed Wymer’s instructions as to where to send its funds for investment. On December 11, 1989, at the behest of Wymer, Grotjohn signed and returned to Wymer an RSI account application and RSI customer agreement to open an account at RSI for JBT. However, Wymer did not deliver JBT’s account application to RSI until February, 1990, the first time JBT had an account at RSI. Neither Grotjohn nor anyone else at JBT communicated with anyone at RSI in connection with this transaction. On December 13, 1989, pursuant to Wymer’s direction to transfer funds under the Second Wymer Agreement, JBT wire-transferred $13,035,294.06 to Citibank for credit to RCC for “REFCO/ac — 38523114 ... reference 3755.” Kristin Caldeira, an accountant and employee of JBT, prepared the wire transfer form at the direction of Wymer. No one from JBT contacted anyone at Refco or Citibank to verify if these account numbers were JBT’s account. In fact RCC account number 3755 indeed belonged to another Wymer customer, the City of Indio, California. JBT did not have an account at RCC until January 1990. On December 21, 1989, Wymer advised JBT by fax that $3,055,132.21 would be wired back to it that morning and JBT received a wire transfer in that amount from RCC. No one at JBT objected to Wymer’s initiation of this transfer of funds, nor inquired of any person at Refco as to how Wymer had been able to direct the withdrawal of monies from JBT’s account. In January 1990, JBT received a “performance review” from Denman for the prior month, to which were annexed documents purporting to be trade confirmations regarding purchases and sales made by Wymer on JBT’s behalf. These phony confirmations were printed up by Wymer and Angela Chilles, Denman/ITM office manager and fixed income trader, and reflected the JBT account number to be 4444 rather than the number 385 23114 or 3755 as previously reported by Wymer. No one at JBT inquired about the discrepancies in the account number. On January 3, 1990, at Wymer’s direction, JBT wire-transferred $1,900,149.45 to Citibank for the benefit of RCC, for the account which in fact belonged to the City of Indio. JBT made a similar wire transfer for $5,035,-848.66 at Wymer’s instance on January 16, 1990. In early February 1990, JBT received Denman’s performance review for the previous months reflecting that JBT’s account number at RSI was 4444 (rather than the Indio number in the wire transfers) and over $19 million had been wired to that account by JBT in the preceding 49 days. On January 17, 1990, Wymer requested RCC to open an account for JBT, which he funded by wire transfer. On February 9, 1990, JBT signed an account opening document for the RCC account identifying Grotjohn and Caldeira as persons who were “authorized to make investments and withdrawals from” that account. In February 1990, Wymer opened a new account at RSI (no. 46806759) using the documentation JBT had signed in December 1989. RSI and RCC followed Wymer’s instructions regarding JBT transactions. On February 22,1990, JBT received a wire transfer of $165,784.51 from RCC, which had been directed by Wymer. No one at JBT asked RCC who had initiated the transfer. On February 26, 1990, again at Wymer’s direction, JBT wire-transferred $9,261.05 to Citibank for “Refco/AC — 385 23114 reference 3755” which was the City of Indio’s account. In March 1990, RSI sent and JBT received a statement of JBT’s account for the month ending February 28, 1990. At about the same time, it received a performance review from Denman for the same period, together with purported copies of trade confirmations from RSI reflecting JBT’s purported purchases and sales of securities. The performance review was irreconcilable with the monthly statement for the same period. In addition to other differences, the RSI statement disclosed that, as of February 1990, JBT’s account was a “new account” with a “zero” opening balance and a “zero” closing balance, whereas the statement showed that JBT’s account had been opened before February and its portfolio of securities and funds amounted to over $16.5 million. No one at JBT reviewed the RSI statement or attempted to reconcile it with the performance review. Accordingly, no one at JBT noticed the discrepancies or spoke to anyone at Refco about them. Nor did anyone at JBT inquire why it had not received statements and trade confirmations directly from RSI for the previous- two months. When Grotjohn receiyed the performance reviews he glanced at them and filed them. He did not examine the monthly statements but sent them to Caldeira believing she would reconcile them against JBT’s records. Caldeira did not in fact attempt to do so. She put them into a file with other statements from other brokers. Grotjohn testified if someone at JBT had reviewed and reconciled the RSI statements, he would have been led to doubt the accuracy of Wymer’s performance reviews and, had he realized Denman was reporting inaccurate information, he would have told Wymer to liquidate JBT’s account immediately. In the ensuing months, JBT continued to follow Wymer’s instructions to wire-transfer its money to the Indio account number and a different account number which Wymer told Caldeira was JBT’s new account number. No one at JBT attempted to verify this information although no steps had been taken to close JBT’s old account nor to open a new one. At the end of March 1990, Denman sent a monthly performance review to JBT which showed its portfolio amounted to over $16.5 million. Also at the end of March, RSI sent JBT a statement of this account which showed a “zero” balance at the end of the month. Again, no one at JBT compared the two or discovered the discrepancies between them. On April 4, 1990, Grotjohn had a breakfast meeting with Kimberley Goodman, who at that time was an RSI account representative. This was the only conversation he ever had with anyone at Refco (apart from possibly speaking with Goodman to set up this meeting) before December 11, 1991, when Wymer’s fraud was discovered. Grotjohn testified they discussed the size of the account but was not sure if they had discussed when the account was opened, account activity between December 1989 and March 1990, or whether an exact dollar figure was put on the size of the account. There is no evidence Grotjohn and Goodman discussed JBT’s RCC account at this meeting. In the ensuing months, no one from JBT reviewed or reconciled Denman monthly performance reviews with the RSI monthly statements for April, May, June, or July 1990. Wymer continued to tell JBT to wire money and JBT complied. JBT wired funds to five different accounts, including accounts at Manufacturers Hanover Bank which Wymer said were in JBT’s name. No one at JBT questioned the various account numbers and destinations. Although JBT did not receive any statement directly from RSI after the RSI statement for July 1990, no one at JBT noticed their absence or contacted RSI to inquire about their absence. In preparation for an audit examination by the Federal Reserve Bank, Caldeira wrote to Wymer in September 1990 on behalf of JBT and asked him to confirm that “Refco Securities, Inc.” had custody of $25 million in securities in safekeeping for JBT. Both Caldeira and Grotjohn testified they did not know the full names of any of the Refco entities and that they believed they dealt with only one entity named “Refco.” Wymer responded “All assets held at Manufacturers Hanover Trust through the auspices of REFCO Government Securities for the sole benefit of JEFFERSON BANK & TRUST----” Although Caldeira believed JBT’s securities were being held at RSI, she did not investigate how they purportedly had come into the possession of Manufacturers Hanover Trust. Nor did she ever send an audit confirmation to Manufacturers to verify Wymer’s statement or inquire why JBT securities were being held under the “auspices of REFCO Government Securities” as distinguished from RSI. D. Alleged Involvement of Refco Employees in the Fraud. According to Wymer, certain RSI and RCC employees assisted him by following his instructions to receive funds and securities into and send funds and securities out of his customer accounts at RCC and RSI, and to commingle assets in Wymer customer accounts. He testified he took RSI employees Goodman, Blair and Dantone into his confidence in 1988. Wymer maintains he told Goodman he was trading in Denman customer accounts for his own benefit, that he was not reporting all trading activity or losses to his customers, and that he diverted funds from one customer account to another to cover those losses. He also says he told Goodman he was reporting fictitious transactions to enhance Den-man’s performance and creating false confirmations to conceal these fraudulent practices. He claims Goodman assisted him by completing and signing at his direction false audit confirmation reports and letters regarding the amount of cash and securities on hand at RSI, and on one occasion sending false account statements to a different customer. According to Wymer, Goodman told him in late 1988 or early 1989 that she had decided to leave RSI’s employ. Wymer testified he induced her to remain at RSI by promising to pay and paying her a clandestine salary of $100,000, giving her two Jaguar automobiles, a Mercedes-Benz and expensive jewelry, and paying for some of her vacations. He claims he did not tell anyone at RSI or any other Refco entity he had taken Goodman into his confidence and that no one at Refc.o knew this was the case. FDIC asserts Goodman assisted Wymer in defrauding JBT by signing and returning two audit confirmations falsely setting forth its account balance. She did this at the direction of Wymer, who supplied her with the amounts to be confirmed or reported. One of the two confirmations Goodman allegedly signed was addressed to Wymer in his California office and asked him, rather than any Refco entity, to confirm the status of JBT’s funds in Wymer’s hands. Goodman was not employed in RSI’s accounting department and had no authority to sign audit confirmations. Only persons employed in RSI’s accounting department were authorized to sign such confirmations. There is no evidence, nor does FDIC claim, that anyone at Refco knew about any of these alleged acts. Wymer testified he also took Doug Blair into his confidence after RSI inadvertently sent a confirmation to a Denman customer, and Blair told him the customer had called concerning the confirmation. Wymer told Blair he did not report all transactions to his customers and advised him to ensure the slippage of sending confirmations directly to them, rather than to Denman, did not recur. Wymer maintains he had a similar conversation with Dantone in late 1988 or early 1989, when Dantone asked him how he should respond to inquiries from a Denman customer concerning an RSI statement it inadvertently received. According to Wymer, neither RSI nor RCC employees questioned his instructions, or refused to effect any transaction he directed. These included “loss cover” and “markup” transactions. Loss cover transactions entailed selling a security from a customer’s account at RSI at market price. To complete the sale, Wymer would deliver into that account securities owned by a different customer against payment of an inflated price. Thus, the account from which the securities originated received more for the securities than they were sold for that same day at Refco. Mark-up transactions involved purchasing securities in a customer account at RSI at market price. Wymer directed the RSI/RCC trading desk to deliver those securities at an inflated price to another customer’s account at a third-party institution. The “mark-up” or price differential would be paid to Wymer or diverted to another customer account. According to Wymer, RSI and RCC repeatedly allowed him improperly to transfer funds or securities from Denman customer accounts with the participation of Blair, Dan-tone, Goodman and RCC employees. Wymer was not listed as an authorized person on the- RCC account application, which stated that Grotjohn and Caldeira were the only ones authorized to make investments and withdrawals from that account. It is FDIC’s position that, due to the participation of Ref-co employees in Wymer’s schemes, JBT had no way of knowing before 1991 that Wymer was diverting funds with the assistance of RCC/RSI, which did not mail statements and confirmations to it. Wymer also testified Blair and Dantone assisted him in commingling customer funds. According to Wymer, he did not offer to or ever pay anything to either Blair or Dantone for their silence, nor did he tell them about Goodman’s involvement with his activities. By January 18, 1991, at Wymer’s direction, JBT had wired a total of $32,472,039.82 net to accounts Wymer selected. On or about that date, JBT for the first time requested RSI to confirm it held securities in that account for JBT. Goodman purportedly signed such a confirmation on or about January 18, 1991. On or about November 7, 1991, she also purportedly signed a confirmation that JBT had addressed and sent to Wymer at his office in Irvine, California, not to RSI. E. Collapse of the Fraudulent Scheme. In September, 1991, Blair informed Wymer that the SEC had requested from RSI documents relating to the account of City of Marshalltown, one of Denman’s customers. According to Wymer, Blair knew Wymer had not been reporting all transactions in the Marshalltown account and that documents the SEC had obtained from Denman would not correspond to account statements in RSI’s/RCC’s possession. Wymer testified that, during telephone conversations and a visit to California, he and Blair discussed the possibility of creating false RSI/RCC documents to submit to the SEC. In November 1991, after JBT had placed $44 million under Wymer’s control and in order to demonstrate its liquidity to federal bank examiners, it directed Wymer to liquidate its entire portfolio and to wire the proceeds to JBT. On November 25, 1991, on Wymer’s instructions, JBT wire-transferred $44,927,031.25 to JBT in Lakewood from JBT’s RCC account, ie., the total sum Wymer had placed in that account. Promptly after retrieving this money, JBT returned it to Wymer, who reinvested it through Shear-son Lehman. On December 9, 1991, the SEC initiated a civil action against Wymer and ITM, alleging they had engaged in securities fraud with respect to their managed accounts. On December 10, 1991, Wymer’s associate, Steen Ronlov, informed Grotjohn that Wymer had resigned and the SEC “was in.” Grotjohn immediately instructed Shearson to liquidate JBT’s holdings. Less than two hours before the SEC froze Wymer’s assets on December 11, 1991, JBT received a wire transfer of $44,593,230.02 from Shearson. Shortly thereafter, Wymer was arrested. On September 29, 1992, Wymer entered into a plea agreement with the United States Attorney’s Office for the Central District of California. He agreed to waive his right to an indictment by a grand jury; to plead guilty to charges of one count of racketeering in violation of 18 U.S.C. §§ 1962 and 1963, three counts of securities fraud in violation of 15 U.S.C. §§ 78j(b), 78ff and 17 C.F.R. § 240.10b-5, three counts of mail fraud in violation of 18 U.S.C. § 1341, one count of bank fraud in violation of 18 U.S.C. § 1344 (arising out of his fraud on JBT), one count of obstructing justice in violation of 18 U.S.C. § 1344, and one count of obstructing justice in violation of 18 U.S.C. § 1505; and to provide a factual basis for such guilty pleas. As part of the plea agreement, within a year of his sentencing the government would move to reduce his sentence depending in part upon his cooperation and his former customers’ recovery of their losses. On February 2, 1993, JBT, represented by Grotjohn, entered an “Agreement of Accord and Satisfaction and Covenant Not to Sue” with Wymer, agreeing not to sue him or his family or collect any monies from them. III. Standards for Summary Judgment. Under Federal Rule of Civil Procedure 56(c), summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. IV. Refeo’s Motion for Summary Judgment to Dismiss Each of Plaintiff’s Claims 1, 2, 3, Jh 9, 10, 12, 13, U, 15, 16 and 17, and Cross-motions for Partial Summary Judgment on Claim 17. Refeo moves for summary judgment on the remaining claims for relief in the Third Amended Complaint. I also address below the cross-motions for partial summary judgment on the seventeenth claim for breach of contract. Refeo seeks summary judgment on the grounds that JBT’s conduct caused the damages which it allegedly sustained; New York Law governs the instant dispute; FDIC cannot sustain its Colorado Securities Claim; Refeo did not violate COCCA; and FDIC cannot prove any factual basis for its common law claims. Both sides seek partial summary judgment on the breach of contract claim. A. Proximate Cause. Proximate cause is a question of fact except in “the clearest of cases.” Lyons v. Nasby, 770 P.2d 1250, 1257 (Colo.1989). An act is the proximate cause of an injury if the act was a “substantial contributing cause” in bringing about the injury. Rupert v. Clayton Brokerage Co., 737 P.2d 1106, 1112 (Colo.1987). A “substantial factor” is defined as conduct “ ‘of sufficient significance in producing the harm as to lead reasonable persons to regard it as a cause and to attach responsibility.’ ” Berg v. United States, 806 F.2d 978, 981 (10th Cir.1986) (quoting Sharp v. Kaiser Found. Health Plan, 710 P.2d 1153, 1155 (Colo.App.1985), aff'd, 741 P.2d 714 (Colo.1987)). If a defendant’s conduct is “a substantial contributing cause of the injury, it is irrelevant to the causation analysis whether other factors ... also contributed to the injury.” Rupert, 737 P.2d at 1112; see Berg, 806 F.2d at 982 (noting “[t]here can be several proximate causes of the same injury”). Refco argues JBT acted unreasonably in failing to detect the fraud and thus caused the damages it allegedly sustained by its own conduct. FDIC responds that Refco, through its own conduct and as co-conspirator in Wymer’s scheme, caused the injury. Suffice it to say that this is not the clearest of cases. Refco deemphasizes its relationship with Wymer and stresses the relationship between JBT and Wymer, while FDIC deemphasizes JBT’s relationship with Wymer and focuses on Refco’s four-year relationship with him. In so doing, both sides ignore substantial evidence in the record. Wymer’s conduct was indisputably one proximate cause of JBT’s injury. However, the evidence establishes genuine issues of material fact concerning Refco’s assertion that JBT acted unreasonably in failing to detect the fraud, and was a substantial contributing cause of the injury. Similar genuine factual issues exist as to FDIC’s allegations that Refco, through its own conduct and as co-conspirator in Wymer’s scheme, was a contributing cause of the injury. Summary judgment on the issue of proximate cause is not warranted. B. Choice of Law. Refco argues New York law governs the instant dispute pursuant to a choice of law provision in the RSI customer agreement Grotjohn signed on behalf of JBT, and RSI approved by opening an account for JBT. The first, second and fourth claims for relief under Colorado statutes must fail and the third claim for relief must be dismissed, Ref-co asserts, because no such causes exist under New York law. FDIC submits Colorado law applies to all claims because the RSI customer agreement was never approved by RSI and is thus unenforceable. Both parties assert the choice of law issue involves the interpretation of a written contract which can be decided as a matter of law. Luna v. City & County of Denver, 718 F.Supp. 854, 857 (D.Colo.1989). JBT submitted account opening documents to RSI in December 1989, including an Account Application and a separate Customer Agreement. There are two spaces on the Account Application for signatures. The first is for a “Customer Signature,” and was signed by Maurice Grotjohn as President of JBT on December 11, 1989. (Mem. Supp. Refco’s Mot. Summ. J., Ex. 95.) The second is for an “Account Executive” which was signed by Goodman, and the third is for an “Approved Refco Securities, Inc.” which was signed by Richard Hanley. The application is silent as to choice of law. On December 11, 1989, also on behalf of JBT, Grotjohn signed an RSI Customer Agreement which pertinently states: In consideration of Refco, Securities, Inc. (“Refco”) acting as your broker and accepting one or more accounts for transactions in securities ... it is agreed with respect to all accounts, whether upon margin or otherwise, which you now have or may at any future time have with Refco, including from time to time closed and then reopened, as follows: 11. NEW YORK LAW TO GOVERN This Agreement shall be deemed to have been made in the State of New York and shall be construed, and the rights and liabilities of the parties determined, in accordance with the laws of the State of New York. 18. ACCEPTANCE. This Agreement shall not be deemed to be accepted by Refco or become a binding contract between you and Refco until approved by Refco. (Mem. Supp. Refeo’s Mot. Summ. J., Ex. 96.) Although Grotjohn signed the Customer Agreement, it contains no specific provision or space for the signature of a representative of RSI and was not in' fact signed by such representative. FDIC argues that, in the absence of a signature by an RSI representative, the Customer Agreement was not deemed accepted nor did it become a binding contract between JBT and RSI, and the choice of law provision contained therein is therefore unenforceable. The crisp issue here is whether the Customer Agreement by its own terms allowed RSI to approve it simply by opening JBT’s trading account, or whether it required RSI to indicate its approval directly on the Agreement itself. “ ‘It is established that a signature is not always necessary to create a binding agreement.’ ” City and County of Denver v. Adolph Coors Co., 813 F.Supp. 1476, 1480 (D.Colo.1993) (quoting Presidential Motor Yacht Corp. v. President Marine, Ltd., 753 F.Supp. 7, 13 (D.D.C.1990)). It is also true that “ ‘the purpose of a signature is to demonstrate “mutuality of assent” which could as well be shown by the conduct of the parties.’ ” Id. (further citations omitted). In arguing that the only way RSI could approve the Customer Agreement was by signing it, FDIC relies on Franklin Interiors v. Wall of Fame Management Co., 510 Pa. 597, 511 A.2d 761 (1986). There however, the formation of a valid contract “was expressly conditioned upon- the written approval of Appellee.” Id. 511 A.2d at 762 (emphasis added). Moreover, “[t]he Appellee, through its officers, “never entered its signature on the document to evidence approval as required by its terms.” Id. Similarly, the other cases cited by FDIC each concerned a contract which specifically set forth the only manner in which it could be approved or contained other elements, e.g. spaces for the signatures of persons who failed to sign. RSI’s Compliance Manual required, a principal to review, initial, and date all new account forms, including the Customer Agreement. FDIC claims the format of the Customer Agreement shows RSI intended to indicate its approval by referring to fields at the top of the Agreement which called for internal RSI codes for “Office Number,” “Account Number,” and the numerical reference to the registered representative assigned to the account. RSI responds its Compliance Manual and the internal use fields refer to “back office” functions which occur only after the customer’s account has been opened and an account number as signed. FDIC also cites the preamble of the Customer Agreement, which provides: “In consideration of Refco Securities, Inc. (“Refco”) acting as your broker and accepting one or more accounts for transactions in securities ... it is agreed ... as follows ____” This language, FDIC argues, suggests RSI had already agreed to act as JBT’s broker and open a securities account for it, and had done so pursuant to the separate Account Application. Paragraph 18 provides the Agreement would not be “deemed accepted ... until approved by Refco.” If RSI could have indicated its approval simply by opening an account, FDIC maintains, then paragraph 18, which. contemplates some further affirmative conduct by RSI, would be superfluous. See F.W. Woolworth Co. v. Petersen, 78 F.2d 47, 48 (10th Cir.1935). Refco maintains RSI’s practice of not signing the Agreement is the norm within the securities industry, citing Lester v. Basner, 676 F.Supp. 481 (S.D.N.Y.1987). There, the broker/dealer, Bear Stems & Co. did not sign the customer agreement. The court enforced the agreement, noting that the “plaintiffs securities transactions had been processed by Bear Sterns in reliance upon the Customer’s Agreement....” Id. at 483. As FDIC points out, however, there is no indication the agreement in that case, or those in the other cases cited, contained a condition precedent equivalent to that in paragraph 18 of the Customer Agreement at issue, i.e., that the agreement was not binding unless approved by the broker. In interpreting the contract I look to the Customer Agreement itself, and note that RSI created the condition precedent to its enforcement. The agreement was not extensively negotiated by two parties on equal footing. Rather, it was unilaterally scripted by RSI, and is closer to an adhesion contract. To the extent the Agreement is ambiguous regarding the manner in which it was to be approved, I construe the ambiguity against its drafter and hold RSI to the express language it chose. See Stegall v. Little Johnson Assocs., Ltd., 996 F.2d 1043, 1049 (10th Cir.1993). I find, absent any indication of RSI’s approval on the agreement, there was no approval and the choice of law provision is not binding. Because the choice of law provision is not binding, adopting Restatement principles I conclude Colorado law applies. See Trierweiler v. Crootton & Trench Holding Corp., 90 F.3d 1523, 1536-37 (10th Cir.1996). C. Colorado Securities Act. FDIC’s fourth claim is for securities fraud pursuant to Colorado Revised Statutes § 11-51-125(3) and § 11-51-606(4), under which it seeks to recover trading losses incurred when RSI sold securities to JBT on February 26, 1990, May 18, 1990 and November 18, 1991. (1) Primary Liability. Refco argues FDIC cannot prove any RSI employee violated the Colorado Securities Act. a. Damages. The Colorado Securities Act provides a buyer “may sue to recover the consideration paid for the security, together with interest at the statutory rate from the date of payment, costs and reasonable attorney fees, less the amount of any income received on the security, upon the tender of the security____” Colo.Rev.Stat. §§ 11-51-604(4) and 11 — 51—125—(3) (1987). Refco asserts it is undisputed that each of the 22 U.S. Treasury securities Wymer purchased ostensibly for JBT were sold by Wymer for JBT, and the sales proceeds JBT received were greater than the consideration it paid, ie., in each instance JBT profited. Based on these facts, it argues JBT suffered no damages. FDIC seeks to recover $147,426 for trading losses incurred on three specific securities transactions when Refco sold securities to JBT on February 26, 1990, May 18, 1990 and November 18, 1991. In this regard it cites Exhibit 24, the Ferguson Affidavit and relies on that part of § 11-51-604(4) which states: “Damages are deemed to be the amount that would be recoverable upon a tender, less the value of the security when the buyer disposed of it, and interest at the statutory rate from the date of disposition” (emphasis added). Based on the plain meaning of the statute, FDIC damages are calculated according to the value of the security at the time it was sold. Accordingly, even though JBT may have sold the securities for an amount greater than the consideration it paid, it did not recover the full value of the securities and should be awarded the difference between “the amount that would be recoverable upon a tender” and the “value of the security” when it was sold. Although the November 18, 1991 transaction was not specifically mentioned in the Third Amended Complaint, it states that the sales of securities by Refco to JBT “included but are not limited to the following....” (Third Am. Compl. § 80 at 44.) In light of Refco’s notice of this allegation, the omission of specific reference to the November 18, 1991 transaction is not fatal. The other two transactions total $108,988. Refco asserts the Ferguson Affidavit is insufficient to create any issue of fact regarding the February 26, 1990 transaction and maintains the purchase confirmations (Exhs. 39, 41) show on that date JBT bought $12 million in U.S. Treasury Securities at a cost of $12,-017,413.67. On that same day, JBT sold $7 million of the securities and received $7,010,-157.98, and on February 28, 1990 sold the remainder for $5,015,037.98. Thus, JBT netted a profit of $7,782.29. With respect to the May 18, 1990 transaction, Refco states JBT purchased securities for $5,029,977.80, which was delivered to First Interstate Bank-Denver and credited to JBT’s account. On this transaction too, it argues, the Ferguson Affidavit is wrong. I find FDIC has set forth specific facts through the Ferguson Affidavit showing a genuine issue exists for trial as to whether JBT suffered damages with respect to the three specified sales. This issue must therefore await trial. b. False or misleading statement of material fact “in connection with” the sale of securities. To establish liability under Colorado Revised Statutes § 11-51-604(4) (1996). FDIC must show RSI made a misrepresentation, omission or misleading statement of material fact in connection with the offer or sale of securities to JBT. See Sears v. American Entertainment Group, Inc., No. 94 C 0165, 1995 WL 23112, at * 4 (N.D.Ill. Jan. 19, 1995) (interpreting § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and the Colorado Securities Act § 11-51-604); Rosenthal v. Dean Witter Reynolds, Inc., 908 P.2d 1095, 1102 (Colo.1995) (construing Colo. Rev.Stat. § 11-51-125(2), the predecessor statutory section to § 11-51-604(4)). To establish a claim under § 11-51-125(3), FDIC must prove RSI offered or sold government securities to JBT “by means of any untrue statement of a material fact or any omission to state a material fact____” Refco claims FDIC cannot satisfy the “in connection with” requirement because it cannot prove any Refco entity made a misrepresentation or misleading statement in connection with JBT’s purchase of government securities. See Arst v. Stifel, Nicolaus & Co., 86 F.3d 973, 977 (10th Cir.1996) (“[s]ince [defendants’ allegedly deceptive conduct could not have had an impact on [plaintifFs] decision to sell his shares, [defendants’ conduct was not ‘in connection with’ the purchase or sale of a security § 10(b)”); Sears, 1995 WL 23112, at * 4 (“a plaintiff must show a causal connection between his decision to buy or sell a security and the defendant’s fraudulent conduct”). Refco maintains there is no evidence any Refco entity gave investment advice or made investment recommendations to JBT, nor that a JBT employee or officer contacted anyone at Refco concerning a sale of securities to JBT. Rather, it asserts, RSI executed the sales of securities to JBT as instructed by Wymer and no JBT representative, other than Wymer, dealt with RSI regarding sales of securities to JBT. Moreover, Refco maintains it sent accurate monthly statements relating to sales of securities effected in JBT’s RSI account directly to JBT or to JBT, care of Denman. In Sheldon Co. Profit Sharing Plan & Trust v. Smith, 828 F.Supp. 1262 (1993), plaintiffs sued two broker/dealers for losses resulting from a theft of their funds and other fraudulent acts of their investment adviser, Smith. The claims hinged on the brokers’ “alleged failure to know their customers, and to abide by the known terms and limitations of the Investment Management Agreement.” Id. at 1270. The court found plaintiffs had transferred to Smith full authority to make investment decisions, that the broker/dealers fulfilled their duty by providing plaintiffs with accurate confirmation slips and monthly statements to Smith, there was no special relationship of trust between plaintiffs and the broker/dealers who had not advised them on investments nor recommended they hire the particular investment advisor. Id. at 1270-71. It further found there was no direct contact between plaintiffs and the broker/dealers nor proof of any actionable misrepresentations or omissions. Similarly here, Refco asserts, JBT of its own accord entrusted the management of its funds to Denman, Refco was not party to JBT’s management agreement with Denman, nor did it have supervisory authority over him. It maintains it fulfilled its duty by providing JBT and/or Denman accurate trade confirmations and account statements regarding the sales of securities to JBT. With regard to FDIC’s claim that Goodman confirmed Wymer’s representations regarding JBT’s account balance and provided JBT’s auditors with audit responses falsely confirming securities belonging to JBT were being held by RSI, and did not disclose to Grotjohn that Wymer was involved in a fraudulent scheme, Refco argues such statements, if made, were not “in connection with” RSI’s sale of government securities to JBT. FDIC maintains Refco too narrowly construes the antifraud provisions of the securities laws, citing United Int’l Holdings v. The Wharf (Holdings) Ltd., 946 F.Supp. 861, 868-69 (D'.Colo.1996), denying summary judgment on a claim for securities fraud under federal and Colorado state law on the grounds that fraud need not go to the nature or value of the security to satisfy the “in connection with” requirement. See also Perez-Rubio v. Wyckoff, 718 F.Supp. 217, 236 (S.D.N.Y.1989) (“in connection with” requirement satisfied where accomplishment of the alleged fraudulent scheme is directly related to the trading process); and Alley v. Miramon, 614 F.2d 1372, 1378 n. 11 (5th Cir.1980) (“in connection with” requirement flexibly applied to require a nexus between the defendant’s fraud and the plaintiff’s sale of securities). At the time JBT opened its account, FDIC asserts RSI concealed, inter alia, the fact that Wymer had been engaged in “unusual activity” and “non-standard practices” in Denman-managed accounts at RSI, and failed to inform JBT that for eight months RSI had knowingly prepared false trade tickets and confirmations to conceal Wymer’s option premium splits. It further notes RSI does not deny Goodman made false representations dining her April 1990 meeting with Grotjohn and on audit confirmations returned to JBT’s auditors and federal bank examiners. In Arst the Tenth Circuit determined the alleged fraudulent nondisclosures were made after the sale of securities and therefore were not in connection with the purchase or sale of securities. 86 F.3d at 977. Even assuming Goodman’s misrepresentations were made after JBT engaged in securities transactions, FDIC asserts, this does not negate the fact that RSI made previous misstatements and omissions which induced JBT to enter into specific securities transactions. FDIC distinguishes Sheldon because there was no evidence those defendants had or should have had reason to believe the investment advisor was involved in misdeeds. 828 F.Supp. at 1270. It likens its claim to the facts of In re Catanella & E.F. Hutton & Co., 583 F.Supp. 1388 (E.D.Pa.1984) where the defendant brokerage firm failed to disclose to new customers that its registered representative had been found liable in a civil proceeding for intentionally mishandling customer accounts, improper trading practices and breaching a variety of fiduciary duties. Hutton’s failure to disclose the prior litigation “touched” all subsequent securities transactions because, had plaintiffs known of the previous fraud, they would not have chosen to deal with the representative. Id. at 1409. Refco distinguishes Catanella because Hutton held a series of seminars for relatively unsophisticated investors designed to “package and sell Cantanella as expert and untarnished in his brokerage experience.” Id. at 1410. Because Hutton made partial disclosure about Cantanella’s prior experiences, it was obligated to disclose his conviction for securities fraud. In the present case, Refco asserts, there is no allegation it gave any investment advice to JBT, nor that any Refco employee had any communication with anyone at JBT concerning the sale of securities to JBT. Rather, FDIC admits Wymer was the sole JBT representative with whom RSI dealt regarding purchases and sales of securities for JBT’s account. The parties’ attempts to distinguish the facts of the cases each other cites reflects that any finding 'concerning the “in connection with” requirement is fact specific. In Richardson v. MacArthur, the Tenth Circuit declined to limit liability under federal securities law § 10(b) or Rule 10b-5 to the “garden variety of securities fraud involving deceit as to the actual value of securities bought or sold.” 451 F.2d 85, 40 (10th Cir. 1971). Rather, it recognized such a cause of action where the defendant refused to sign promised stock over to plaintiff on grounds the defendant had paid off plaintiffs loan. The court noted, “Rule 10b-5 is a remedial measure of far greater breadth than merely prohibiting misrepresentations and nondis-closures concerning stock prices. No attempt is made in 10b-5 to specify what forms of deception are prohibited; rather, all fraudulent schemes in connection with the purchase and sale of securities are prohibited.” Id. See also United Intn’l Holdings, Inc., 946 F.Supp. at 869. Similarly, the Colorado Securities Act does not delineate what forms of deception are considered to be “in connection with” the purchase and sale of securities. As was the case in United International Holdings, this dispute essentially concerns the purchase and sale of securities. Again, Refco deem-phasizes its own relationship with Wymer and accentuates that between Wymer and JBT, while FDIC deemphasizes JBT’s relationship with Wymer and focuses on Refco’s relationship with him. Given the Tenth Circuit’s broad interpretation of the words “in connection with” and the fact specific determinations of the issue in the case law, factual issues preclude summary judgment regarding the “in connection with” requirement. c. Unjustifiable reliance. Under the Colorado Securities Act, a seller of securities cannot be held hable to the buyer if the buyer had knowledge of the alleged untruth or omission. See Zobrist v. Coal-X, Inc., 708 F.2d 1511, 1517 (10th Cir.1983) (finding that at minimum a plaintiff may not reasonably or justifiably rely on a misrepresentation which is palpably false). Moreover, “[¡Justifiable reliance is not a theory of contributory negligence; rather, it is a limitation on a rule 10b-5 action which insures that there is a causal connection between the misrepresentation and the harm.” Id. The relevant factors to be considered and balanced in determining whether reliance is justifiable are: (1) the sophistication and expertise of the plaintiff in financial and securities matters; (2) the existence of long standing business or personal relationships; (3) access to the relevant information; (4) the existence of a fiduciary relationship; (5) the concealment of the fraud; (6) the opportunity to detect the fraud; (7) whether the plaintiff initiated the stock transaction or sought to expedite the transaction; (8) the generality or specificity of the misrepresentations. Id. at 1516. Assuming, arguendo, RSI made an untrue statement or actionable omission in connection with the sale of securities to JBT, Refco asserts as a matter of law, JBT knew, or in the exercise of reasonable care should have known, of such untruth or omissions. It contends the inconsistencies between RSI’s February through July 1990 monthly statements and Denman’s performance reviews and the representations of Wymer and Goodman preclude a finding of justifiable reliance on JBT’s part. As previously discussed in relation to proximate causation, whether JBT acted unreasonably by not detecting Wymer’s fraudulent scheme and in relying on any misrepresentations or omissions relating to the scheme, involves complex factual considerations inappropriate for resolution on summary judgment. (2) Secondary Liability. FDIC alleges RSI is liable under Colorado Revised Statutes § 11—51— 604(5)(b) as a “controlling person” of its employee Goodman, who allegedly violated §§ 11-51-604(4) or 11-51-125(3). Refco asserts, even if RSI were considered a “controlling person” of Goodman, the secondary liability claim would have to be dismissed because FDIC cannot establish that Goodman committed a primary violation. As discussed above, genuine disputed issues of material fact thwart summary judgment on the question of whether Goodman committed a primary violation of the Colorado Securities Act. Summary judgment on the issue of secondary liability is therefore also precluded. In a footnote, Refco requests reconsideration of Judge Babcock’s decision that respon-deat superior liability applies to claims brought under the Colorado Securities Act. See FDIC v. First Interstate Bank of Denver, 937 F.Supp. 1461, 1473 (D.Colo.1996). Under the law of the ease doctrine, I regard Judge Babcock’s determination of the issue as binding because Refco makes no showing of controlling contradictory authority nor that the ruling was clearly erroneous. See Major v. Benton, 647 F.2d 110, 112 (10th Cir.1981). D. Colorado Organized Crime Control Act (“COCCA”). FDIC’s first claim is under COCCA section 104(3), which states: It is unlawful for any person employed by or associated with, any enterprise to knowingly conduct or participate, directly or indirectly, in such enterprise through a pattern of racketeering activity---- Colo.Rev.Stat. § 18-17-104(3) (1997). Its second claim is under COCCA section 104(4), which makes it “unlawful for any person to conspire or endeavor to violate any of the provisions of subsection (1), (2), or (3) of this section.” Colo.Rev.Stat. § 18-17-104(4) (1997). (1) Primary COCCA Violations. COCCA, Colorado Revised Statutes § 18-17-104(3) (1997), is modelled on the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c). To state a primary violation of COCCA section 104(3), a plaintiff is required to prove the defendant (1) through the commission of two or more predicate acts (2) which constitute a pattern (3) of racketeering activity (4) directly or indirectly conducted or participated in (5) an enterprise and (6) the plaintiff was injured in its business or property by reason of such conduct. See FDIC v. First Interstate Bank, 937 F.Supp. 1461, 1471-72 (D.Colo.1996) (holding the difference between COCCA and its parallel federal provision 18 U.S.C. § 1962(c) to be insignificant). a. Direct or Indirect Conduct or Participation. It is uncontroverted that Wymer, through Denman, operated a Ponzi scheme by soliciting and entering into investment management agreements with his customers, taking control of their assets, misappropriating or converting such assets to his own use, and issuing false performance reviews and other phony documents to hide the scheme and create an appearance of profitability for his customers. Certain RSI employees are claimed to have assisted Wymer. Even if such activities occurred, Refco argues, controlling case authority establishes it did not violate COCCA § 18-17-104(3) because it did not play a role in directing the affairs of a COCCA enterprise. In Reves v. Ernst & Young, 507 U.S. 170, 177, 113 S.Ct. 1163, 1169, 122 L.Ed.2d 525 (1993), the issue was the meaning of the phrase “to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs” in 18 U.S.C. § 1962(e). The Court concluded “as both a noun and a verb in this subsection ‘conduct’ requires an element of direction.” Id. at 178, 113 S.Ct. at 1169-70. “Participate,” the Court said, required some part in that direction. Id. at 179, 113 S.Ct. at 1170. Thus, “‘to participate, directly or indirectly, in the conduct of such enterprise’s affairs,’ one must have some part in directing those affairs.” Id. The phrase “directly or indirectly” made it clear that RICO did not require significant control over or within an enterprise, but only some part in directing the enterprise’s affairs. The Reves Court concluded liability did not lie under § 1962(c) unless one has “participated in the operation or management of the enterprise itself.” Id. at 183, 113 S.Ct. at 1172. It adopted the “operation or management” test, limiting RICO liability to those “who participate in the operation or management of an enterprise through a pattern of racketeering activity.” Id. at 183-84, 113 S.Ct. at 1172-73. It concluded the plaintiffs had not satisfied the “operation and management” test despite the fact that the defendant accounting firm, hired to perform an audit of a cooperative’s records, had reviewed a series of completed transactions and certified the records fairly portrayed the cooperative’s financial status as of a date three to four months preceding the meetings at which it presented its reports. The accounting firm failed to tell the cooperative’s board it was insolvent if one of its assets was given its fair market value and not valued based on the cooperative’s investment therein. This failure on the part of the accounting firm did not give rise to liability under § 1962(e) because it did not amount to participation in the operation or management of the cooperative. Id. at 186,113 S.Ct. at 1173-74. Refco urges Reves and its progeny have held persons and entities who knowingly and fraudulently provide services that promote, perpetuate or conceal an illegal scheme being conducted by or through an illegal enterprise cannot, on the basis of such acts, be deemed to have played a role in directing the affairs of the enterprise or to have participated in its management or operation. Fraudulent conduct co