UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
In the Matter of
CFTC Docket Nos. 90-20, SD
|CRAIG J. LACROSSE||ORDER|
Former Commission registrant Craig LaCrosse has filed a pro se petition1 seeking (1) registration as a floor trader, and (2) elimination of the remainder of the five-year trading prohibition that the Commission imposed in January 1997.2 In effect, LaCrosse's petition argues that granting him registration and eliminating the trading prohibition will pose no substantial risk to the markets regulated by the Commission because: (1) as a result of the many harmful consequences flowing from his felony conviction, he has learned the importance of following the law scrupulously, and (2) his clean record during the substantial period of time that has passed since the conduct underlying his conviction shows that he is unlikely to breach Commission requirements in the future. The Division of Enforcement ("Division") opposes LaCrosse's petition. The Division argues that granting LaCrosse's petition for registration is inappropriate because LaCrosse failed to follow the National Futures Association's ("NFA") established procedure for applying for floor trader registration. As to the request to eliminate the trading prohibition, the Division dismisses the arguments and evidence that LaCrosse offered as largely a repetition of those that the Commission previously considered and rejected.
For the reasons set forth below, we
dismiss LaCrosse's request for registration without prejudice and
refer his petition to eliminate the remainder of his five-year trading
prohibition to an Administrative Law Judge ("ALJ") for a
hearing to resolve material factual issues.
Section 9(a) of the Commodity Exchange
Act ("Act") currently provides that it is a felony for a
person willfully to violate any provision of the Act. The first
portion of Section 9(b) states that:
Any person convicted of a felony under this section shall be . . . barred from using, or participating in any manner in, any market regulated by the Commission for five years or such longer period as the Commission shall determine, on such terms and conditions as the Commission may prescribe, unless the Commission determines that the imposition of . . . such . . . market bar is not required to protect the public interest. . . .
During 1990, the Commission brought several enforcement cases that sought trading prohibitions under a slightly different version of Section 9.3 In resolving these cases, we publicly interpreted the sanctioning language of then Section 9(b) for the first time.4
The most significant conclusion involved the evidentiary burden in a case seeking a trading prohibition under Section 9(b). We concluded that whenever the Division established that there was a felony conviction that met the requirements of Section 9, the evidentiary burden shifted to respondent. We explained that the language of Section 9(b) created a presumption that anyone convicted of an appropriate felony was a threat to the markets regulated by the Commission and that a five-year trading prohibition was an appropriate response to that threat. In effect, we ruled that imposition of a five-year prohibition was mandatory unless respondent could show by the weight of the evidence that his continued access to the markets regulated by the Commission would pose no substantial risk to their integrity.5
We concluded that four factors were relevant to an assessment of a respondent's showing under this standard: (1) the nexus between respondent's wrongdoing and a threat to the market mechanism; (2) circumstances that show the seriousness of respondent's wrongdoing was mitigated; (3) circumstances that show a changed direction in respondent's activities since the time of the wrongdoing; and (4) the future role that respondent intended to play in the markets regulated by the Commission. In re LaCrosse, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,840 at 40,755-56 (CFTC Aug. 13, 1993) ("LaCrosse I").
Our opinions in these cases also
discussed the final sentence in Section 9(b), which states:
The Commission may upon petition later review such . . . market bar and for good cause shown reduce the period thereof.
Because we believed that a reliable
evaluation of such petitions could only occur after a substantial
period of time had passed, we ruled that we would only consider such a
petition "after respondent has served half the term of the
trading prohibition imposed in [a] final order." LaCrosse
I, ¶ 25,840 at 40,756 n.6. The record shows that sufficient
time has now passed to warrant consideration of LaCrosse's
The parties' submissions focus on their preferred outcome rather than the more basic issues implicitly raised by LaCrosse's petition. Nevertheless, prior to resolving the substantive issues addressed by the parties, we must determine the applicable standard, the factors relevant to the standard, and the procedures we will follow in considering the petition.
In determining whether to lift a trading prohibition imposed pursuant to Section 9(b), we will focus on the standard we used in determining that the prohibition should be imposed - does the weight of the evidence show that petitioner's access to the markets regulated by the Commission will pose no substantial threat to their integrity. In effect, this means that the statutory presumption that a trading prohibition is necessary to protect the markets remains the key element in our analysis for the full term of the prohibition that we initially imposed.
Because the overall standard will be the same, we will also base our analysis of the strength of a petitioner's showing on the four factors previously described: (1) the nexus between respondent's wrongdoing and a threat to the market mechanism; (2) circumstances that show the seriousness of respondent's wrongdoing was mitigated; (3) circumstances that show a changed direction in respondent's activities since the time of the wrongdoing; and (4) the future role that respondent intends to play in the markets regulated by the Commission.
The particular context of our analysis, however, will require a somewhat different approach to the four factors. The passage of time between the decision imposing a trading prohibition and a decision on whether to lift a pending prohibition will generally have no effect on the evidence relevant to two of the factors -- the nexus between the wrongdoing and a threat to the market mechanism and the circumstances showing that the seriousness of petitioner's wrongdoing was mitigated. As a result, absent extraordinary circumstances, evidence on these factors need not be weighed a second time.6
Circumstances that show a changed direction in petitioner's activities since the time of the wrongdoing may develop during the period between the decision imposing a trading prohibition and a decision on whether to lift a pending prohibition. Relevant circumstances that already were or should have been considered - those that were either previously presented to the Commission or could have been presented prior to the close of the hearing record in the prior proceeding -- need not be weighed a second time. Nevertheless, the petitioner should have an opportunity to develop the record regarding relevant circumstances arising after the close of the hearing record in the prior proceeding. Moreover, the cumulative effect of circumstances relevant to rehabilitation will be considered.7
The role that a petitioner intends to play in the markets can also change during the period between the decision imposing a trading prohibition and a decision on whether to lift a pending prohibition. As a result, petitioner should have an opportunity to develop the record on how the role he intends to play ameliorates the risk he might otherwise pose to the markets regulated by the Commission.
We anticipate that many of the factual disputes in proceedings to resolve this type of petition will involve the significance of the passage of time without repeated wrongdoing, the credibility and reliability of third-party assessments of the change in petitioner's character or conduct during the period between the decision imposing a trading prohibition and a decision on whether to lift a pending prohibition, or the credibility of petitioner's claim to a changed attitude about the importance of compliance. Our experience with registration cases generally indicates that the best way to resolve these disputes is through a hearing where petitioner's credibility may be assessed and supporting witnesses may be cross-examined.
The current record suggests that this
type of factual dispute is at the heart of the parties' divergent
views on the proper resolution of this matter. In these circumstances,
we refer this case to the Director of the Office of Proceedings for
assignment to an ALJ.8 The ALJ
shall conduct a hearing pursuant to Commission Rules 10.61 through
10.81, permit the filing of proposed findings of fact and conclusions
of law pursuant to Commission Rule 10.82, and issue an Initial
Decision pursuant to Commission Rule 10.84. The ALJ shall issue his
Initial Decision within six months of the date that the matter is
assigned to his docket.9 The
parties shall follow Subpart H of the Part 10 Rules in seeking review
of the Initial Decision or resolution of their dispute by
We agree with the Division that LaCrosse
should not be permitted to evade the normal registration process
simply because he was subject to both a trading prohibition and
registration revocation for the same conduct. Consequently, we are
dismissing this portion of the petition. This dismissal shall not
affect LaCrosse's opportunity to seek appropriate registration by
filing an application with NFA at the conclusion of this
LaCrosse's request to register as a floor trader is denied without prejudice. LaCrosse's request that his trading ban be eliminated is referred to the Director of the Office of Proceedings for assignment to an ALJ and resolution consistent with the standards and procedures set forth in this order.
IT IS SO ORDERED.
By the Commission (Chairman RAINER and Commissioners HOLUM, SPEARS, NEWSOME and ERICKSON).
Jean A. Webb
Secretary of the Commission
Commodity Futures Trading Commission
Dated: August 28, 2000
1 LaCrosse's petition is in the form of a letter. LaCrosse submitted a second letter in response to the memorandum that the Division of Enforcement filed in opposition to his petition. This Order refers to the second document as LaCrosse's response.
2 In re LaCrosse, [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,944 at 44,576 (CFTC Jan. 21, 1997) ("LaCrosse II").
3 Prior to amendments adopted as part of the Futures Trading Practices Act of 1992, Section 9 did not cover all willful violations of the Act. The 4b violations at the heart of the enforcement cases that the Commission brought were covered by the then applicable language of Section 9(b).
4 Some of these cases had their genesis in a sting operation that the Federal Bureau of Investigation conducted with the Commission during 1987-1988 in the soybean futures pit of the Chicago Board of Trade. As a result of this operation, LaCrosse pled guilty to one felony violation of Section 4b of the Act and one misdemeanor violation of Section 4c(a)(A) of the Act in August 1989. The Commission brought its case against LaCrosse in August 1990.
5 See, e.g., In re LaCrosse, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,840 at 40,755 (CFTC Aug. 13, 1993) ("LaCrosse I"). We noted that the presumption is based on the commonsense inference that once an individual has undertaken serious wrongdoing, there is a substantial risk that he will undertake similar wrongdoing in the future. Id.
6 For example, we previously determined that there was a nexus between LaCrosse's wrongdoing and a threat to the market mechanism and that LaCrosse had not established that there were circumstances that mitigated the seriousness of his wrongdoing. LaCrosse II, ¶ 26,944 at 44,575-44,576. LaCrosse's petition does not provide any basis for revisiting these determinations.
A showing that evidence material to mitigation was not available to petitioner when the Commission was considering whether to impose a trading prohibition under Section 9(b) could amount to the type of extraordinary circumstances that warrant a fresh assessment of the mitigation factor.
7 For example, the passage of a substantial period of time without additional wrongdoing can be an important circumstance in evaluating rehabilitation. When we initially imposed a trading prohibition, we may have concluded that a three-year period without additional wrongdoing was insufficient to raise an inference of rehabilitation. If a petitioner then shows that more years have passed without additional wrongdoing, we will consider whether the cumulative period without wrongdoing is sufficient to raise such an inference.
8 We contemplate such referrals for a hearing before an ALJ whenever there is a significant doubt that the parties' dispute can be reliably resolved without a hearing. In re Zuccarelli, [1998-1999 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,597 at 47,833 n. 12 (CFTC Apr. 15, 1999).
9 Given this time limit, the ALJ shall be authorized to shorten the time periods for submitting documents under the applicable Part 10 Rules. He shall make this determination with due regard to the rights of both parties to a fair resolution of the material issues.
10 In the future, in order to expedite the process for referring such petitions for hearing, the General Counsel, or his designee, may issue orders referring such petitions for resolution under the standards and procedures set forth in this order.
11 Of course, the outcome in this proceeding will not bind NFA. It will make an independent assessment of any registration application in accordance with its normal procedures and standards.