Kenneth D. Tolliver Tolliver Law Firm 10 Nertb 27th Street Suite 310, Billings, MT 59101 (406) 256-9600 FILED J. Michael Ozier JAN 1 2 2012Attorney at Law

PATRICK E. DUFFY CLERK10 North 27th Street, Suite 310 BY_~~~_oeputy ClerkBillings, MT 59101 (406) 281-8464

Attorneys for Plaintiff, Krohne Fund, LP

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MONTANA

BILLINGS DIVISION

KROHNE FUND, LP, ) Case No. W·\2·04· t3L<a·~~ )

Plaintiff, ) Judge ru~ c..BWL.L. )

v. ) COMPLAINT )

STUART M. SIMONSEN, and ) )

KAPIDYIA CAPITAL ) PARTNERS, LLC, )

) Defendants. )

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Jurisdiction and Venue

1. Plaintiff, Krohne Fund, LP (hereinafter "Krohne"), is a

California limited partnership with its principal place of business located at

5405 Pacifica Avenue, La Jolla, California 92037.

2. Defendant Stuart M. Simonsen (hereinafter "Simonsen") is an

inves1ment manager, among other businesses, and is a resident of and doing

business in Billings, Montana. He resides at 865 Paintbrush Place, Billings,

Montana 59106.

3. Defendant Kapidyia Capital Partners, LLC (hereinafter

"Kapidyia") is doing business in Billings, Montana, from its principal place

of business at 1643 Lewis Avenue, Suite 6, Billings, Montana 59102. It is an

inves1ment fmn and an associate member of the National Futures

Association, a trade association for futures market traders, brokers, dealers

and inves1ment advisors.

4. The amount of damages suffered and claimed by Krohne herein,

via the federal and state law claims asserted below, are equal to or greater

than $75,000; hence, federal jurisdiction is established based both on

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diversity and on the federal statutory violations alleged below. Further, since

both Defendants reside at Billings, Montana, venue is proper in this Court.

Allegations of Fact

5. Simonsen developed a "black box" investment program or

protocol for trading in commodities markets. A "black box" is essentially a

computer program which algorithmically directs purchases and sales, long or

short, of fmancial instruments based on a rigid framework of parameters. A

black box is generally founded on a number of assumptions which have been

market tested, and its level of investment risk is limited by algorithms such as

"stop losses". The general advantage of a black box is that it invests with an

exactly predictable and programmed methodology that is constant and

unchangeable; hence, risk is managed in an absolutely consistent way until

such time as its algorithms are changed.

6. Through an employment or other business relationship,

Simonsen markets his black box and manages commodities investments

through it via Kapidyia. Kapidyia's Principle is one JoAnne L. Beringer

who, on information and belief, is a licensed investment advisor.

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7. Axel Krohne (hereinafter referred to interchangeably with

"Krohne"), the Manager of Plaintiff Krohne and a resident of California,

learned about Simonsen and his black box through a friend in the summer of

2011. At that point, Simonsen was calling the black box Optimus. Krohne

and Simonsen were introduced via e-mail on August 5,2011. Two days later

Anthony Birbilis, a futures trader and a business associate of Simonsen,

provided a nlarketing presentation of the black box trading algorithm to

Krohne. Krohne was able to download Optimus and it included a feature

which purported to track Optimus' performance with all funds invested since

2004. Events Krohne experienced much later, after investing, caused Krohne

to question the veracity of these historic performance results. After the

presentation and the downloading ofOptimus, Krohne's interest in Optimus

was so strong that the next day he made an appointment to visit Simonsen in

Billings.

8. Simonsen met Krohne at the Billings Logan Airport on August

9,2011, and took Krohne to Simonsen's residence where Simonsen talked

about the record of success of the Optimus software. He took Krohne

through what he represented as an account statement of an Optimus investor

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showing an account growth of eighteen million dollars, up to twenty million

from a starting value of two million dollars, all accomplished during October,

2008. Krohne was impressed by the Optimus program's record of success,

and he was reassured by Simonsen of the fact that his money would stay

strictly in the program to be invested within preset algorithmic parameters

and, therefore, would not be subject to human whim. Further, Simonsen and

Krohne discussed certain risk management parameters Krohne would require

to enter Optimus.

9. On August 15,2011, Krohne signed the Managed Account

Agreement (hereinafter "agreemenf') offered by Kapidyia. Exhibit 1

attached. The agreement provided Kapidyia with discretionary authority over

the account - ie. to buy and sell securities - but Appendix A of the agreement

limited investments to the "Optimus SLR account with a 30% risk budget of

$2,400,000."

10. On August 18,2011, Krohne wired $2,056,543 to a futures

account at the R.J. O'Brien brokerage which he had set up specifically to

trade in Optimus. On September 1, 2011, Krohne received his first monthly

statement from Kapidyia showing a profit of $242,699, generated in less than

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two weeks' time. He was also required to pay Kapidyia $66,540:

approximately $48,000 as a management fees for the quarter closing at the

end of September and the rest as a "performance fee." As a result of this

immediate success, Krohne wired an additional $500,000 into the account on

September 3,2011, with the intent to ramp the notional value of the account

to ten million dollars. On September 8, he wired an additional 1.4 million

dollars to the account.

11. Kapidyia received compensation from investors using Optimus

via quarterly management fees of .5% of the account's notional value.

Notional value differs from actual value. It represents the hypothetical

maximum amount of futures that could be purchased on margin with all of

the funds in the account - e.g., if an account had an actual cash value of $1

million and the margin requirement was twenty percent, the account's

notional value would be $5 million. On October 3, 2011, the notional value

ofKrohne's account was fifteen million dollars and thereon, Kapidyia took a

quarterly fee of $75,000.

12. Krohne was able to visually access the program on his desktop

computer and thus could monitor activities, profits and losses in his account,

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whenever he chose. On September 29, 2011, he noted an alarmingly large

Loss ($657,627) in the account. When Krohne asked Simonsen about the

losses via e-mail, Simonsen called them "extremely rare" and offered that he

was "extremely sorry it had to happen to you so soon after you started."

13. During the fITst half of October, 2011, Krohne's anxiety about

the losses plagued him. Consequently, in late-October and the beginning of

November, with the Optimus software still available and its historical

activities visible on his desktop, Krohne conducted his own "backtest" of the

performance ofhis account within all Optimus parameters. He could only

verify a loss of a little over $220,000 by simulating the Optimus trades. He

queried Simonsen and Birbilis as to the startlingly lower losses in his backtest

simulation (about 113 less than his actual account losses). Neither could

explain the differences relative to the Optimus program. On November 30,

2011, fed up with the lack of any explanation as to how the actual results in

his account had so underperformed the Optimus results, Krohne withdrew his

funds from trading in Optimus.

14. As of the date of filing of this Complaint, neither Simonsen nor

any of his associates has provided an explanation even suggesting that the

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Optimus program did or could have violated its programmed algorithmic

instructions. Krohne, however, has perfonned additional back testing. For

example: (a) a backtest for October 31, 2011, showed that Krohne somehow

did the opposite ofwhat Optimus told it to do; and (b) a backtest of Optimus

trades for November 17, 2011, showed a theoretical $110,250 gain for

Krohne under the Optimus instructions, while Krohne actually lost $522,375

according to Kapidyia statements. Krohne's total losses in Optimus were

$1.8 million, including management fees paid.

The Claims

COUNT I: FRAUD AND DECEPTION, FEDERAL SECURITIES LAWS

15. Plaintiff re-alleges as if fully restated herewith the allegations

contained in Paragraphs 1 through 14 above.

16. Defendant Kapidyia, its Principal Beringer and Simonsen were

investment advisors under federal and Montana statutes. By entering into the

agreement with Krohne at Exhibit 1 and representing therein that Krohne's

account would be managed in accordance with the programmed instructions

resident in Optimus, Kapidyia had a duty to perfonn its investment

management function in accordance with the agreement. Similarly,

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Simonsen made representations to Krohne regarding the algorithms within

the Optimus program, both as to their proven record of profitable trading and

as to their risk parameters; hence, he had a duty to trade in the Krohne

account only in accordance with Optimus programmed instructions. Finally,

by manipulating the historical records in Optimus, Simonsen over­

represented the quality of Optimus' historical results.

17. At no time relevant herein was it possible for Optimus to

arbitrarily depart from its programming without the programming being

changed or being manually overridden. Similarly, at no time relevant herein

did Krohne authorize the Defendants to trade outside the Optimus program.

Simonsen and/or Klapidyia caused Krohne's account to enter into trading

transactions outside Optimus, and in so doing, along with the acts described

in Paragraph 16 above, committed fraudulent and/or deceptive acts while

serving as an investment advisor to Krohne, which violate 15 U.S.C. 80b-6

(Section 206 of the Investment Advisors' Act of 1940) and the Securities Act

of 1933. These actions directly and/or consequently caused millions of

dollars in losses to Plaintiff Krohne.

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COUNT II - BREACH OF WRITTEN CONTRACT

18. Plaintiff re-alleges the allegations contained in Paragraphs 1

through 14 above as if fully restated herewith.

19. Kapidyia entered into a written contract with Krohne to manage

its commodity investments pursuant to Optimus' instructions. It charged

Krohne fees to manage and perform the investments in accordance with the

agreement. Kapidyia's failure to perform in accordance with the agreement

resulted in direct and circumstantial losses to Krohne.

COUNT ill - PROMISSORY ESTOPPEL

20. Plaintiffre-alleges the contents ofParagraphs 1 through 14

above as if fully restated herewith.

21. Simonsen made oral representations to Krohne, including formal

marketing presentations, with respect to the past performance of Optimus and

as to risk limitations if the Optimus program were the sole source of

investment instructions. Because Simonsen was the developer of Optimus,

Krohne reasonably relied on Simonsen's representations. Thereafter,

Simonsen did not cause Krohne's account resources to be invested solely by

Optimus, and as a result Krohne suffered $1.8 million in losses while he

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should have made a $2.4 million profit with Optimus trades only.

COUNT IV - FRAUD, CONSTRUCTIVE FRAUD

22. Plaintiff re-alleges as if fully restated herewith the allegations

contained in Paragraphs 1 through 21 above.

23. Simonsen, through oral representations and formal

presentations, and Kapidyia, through its agreement, made specific

representations about Optimus, including that Krohne's account would be

traded only on its instructions and about its past results for investors.

Simonsen knew these representations were false or maliciously disregarded

their truth or falsity, knowing they placed Krohne in peril of losses in any

subsequent account. Simonsen and/or Kapidyia later acted in complete

disregard of them by trading the Krohne account outside of Optimus,

demonstrating that they had no intention of performing the prior promise to

submit Krohne's account to Optimus trading only. The then current and

knowingly inflated representations of the past performance of Optimus and

the representation that the Krohne account would be limited to trades inside

Optimus' programmed instructions were material to Krohne' s decision to

invest through Optimus.

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24. Krohne believed the above representations and fully expected

them to guide the management ofhis account. Simonsen and Kapidyia knew

that Krohne relied on the above representations. Thus, in this context of

securities investment and the management fees charged for these services by

an organization that was an associate member of the NF A, Krohne had the

right to rely that such representations would be followed regarding his

account. Hence, these false representations were given to obtain and profit

from the Krohne account. The account was subsequently traded outside

Optimus' instructions, resulting in substantial fmancial damage to Krohne.

COUNT V - MONTANA UNFAIR TRADE PRACTICES

25. Plaintiff re-alleges as if fully restated herewith the allegations

contained in Paragraphs 1 through 24 above.

26. Pursuant to Montana Code Ann. 30-14-202 and 205 et seq., the

employment of fraud in a commercial transaction within Montana constitutes

an unfair trade practice. In this instance, the above fraudulent acts caused

serious fmancial damage to Krohne and he is entitled to restitution thereon.

COUNT VI - CONSlRUCTIVE TRUST

27. Plaintiff re-alleges as if fully restated herewith the allegations

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contained in Paragraphs 1 through 26 above.

28. Should any or all of above allegations of fraud, or constructive

fraud be proven in this action, Plaintiff is entitled to a constructive trust for

his benefit covering any and all assets under Defendants' actual or legal

control or ownership for the value of all damages he has sustained.

COUNT VII - PUNITIVE DAMAGES

29. Plaintiff re-alleges as if fully restated herewith the allegations

contained in Paragraphs 1 through 28 above.

30. According to proof that Plaintiff had the right to rely on

representations made by Defendants which were, in fact, fraudulent or were

malicious as defmed in Montana Code Ann. 27-1-221(2)(b), Plaintiff seeks

exemplary damages to punish and to deter Defendants and others in the

investment business from similar bad acts in the future.

WHEREAS, Plaintiff prays for the following relief:

1. The difference between actual fmancial market losses resulting from Defendants' conduct, including brokers' fees and commissions, and the profits Plaintiff would have made exclusively from Optimus;

2. All management and performance fees swept and retained by Defendants from Plaintiff's account;

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3. Punitive damages;

4. Statutory interest on all fmancial awards;

5. Reasonable attorney fees and costs; and

6. Such other and further relief as this Court deems just and proper.

DATED this ~ay of January, 2012.

Kenneth D. Tolliver Tolliver Law Firm

J. Michael Ozier Attorney at Law

Attorneys for Plaintiff Krohne Fund, LLP

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