UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
MATTHEW C. GRAY
CFTC Docket No. 99-R108
LFG, L.L.C. D/B/A LINNCO
GROUP AND PATRICK JOSEPH
|OPINION AND ORDER|
Complainant Matthew C. Gray ("Gray') appeals from an Administrative Law Judge's ("ALJ") dismissal of his pro se reparations complaint as untimely under the two-year statute of limitations in Section 14(a)(1) of the Commodity Exchange Act ("Act" or "CEA"). Gray argues that the ALJ erred in determining the date that his complaint was filed for purposes of Section 14(a)(1). Respondents have not filed a response to Gray's appeal.
For the reasons explained below, we
vacate the ALJ's dismissal of the complaint and remand for further
On May 5, 1999, the Office of Proceedings received a letter from Gray dated April 22, 1999.1 The letter complained that Patrick J. Malone ("Malone") and LFG, L.L.C. d/b/a Linnco Futures Group ("LFG") had misused Gray's commodities account and caused him a loss of approximately $148,000. Gray enclosed a $250 money order to pay the fee for a formal decisional proceeding.2
Gray attached a December 21, 1998 letter to LFG that outlined the substance of his allegations. This letter claimed that Malone and LFG were responsible for misrepresentations and non-disclosure, unauthorized trading, and churning. Gray amplified on his allegations in a statement that he also attached to his letter. This statement indicated that Gray began trading his LFG account after depositing $5,000. It hinted that Malone traded the account on a discretionary basis even though Gray never signed a written power of attorney formally granting discretion to Malone.
According to the statement, after several weeks of trading, the value of Gray's account had risen to approximately $43,000. At about this time, Gray telephoned Malone to withdraw $15,000 from his account. The statement indicated that Malone eventually complied with the withdrawal instruction but was initially gruff and intimidating, claiming that he did not have time for clients who made frequent withdrawals.
According to the statement, about ten weeks later, Gray's account earned significant trading profits and its value rose to approximately $300,000. The statement indicated that Gray was too intimidated to call Malone during this period of trading success. Sometime later, the fortunes of Gray's account reversed and its value fell to approximately $43,000. According to the statement, Malone called Gray at this point and after discussing the reversal with Malone, Gray instructed him to send him $30,000 from the account. The statement indicated that Malone returned this amount to Gray but continued to trade the account and eventually lost most of the remaining $13,000.
In May 1999, the Office of Proceedings sent a letter to Gray requesting that he (1) fill out and sign a reparations complaint form, (2) submit a revised statement of facts, (3) clarify the identity of all respondents he sought to name, (4) clarify his calculation of damages, and (5) submit a copy of account-opening documents and account statements provided by LFG. The letter also reminded Gray that he must sign his amended submission under oath before a Notary Public. The letter informed Gray that his response should be postmarked by May 17, 1999.
In July 1999,3 Gray submitted a signed and verified reparations complaint form, a revised statement of facts, a revised calculation of damages, and a copy of his account statements. Gray's revised statement of facts indicated that his misrepresentation claim related to events in January and June 1997, and that his churning and unauthorized trading claims related to trading in May 1997. It indicated that Gray sought damages of $136,000 for unauthorized trading and $13,271.20 for churning. The account statements Gray submitted indicated that he began trading with LFG in February 1996 and that trading continued through August 1997.
In August 1999, the Office of Proceedings sent a letter to Gray requesting that he (1) specify the approximate date of one of his alleged conversations with Malone, (2) submit a copy of his account-opening documents, and (3) submit a verification for his revised statement of facts. On August 26, 1999, the Office of Proceedings received Gray's response. It included a verification of Gray's revised statement of facts, noted that his conversation with Malone about withdrawing $30,000 took place around June 10, 1997, and explained that he could not submit copies of account-opening documents because he had opened his account by telephone and never executed any account-opening documents.
On August 27, 1999, the Office of Proceedings mailed Gray's complaint to Malone and
LFG. In September 1999, respondents jointly submitted a two-page answer. It generally denied the complaint's allegations of misrepresentation, unauthorized trading, and churning.4 It argued that Gray had not suffered any damages because he withdrew more funds than he invested. In addition, respondents claimed that because the account statements showed that the account was closed in August 1997, the statute of limitations had expired.
On October 13, 1999, the case was forwarded to ALJ Painter for adjudication. Two days later, the ALJ ordered Gray to show cause why his complaint should not be dismissed as untimely. In this regard, the ALJ noted that the record showed that Gray opened his account in February 1996 and that trading ceased in June 1997. He also indicated that Gray had invested $5,000 and withdrawn $45,000 from his account. In addition, the judge emphasized that Gray had not submitted a verification for his revised statement of facts until August 20, 1999.
In early November, Gray filed his response. He acknowledged that he ceased his activity with respondents on or about June 10, 1997. He emphasized, however, that he had notified respondents of his claims in December 1998 and filed his initial letter with the Commission in April 1999.
The ALJ issued his order dismissing the complaint on November 8, 1999. He noted that Gray acknowledged that he ceased activity with respondents on June 10, 1997 and earned an 800 percent return on his $5,000 investment. The ALJ also emphasized that Gray regularly received account statements and, in light of the handwritten markings on the statements, inferred that complainant was "at all times aware of the trading done [in] his account, and the status of the account." Order of Dismissal at 1. Finally, the ALJ concluded that Gray did not properly file his complaint with the Commission until August 23, 1999. Consequently, he held that Gray did not perfect the filing of his complaint within two years from the date any cause of action accrued, and that there were no equitable grounds for modification of Section 14(a)(1)'s two-year period.
Complainant filed a timely notice of
appeal in November 1999 and submitted his appeal brief in December
1999. Gray's brief notes that he first contacted the Commission in
April 1999, less than two years after his cause of action accrued in
June 1997. He also claims that the written notations on his account
statements that the ALJ pointed out in his decision were recorded
after June 1997 during the course of his investigation of
respondents' activity. In addition, he emphasizes that
respondents' wrongdoing damaged him by limiting the profit he
earned as a result of the trading in his account.
Section 14(a)(1) of the Act indicates that a complaining party may "apply to the Commission for an order awarding" damages "at any time within two years after the cause of action accrues." In most cases, assessing whether complainant has met this requirement involves two determinations: (1) when did the cause of action (or causes of action) raised by the complainant accrue, and (2) when did complainant "apply" to the Commission for an order awarding damages? Our precedent has generally described the latter determination in terms of "when the complaint was filed."
In this case, the ALJ determined that he could resolve the factual issues underlying both these determinations on a summary basis. In determining that complainant's causes of action accrued on June 10, 1997, however, the ALJ failed to consider all the relevant evidence.5
The ALJ found that Gray's causes of action (misrepresentation, churning, and unauthorized trading) accrued on June 10, 1997 based on complainant's statement that he ceased activity with respondents at that time. The record, however, indicates that trading in Gray's account continued until August 1997. Moreover, respondents' answer suggests that Gray's claims accrued when he closed his account in August. The ALJ's decision does not include any explanation of how he resolved these conflicts in arriving at an accrual date of June 10, 1997.
The ALJ committed legal error when he concluded that Gray did not file a complaint until August 23, 1999. His order to show cause emphasized that this was the approximate date that Gray submitted a verification of his revised statement of fact. Commission precedent, however, indicates that submission of an unverified document to the Office of Proceedings can amount to the filing of a flawed but effective application for a reparations award. See Adams v. Jappell, [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶27,293 (CFTC March 18, 1998).6 A proper analysis of the date that a complaint is deemed filed cannot be limited to the date complainant verified a full statement of facts.
Our independent analysis of the record supports a conclusion that Gray's complaint was timely under Section 14(a)(1). In this regard, we need not determine whether the proper accrual date for Gray's claims was in June or August of 1997. The record shows that Gray submitted his application for an award of damages in April 1999. Consequently, his application is timely even if we assume that his causes of action accrued on the date most favorable to respondents.
Our decision in Adams recognized that there could be a material difference between a complaint meeting all the requirements of Commission Rule 12.13 and an application for an order awarding damages consistent with Section 14(a)(1) of the Act. In effect, we held that if an appropriate application was filed in a timely manner, we would treat subsequent submissions necessary for compliance with Rule 12.13 as if they were filed on the same date as the application. The question then, is whether Gray's April 1999 submission was sufficient to constitute an appropriate application under Section 14(a)(1) of the Act.
In this regard, we recognize that the
shortcomings of Gray's April 1999 submission are not limited to
the missing verification. Indeed, the submission has more flaws than
those we deemed acceptable in the Adams case. Nevertheless, the
April 1999 submission not only included a description of both the core
set of facts underlying Gray's claims and the applicable theories
of liability, but also evidenced a good faith attempt to meet the
requirements of the reparation rules.7 In these circumstances, we conclude that
Gray's April 1999 submission was a timely application for an order
awarding damages under Section 14(a)(1) of the Act.8
Accordingly, we vacate the ALJ's dismissal of the complaint and remand this case for further proceedings consistent with this opinion.
IT IS SO ORDERED.
By the Commission (Chairman RAINER, Commissioners HOLUM, SPEARS, NEWSOME and ERICKSON).
Catherine D. Dixon
Assistant Secretary to the Commission
Commodity Futures Trading Commission
Dated: September 12, 2000
1 The record does not establish the date that Gray mailed this letter to the Office of Proceedings.
2 The letter acknowledged that Gray was currently unaware of Malone's and LFG's registration status at the time of the alleged wrongdoing; stated that Gray was unaware of any bankruptcy proceedings involving respondents; and noted that Gray had not commenced any arbitration or civil litigation relating to his allegations.
3 Gray sought and received extensions of the May filing deadline from the Office of Proceedings.
4 In this regard, Malone and LFG alleged that the customer account agreement that Gray signed in February 1996 indicated that complainant had prior futures trading experience when he opened his account with LFG.
5 A cause of action accrues and the two-year limitations period begins to run when complainant discovers the wrongful activity underlying his claim, or, in the exercise of reasonable diligence, should have discovered the wrongful activity. Edwards v. Balfour Maclaine Futures, Inc., [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,108 at 41,665 (CFTC June 16, 1994). In determining when wrongful activity should have been discovered, we look to the particular facts and circumstances of each case, including (1) the relationship of the parties; (2) the nature of the wrongful activity; (3) complainant's opportunity to discover the wrongful activity; and (4) the actions taken by the parties subsequent to the wrongful activity. Id.
6 Verification remains a necessary step in the process of perfecting a reparations complaint. See Commission Rule 12.13(b)(2). Adams, however, held that in appropriate circumstances, a later-filed verification would relate back to the date the unverified document was filed. In applying the relation back doctrine, we noted that the later-filed verified complaint contained the same set of facts, identified the same respondents, and set forth the same theories of relief as the timely-filed document. Id. at 46,399.
7 In this regard, Gray's pro se status plays a material role in our analysis of the circumstances relevant to determining his good faith. Were Gray represented by counsel at the time of his April 1999 submission, there would be a serious question about his good faith in filing a document that did not include a more complete description of the relevant factual circumstances.
8 As a matter of guidance on remand, we note that Gray's misrepresentation claim is apparently focused on alleged gruff treatment that may have discouraged him from withdrawing accumulated profits. While such treatment, if proven, would amount to both regrettable conduct and a shortsighted business tactic, it would not be sufficient to show respondents violated either the Act or Commission regulations without evidence that the conduct was materially deceptive. Complainant may wish to seek information on this issue from respondents during the discovery period.
Complainant's unauthorized trading claim will likely be met by the affirmative defenses of ratification and estoppel. In this regard, the ALJ and the parties should be guided by the Commission's analysis in Troni v. Prudential-Bache Securities, Inc., [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,508 (CFTC July 18, 1989) and Wolken v. Refco, Inc. [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,509 (CFTC July 18, 1989).