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e8-23417

  • FR Doc E8-23417[Federal Register: October 3, 2008 (Volume 73, Number 193)]

    [Rules and Regulations]

    [Page 57512-57515]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr03oc08-5]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 143

    RIN 3038-AC13

    Adjustment of Civil Monetary Penalties for Inflation

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final rule.

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    SUMMARY: The Commodity Futures Trading Commission (Commission) is

    amending its rule which governs the maximum amount of civil monetary

    penalties, to adjust for inflation. This rule sets forth the maximum,

    inflation-adjusted dollar amount for civil monetary penalties (CMPs)

    assessable for violations of the Commodity Exchange Act (Act) and

    Commission rules and orders thereunder. The rule, as amended,

    implements the Federal Civil Penalties Inflation Adjustment Act of

    1990, as amended by the Debt Collection Improvement Act of 1996. The

    rules also reflect the higher penalties enacted this year by Congress

    for violations of the Act prohibiting manipulation and attempted

    manipulation.

    DATES: Effective Date: October 23, 2008.

    FOR FURTHER INFORMATION CONTACT: Thuy Dinh, Esq., Office of General

    Counsel, at (202) 418-5128 or tdinh@cftc.gov; or Richard Foelber, Esq.,

    Division of Enforcement, at (202) 418-5347 or rfoelber@cftc.gov,

    Commodity Futures Trading Commission, 1155 21st Street, NW.,

    Washington, DC 20581. This document also is available at http://

    www.regulations.gov.

    SUPPLEMENTARY INFORMATION:

    I. Background

    The Federal Civil Penalties Inflation Adjustment Act of 1990

    (FCPIAA), as amended by the Debt Collection Improvement Act of 1996

    (DCIA),\1\ requires the head of each Federal agency to adjust by

    regulation, at least once every four years, the maximum amount of CMPs

    provided by law within the jurisdiction of that agency by the cost of

    living adjustment defined in the FCPIAA, as amended.\2\ Because the

    purposes of the inflation adjustments include maintaining the deterrent

    effect of CMPs and promoting compliance with the law, the Commission

    monitors the impact of inflation on its CMP maximums and adjusts them

    as needed to implement the requirements and purposes of the FCPIAA.\3\

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    \1\ The FCPIAA, Pub. L. 101-410 (1990), and the relevant

    amendments to the FCPIAA contained in the DCIA, Public Law 104-134

    (1996), are codified at 28 U.S.C. 2461 note.

    \2\ The DCIA also requires that the range of minimum and maximum

    CMPs be adjusted, if applicable. This is not applicable to the

    Commission because, for the relevant CMPs within the Commission's

    jurisdiction, the Act provides only for maximum amounts that can be

    assessed for each violation of the Act or the rules and orders

    thereunder; the Act does not set forth any minimum penalties.

    Therefore, the remainder of this release will refer only to CMP

    maximums.

    \3\ Specifically, the FCPIAA states:

    The purpose of [the FCPIAA] is to establish a mechanism that

    shall--

    (1) Allow for regular adjustment for inflation of civil monetary

    penalties;

    (2) Maintain the deterrent effect of civil monetary penalties

    and promote compliance with the law; and

    (3) Improve the collection by the Federal Government of civil

    monetary penalties.

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    Congress this year enacted the CFTC Reauthorization Act of 2008 at

    Title XIII of the Food, Conservation, and Energy Act of 2008, P.L. 110-

    246, 122 Stat. 1651 (eff. May 22, 2008)(Farm Bill). Section 13103(a)-

    (c) amends sections 6(c), 6b and 6c of the Act, in each case increasing

    the maximum civil monetary penalty that may be imposed ``in any case of

    manipulation or attempted manipulation'' in violation of section 6(c),

    6(d), or 9(a)(2) to ``the greater of $1,000,000 or triple the monetary

    gain'' to the violator.\4\

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    \4\ Section 13103(a) of the Farm Bill states:

    (a) ENFORCEMENT POWERS OF THE COMMISSION.--Section 6(c) of the

    Commodity Exchange Act (7 U.S.C. 9, 15) is amended in clause (3) of

    the 10th sentence--

    (1) by inserting ``(A)'' after ``assess such person''; and

    (2) by inserting after ``each such violation'' the following:

    ``, or (B) in any case of manipulation or attempted manipulation

    in violation of this subsection, subsection (d) of this section, or

    section 9(a)(2), a civil penalty of not more than the greater of

    $1,000,000 or triple the monetary gain to the person for each such

    violation,''.

    Section 13103(b) of the Farm Bill states:

    (b) NONENFORCEMENT OF RULES OF GOVERNMENT OR OTHER VIOLATIONS.--

    Section 6b of such Act (7 U.S.C. 13a) is amended--

    (1) In the first sentence, by inserting before the period at the

    end the following: ``, or, in any case of manipulation or attempted

    manipulation in violation of section 6(c), 6(d), or 9(a)(2), a civil

    penalty of not more than $1,000,000 for each such violation''; and

    (2) In the second sentence, by inserting before the period at

    the end the following: ``, except that if the failure or refusal to

    obey or comply with the order involved any offense under section

    9(a)(2), the registered entity, director, officer, agent, or

    employee shall be guilty of a felony and, on conviction, shall be

    subject to penalties under section 9(a)(2)''.

    Section 13103(c) of the Farm Bill states:

    (c) ACTION TO ENJOIN OR RESTRAIN VIOLATIONS.--Section 6c(d) of

    such Act (7 U.S.C. 13a-1(d)) is amended by striking all that

    precedes paragraph (2) and inserting the following:

    ``(d) CIVIL PENALTIES.--

    ``(1) IN GENERAL.--In any action brought under this section, the

    Commission may seek and the court shall have jurisdiction to impose,

    on a proper showing, on any person found in the action to have

    committed any violation--

    ``(A) a civil penalty in the amount of not more than the greater

    of $100,000 or triple the monetary gain to the person for each

    violation; or

    ``(B) in any case of manipulation or attempted manipulation in

    violation of section 6(c), 6(d), or 9(a)(2), a civil penalty in the

    amount of not more than the greater of $1,000,000 or triple the

    monetary gain to the person for each violation.''

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    II. Relevant Commission CMPs

    The inflation adjustment requirement applies to:

    [A]ny penalty, fine or other sanction that--

    (A) Is for a specific monetary amount as provided by Federal law;

    or

    (ii) Has a maximum amount provided for by Federal law; and

    (B) Is assessed or enforced by an agency pursuant to Federal law;

    and

    (C) Is assessed or enforced pursuant to an administrative

    proceeding or a civil action in the Federal courts[.] 28 U.S.C. 2661

    note. The Act provides for CMPs that meet the above definition, and are

    therefore subject to the inflation adjustment, in three instances:

    Sections 6(c), 6b, and 6c of the Act.\5\

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    \5\ 7 U.S.C. 9, 13a and 13a-1.

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    [[Page 57513]]

    Penalties may be assessed in a Commission administrative proceeding

    pursuant to Section 6(c) of the Act, 7 U.S.C. 9, against ``any person''

    found by the Commission to have:

    (1) Engaged in the manipulation of the price of any commodity, in

    interstate commerce, or for future delivery;

    (2) Willfully made a false or misleading statement or omitted a

    material fact in an application or report filed with the Commission; or

    (3) Violated any provision of the Act or the Commission's rules,

    regulations or orders thereunder.

    Penalties may be assessed in a Commission administrative proceeding

    pursuant to Section 6b of the Act, 7 U.S.C. 13a, against: (1) Any

    registered entity that the Commission finds is not enforcing or has not

    enforced its rules, or (2) any registered entity, or any director,

    officer, agent, or employee of any registered entity, that is violating

    or has violated any of the provisions of the Act or the Commission's

    rules, regulations or orders thereunder.

    Penalties may be assessed pursuant to Section 6c of the Act, 7

    U.S.C. 13a-l, against ``any person'' found by ``the proper district

    court of the United States'' to have committed any violation of any

    provision of the Act or any rule, regulation or order thereunder.

    III. Relevant Cost-of-Living Adjustment

    The formula for determining the cost-of-living adjustment, first

    defined by the FCPIAA, and amended by the DCIA, consists of a four-step

    process.

    The first step entails determining the inflation adjustment factor.

    This is done by calculating the percentage increase by which the

    Consumer Price Index for the month of June of the calendar year

    preceding the adjustment exceeds the Consumer Price Index for the month

    of June of the calendar year in which the amount of such civil monetary

    penalty was last set or adjusted pursuant to law.\6\ Accordingly, the

    inflation adjustment factor for the present adjustment equals the

    Consumer Price Index for all-urban consumers published by the

    Department of Labor for June 2007 (i.e., June of the year preceding

    this year), divided by that index for June 2004.\7\

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    \6\ The Consumer Price Index means the Consumer Price Index for

    all urban consumers (CPI-U) published by the Department of Labor.

    Interested parties may find the relevant Consumer Price Index over

    the Internet. To access this information, go to the Consumer Price

    Index Home Page at: http:// www.bls.gov/data/. Under the Prices and

    Living Conditions Section, select Most Requested Statistics for

    CPI--All Urban Consumers (Current Series). Then check the box for

    CPI for U.S. All Items, 1967=100-CUUR0000AA0, and click the Retrieve

    Data button.

    \7\ The Consumer Price Index for all-urban consumers published

    by the Department of Labor for June 2007 was 624.129, and for June

    2004 was 568.2. Therefore, the relevant inflation adjustment factor

    equals 624.129 divided by 568.2. The result is a 9.8 percent

    increase in the CPI between June 2003 and June 2007. Accordingly,

    our inflation adjustment factor is 9.8 percent, or 0.0984 for

    computational purposes.

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    Once the inflation adjustment factor is determined, it is then

    multiplied by the current maximum CMP set forth in Rule 143.8 to

    calculate the raw inflation increase.\8\ This raw inflation increase is

    then rounded according to the guidelines set forth by the FCPIAA.\9\

    Finally, once the inflation increase has been rounded pursuant to the

    FCPIAA, it is added to the current CMP maximum to obtain the new CMP

    maximum penalty.\10\ As a result, the maximum, inflation-adjusted CMP

    for each violation of the Act or Commission rules or orders thereunder

    assessed against any person pursuant to Sections 6(c) and 6c of the Act

    will be $140,000 or triple the monetary gain to such person for each

    violation, and $675,000 for each such violation when assessed pursuant

    to Section 6b of the Act.

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    \8\ The current CMP maximum listed in Rule 143.8, as amended in

    2004, for purposes of Sections 6(c) and 6c of the Act is $130,000.

    The current CMP maximum for purposes of Section 6b of the Act is

    $625,000.

    Accordingly, the calculations for the raw inflation increase are

    the following:

    Sections 6(c) and 6c: (0.0984 x $130,000) = $12,792

    Section 6b: (0.0984 x $625,000) = $61,500

    \9\ The FCPIAA, as amended by the DCIA, provides in relevant

    part that any increase ``shall be rounded to the nearest--

    (5) multiple of $10,000 in the case of penalties greater than

    $100,000 but less than or equal to $200,000; and

    (6) multiple of $25,000 in the case of penalties greater than

    $200,000.''

    Accordingly, the raw inflation increase for purposes of Sections

    6(c) and 6c of the Act ($12,792) is rounded to $10,000, while the

    raw inflation increase for purposes of Section 6b ($61,500) is

    rounded to $50,000.

    \10\ For purposes of Sections 6(c) and 6c of the Act, the

    rounded inflation increase ($10,000) is added to the current CMP

    maximum ($130,000), totaling $140,000. For purposes of Section 6b of

    the Act, the rounded inflation increase ($50,000) is added to the

    current CMP maximum ($575,000), totaling $625,000.

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    The FCPIAA provides that ``any increase under [FCPIAA] in a civil

    monetary penalty shall apply only to violations which occur after the

    date the increase takes effect.'' \11\ Thus, the new CMP maximum may be

    applied only to violations of the Act that occur after the effective

    date of this amendment, October 23, 2004. The new statutory maximum for

    manipulation and attempted manipulation shall apply to violations that

    occur after the effective date of the Farm Bill, i.e., May 22, 2008.

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    \11\ See also Landgraf v. USI Film Products, 511 U.S. 244 (1994)

    (holding that there is a presumption against retroactivity in

    changes to damage remedies or civil penalties in the absence of

    clear statutory language to the contrary).

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    IV. Related Matters

    A. Notice Requirement

    This amendment to Rule 143.8 will implement a statutory change

    regarding agency procedure or practice within the meaning of 5 U.S.C.

    553(b)(3)(A) and therefore does not require notice.\12\ The Commission

    also believes that opportunity for public comment is unnecessary under

    5 U.S.C. 553(b)(3)(B). This amendment does not effect any substantive

    change in Commission rules, nor alter any obligation that a party has

    under Commission rules, regulations or orders. No party must change its

    manner of doing business, either with the public or the Commission, to

    comply with the rule amendment. This change is undertaken pursuant to a

    statutory requirement that all agencies make such adjustments and is

    intended to prevent inflation from eroding the deterrent effect of

    CMPs. The change also recognizes amendments to the Act contained in the

    Farm Bill.

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    \12\ U.S.C. 553(b) generally requires notice of proposed

    rulemaking to be published in the Federal Register. That provision

    states, however, that ``[e]xcept when notice or hearing is required

    by statute, [notice is not required]--

    (A) [for] interpretive rules, general statements of policy, or

    rules of agency organization, procedure, or practice; or

    (B) when the agency for good cause finds (and incorporates the

    finding and a brief statement of reasons therefor in the rules

    issued) that notice and public procedure thereon are impracticable,

    unnecessary, or contrary to the public interest.''

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    While higher maximum CMPs may expose persons to potentially higher

    financial liability, in nominal terms, for violations of the Act or

    Commission rules or orders thereunder, the rule amendment does not

    require that the maximum penalty be imposed on any party, nor does it

    alter any substantive due process rights that a party has in an

    administrative proceeding or a court of law that protect against

    imposition of excessive penalties. Further, as previously noted, the

    rule amendment applies only to violations of the Act or Commission

    rules or orders that occur after the effective date of this amendment.

    B. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires that

    agencies consider the impact of their rules on small businesses. The

    amended rule potentially will affect those persons who are found by the

    Commission or the Federal courts to have violated the

    [[Page 57514]]

    Act or Commission rules or orders. Some of these affected parties could

    be small businesses. Nevertheless, the Acting Chairman, on behalf of

    the Commission, certifies that this rule will not have a significant

    economic impact on a substantial number of small entities. While the

    Commission recognizes that certain persons assessed a CMP for violating

    Act or Commission rules or orders may be small businesses, the rule

    does not mandate the imposition of the maximum CMP set forth in the

    rule on any party. As is currently the case, the imposition of the

    maximum CMP will occur only where the administrative law judge, the

    Commission or a Federal court finds that the gravity of the offense

    warrants a CMP in that amount.\13\

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    \13\ Section 6(e) of the Act, 7 U.S.C. 9a(1), directs the

    Commission to ``consider the appropriateness of [a] penalty to the

    gravity violation'' when assessing a CMP pursuant to Section 6(c) of

    the Act. In addition, the Commission's penalty guidelines state that

    the Commission, when assessing any CMP, will consider the gravity of

    the offense in question. In assessing the gravity of an offense, the

    Community may consider such factors as whether the violations

    resulted in harm to the victims, whether the violations involved

    core provisions of the Act, and whether the violator acted

    intentionally or willfully, as well as other factors. See CFTC

    Policy Statement Relating to the Commission's Authority to Impose

    Civil Money Penalties and Futures Self-Regulatory Organizations'

    Authority to Impose Sanction; Penalty Guidelines, [1994-1996

    Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 26,265 (CFTC November

    1994).

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    The rule should not increase in real terms the economic burden of

    the maximum CMPs set forth in the Act. Instead, the rule implements a

    statutory requirement that agencies adjust for inflation existing CMPs

    so that the real economic value of such penalties, and therefore the

    Congressionally-intended deterrent effect of such CMPs, is not reduced

    over time by inflation. Nor does the rule impose any new, affirmative

    duty on any party or change any existing requirements, and thus no

    party who is currently complying with the Act and Commission

    regulations will incur any expense in order to comply with the amended

    rule. Therefore, the Commission believes that this final rule will not

    have a significant economic impact on a substantial number of small

    entities.\14\

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    \14\ Any agency that regulates the activities of small entities

    must establish a policy or program to reduce and, when appropriate,

    to waive civil penalties for violations of statutory or regulatory

    requirements by small entities. An agency is not required to reduce

    or waive civil penalties, however, if: (1) An entity has been the

    subject of multiple enforcement actions; (2) an entity's violations

    involve willful or criminal conduct; or (3) the violations involve

    serious health, safety or environmental threats. See Small Business

    Regulatory Enforcement Fairness Act of 1996 (``SBREFA''), Public Law

    104-121, Sec. 223, 110 Stat. 862 (March 29, 1996). The Commission

    takes these provisions of SBREFA into account when it considers

    whether to seek or impose a civil monetary penalty in a particular

    case involving a small entity.

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    C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3507(d), which

    imposes certain requirements on Federal agencies, including the

    Commission, connection with their conducting or sponsoring any

    collection of information as defined by the PRA, does not apply to this

    rule. The Commission believes this rule amendment does not contain

    information collection requirements that require the approval of the

    Office of Management and Budget.

    List of Subjects in 17 CFR Part 143

    Civil monetary penalty, Claims.

    0

    In consideration of the foregoing and pursuant to authority contained

    in Sections 6(c), 6b and 6c of the Act, 7 U.S.C. 9, 13a, and 13a-1(d),

    and 28 U.S.C. 2461 note as amended by Pub. L. 104-134, the Commission

    hereby amends part 143 of chapter I of title 17 of the Code of Federal

    Regulations as follows:

    PART 143--COLLECTION OF CLAIMS OWED THE UNITED STATES ARISING FROM

    ACTIVITIES UNDER THE COMMISSION'S JURISDICTION

    0

    1. The authority citation for part 143 reads as follows:

    Authority: 7 U.S.C. 9 and 15, 9a, 12a(5), 13a, 13a-1(d) and

    13(a); 31 U.S.C. 3701-3719; 28 U.S.C. 2461 note.

    0

    2. Section 143.8 is amended by revising paragraph (a) to read as

    follows:

    Sec. 143.8 Inflation-adjusted civil monetary penalties.

    (a) Unless otherwise amended by an act of Congress, the inflation-

    adjusted maximum civil monetary penalty for each violation of the

    Commodity Exchange Act or the rules or orders promulgated thereunder

    that may be assessed or enforced by the Commission under the Commodity

    Exchange Act pursuant to an administrative proceeding or a civil action

    in Federal court will be:

    (1) Except as provided in paragraph (v) hereof, for each violation

    for which a civil monetary penalty is assessed against any person

    (other than a registered entity) pursuant to Section 6(c) of the

    Commodity Exchange Act, 7 U.S.C. 9:

    (i) For violations committed between November 27, 1996 and October

    22, 2000, not more than the greater of $110,000 or triple the monetary

    gain to such person for each such violation;

    (ii) For violations committed between October 23, 2000 and October

    22, 2004, not more than the greater of $120,000 or triple the monetary

    gain to such person for each such violation;

    (iii) For violations committed between October 23, 2004 and October

    22, 2008, not more than the greater of $130,000 or triple the monetary

    gain to such person for each such violation; and

    (iv) For violations committed on or after October 23, 2008, not

    more than the greater of $140,000 or triple the monetary gain to such

    person for each such violation; provided that--

    (v) In any case of manipulation or attempted manipulation in

    violation of Section 6(c), 6(d), or 9(a)(2) of the Act committed on or

    after May 22, 2008, not more than the greater of $1,000,000 or triple

    the monetary gain to such person for each such violation; and

    (2) Except as provided in paragraph (v) hereof, for each violation

    for which a civil monetary penalty is assessed against any registered

    entity or other person pursuant to Section 6c of the Commodity Exchange

    Act, 7 U.S.C. 13a-l:

    (i) For violations committed between November 27, 1996 and October

    22, 2000, not more than the greater of $110,000 or triple the monetary

    gain to such person for each such violation;

    (ii) For violations committed between October 23, 2000 and October

    22, 2004, not more than the greater of $120,000 or triple the monetary

    gain to such person for each such violation;

    (iii) For violations committed between October 23, 2004 and October

    22, 2008, not more than the greater of $130,000 or triple the monetary

    gain to such person for each such violation; and

    (iv) For violations committed on or after October 23, 2008, not

    more than the greater of $140,000 or triple the monetary gain to such

    person for each such violation; provided that--

    (v) In any case of manipulation or attempted manipulation in

    violation of Section 6(c), 6(d), or 9(a)(2) of the Act committed on or

    after May 22, 2008, not more than the greater of $1,000,000 or triple

    the monetary gain to such person for each such violation;

    (3) For each violation for which a civil monetary penalty is

    assessed against any registered entity or any director, officer, agent,

    or employee of any registered entity pursuant to Section 6b of the

    Commodity Exchange Act, 7 U.S.C. 13a:

    (i) For violations committed between November 27, 1996 and October

    22, 2000, not more than $550,000 for each such violation;

    [[Page 57515]]

    (ii) For violations committed between October 23, 2000 and October

    22, 2004, not more than $575,000 for each such violation;

    (iii) For violations committed between October 23, 2004 and October

    22, 2008, not more than $625,000 for each such violation; and

    (iv) For violations committed on or after October 23, 2008, not

    more than the greater of $675,000 or triple the monetary gain to such

    person for each such violation, provided that--

    (v) In any case of manipulation or attempted manipulation in

    violation of Section 6(c), 6(d), or 9(a)(2) of the Act committed on or

    after May 22, 2008, not more than the greater of $1,000,000 or triple

    the monetary gain each such violation.

    * * * * *

    Issued in Washington, DC, on September 30, 2008 by the

    Commission.

    David A. Stawick,

    Secretary of the Commission.

    [FR Doc. E8-23417 Filed 10-2-08; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: October 3, 2008



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