UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
___________________________ : In the Matter of : :CFTC Docket Nos. 91-12, SD 93-14 : JOEL J. FETCHENHIER :OPINION AND ORDER ___________________________:
Respondent Joel J. Fetchenhier appeals from a decision of an Administrative Law Judge ("ALJ") denying him registration as a floor trader and imposing a five-year trading prohibition. Fetchenhier contends that neither sanction is appropriate and challenges the ALJ's analysis of mitigation and rehabilitation evidence as contrary to the record. The Division of Enforcement ("Division") opposes the appeal, arguing that the ALJ's analysis is consistent with Commission precedent establishing guidelines for imposing these sanctions.
As explained more fully below, based on our independent assessment of the factual record, we deny Fetchenhier's application for registration as a floor trader and order him to show cause as to why we should not impose a ten-year trading prohibition on him.
On June 6, 1991, the Division of Enforcement ("Division") brought a three-count complaint against Fetchenhier. Specifically, the three counts alleged the following violations of the Commodity Exchange Act("Act" or "CEA"): (1) one violation of Section 4b(B) of the Act, 7 U.S.C. 6b(B)(1988) for willfully aiding and abetting the generation of a false record; (2) three violations of Section 4c(a)(A) of the Act, 7 U.S.C. 6c(a)(A)(1988) for accommodation trading; and (3) three violations of Commission Rule 1.38(a), 17 C.F.R. 1.38(a)(1988) for noncompetitive trading. The complaint also alleged that in 1991 a jury convicted Fetchenhier of one felony count of violating Section 4b(B) of the Act, three misdemeanor counts of violating Section 4c(a)(A) of the Act, one felony count of violating the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and two felony counts of violating the federal wire fraud statute. The Division sought a cease and desist order, a suspension or revocation of all current registrations, a trading prohibition, and a civil monetary penalty.
In his answer, Fetchenhier admitted his criminal convictions, but denied the allegations describing the activities upon which the convictions were based. He also raised two affirmative defenses. First, Fetchenhier argued that imposition of a sanction by the Commission would violate the Constitution's Double Jeopardy Clause. Fetchenhier also contended that the Commission was estopped from bringing this action because the Commission cooperated with the United States Department of Justice in the criminal investigation leading to his criminal conviction.
The Division moved for partial summary disposition on the issue of liability only, contending that the criminal convictions collaterally estopped Fetchenhier from denying the facts upon which his convictions were based. Fetchenhier filed a response conceding liability but reserving the right to present mitigation evidence.
In October 1991, the ALJ granted the Division's motion. The ALJ found that there was no genuine issue as to any material fact and no need to develop further facts in the record and that the Division was entitled to a decision as a matter of law. The ALJ imposed a cease and desist order and a five-year trading ban. As to Fetchenhier's request to present evidence on mitigation, the ALJ suggested that it be argued on appeal to the Commission. Both parties appealed.
In August 1993, we issued a decision finding that the ALJ abused his discretion by denying the parties an opportunity to develop the record on the sanctions issues through an oral hearing. In this regard, we determined that the ALJ had not given substantial weight to the Congressional policy reflected in Section 9(b) of the Act, 7 U.S.C. 13(b)(1988). We went on to hold that, under Section 9(b) of the Act, Fetchenhier's felony conviction under Section 4b of the Act raised a presumption that he should be prohibited from trading for five years. We therefore vacated the five-year trading ban imposed by the ALJ and remanded for a hearing to permit Fetchenhier to attempt to rebut this presumption. Further, we directed the ALJ to impose a five-year trading prohibition on Fetchenhier unless respondent could establish, 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. The Commission directed that respondent's rebuttal evidence should focus on the following factors: (1) the nexus between the wrongdoing underlying his conviction and a threat to the market mechanism; (2) circumstances that mitigate the wrongdoing underlying respondent's conviction (i.e., evidence which tends to show that the weight that would ordinarily be accorded the presumption should be lessened); (3) evidence of rehabilitation (a changed direction in respondent's activities since the time of the wrongdoing underlying his conviction); and (4) the role respondent intends to play in the markets regulated by the Commission. In re Fetchenhier, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) 25,838 at 40,746-47 (CFTC Aug. 13, 1993) ("Fetchenhier I").
During the pendency of the appeal, Fetchenhier applied for registration as a floor trader. In response, the Division challenged the application by instituting a new proceeding (CFTC Docket No. SD 93-14) ("registration case"). The Division alleged that by virtue of his felony convictions, Fetchenhier was subject to statutory disqualification under Sections 8a(2)(D) and (E) of the Act, 7 U.S.C. 12a(2)(D) and (E)(1988), and ineligible for registration as a floor trader. Consistent with Commission Rule 1.66(b), 17 C.F.R. 1.66(b)(1996) we ordered the ALJ to ascertain whether Fetchenhier was subject to a statutory disqualification from registration. If so, we directed the ALJ to issue an order within 30 days suspending respondent's no- action status and requiring Fetchenhier to show cause why his application for registration should not be denied.
On the same day that we issued an order in the sanctions case, Fetchenhier filed his answer in the registration case, admitting the criminal convictions and again asserting waiver and collateral estoppel as affirmative defenses. At the same time, Fetchenhier submitted an offer of settlement.
In September 1993, the second ALJ assigned to this matterfound that Fetchenhier was subject to a statutory disqualification, suspended his no-action status for six months, and ordered him to show cause as to why his application for registration as a floor trader should not be denied. In response to a joint motion by the parties, in November 1993 the ALJ consolidated the sanctions and registration cases.
In accordance with our August 1993 order, the ALJ held a hearing in April 1994. In addition to his own testimony, Fetchenhier offered the testimony of nine witnesses. The witness roster included traders, brokers, and officials of the CBOT. The Division presented the testimony of FBI undercover agent Richard L. Ostrom.
Fetchenhier discussed, in general terms, the circumstances surrounding his illegal trading but did not describe the specifics of the wrongdoing. (Tr. at 55.) Fetchenhier explained that in 1988 there was a drought, causing a shortage of soybeans, extreme price volatility, and a drastic increase in volume. (Tr. at 63.) Fetchenhier testified that there was much confusion as to who was buying and selling and at what price. (Tr. at 63-64.) Fetchenhier stated that these conditions caused numerous out tradesevery day and that it was a common practice for traders to engage in accommodation trading on the curbto correct errors and to avoid the risk of overnight price movements. (Tr. at 59-61, 63, 65.)
Fetchenhier addressed his intent with regard to the illegal trading. He stated that, at the time, he did not think he was doing anything wrong; rather he was just avoiding an inefficient technical requirement. (Tr. at 57, 61.) Fetchenhier explained that he used accommodation trades to liquidate his positions or, out of laziness, to avoid writing checks when settling out trades. (Tr. at 55-60.) While Fetchenhier maintained that he did not recall specific trades, he did concede that he was convicted of creating a false record and wire fraud for recording curb trades as occurring during normal trading hours. Id.; see also Post Hearing Brief at 3. With regard to the Section 4b felony for which he was convicted, Fetchenhier expressed bafflement that nine other traders engaged in trades with the same broker at the same price that he had, yet only he and the broker were charged with an offense. (Fetchenhier Sworn Statement, Ex. RXG at 3; Tr. at 53.)
Fetchenhier insisted that "[t]here was no harm to anyone. No customer ever lost a penny because of an accommodation trade." (Tr. at 62.) Fetchenhier claimed that accommodation trading benefitted customers because it enabled them to exit the market and avoid the risk of carrying a position overnight. (Tr. at 82.) Fetchenhier submitted that the magnitude of his illegal conduct is reflected in a relatively small amount of restitution--$1,250. Fetchenhier Sworn Statement, Ex. RXG at 7; Fetchenhier Post Hearing Brief at 4. He stressed the district court judge's finding that he was a "minor participant" in the "alleged conspiracy and scheme to defraud." Fetchenhier Post- Hearing Brief at 4.
Fetchenhier claimed that he had changed since his wrongdoing. He expressed remorse, noted that his acceptance of responsibility was acknowledged by the judge in the criminal case, and pointed out that it had been more than five years since the wrongdoing. Id. at 7, 8. Fetchenhier claimed that he had "had hundreds of hours to think about [his] conduct, recognize the mistakes that [he] made and . . . resolve [his] unqualified commitment to avoid in the future any conduct whatsoever violative of any applicable law, rule or regulation. . . ." Id. at 8. He acknowledged his wrongdoing and discussed his suffering in prison and a desire to spare his family from further pain. (Tr. at 60, 70.) Fetchenhier vowed never to violate the rules and regulations of trading again, and stated that if he could "guarantee it, sign it in blood, [he] would." (Tr. at 71.) Fetchenhier added that there had been no complaints concerning his trading since his return to the trading floor. (Tr. at 67.)
Scott Early, former General Counsel of the CBOT, opined that Fetchenhier had a good reputation for integrity and that Fetchenhier would not pose a threat to the market or the public if he were permitted to gain registration and continue trading on the exchange floor. (Tr. at 48.) Early testified that the only disciplinary action taken against Fetchenhier by the CBOT was the sanction arising from the same activities as the criminal prosecution. Early Sworn Statement, Ex. RXK at 4. Early reported that the periodic surveillance used on all traders had revealed no misconduct by Fetchenhier and that there had been no complaints. (Early Sworn Statement, Ex. RXK at 5; Tr. at 41, 46.) Early expressed the view that Fetchenhier's permanent presence at the CBOT would serve as "a continuing reminder to people of how severely trading violations can be sanctioned." (Early Sworn Statement, Ex. RXK at 6; Tr. at 48.) Early represented that the CBOT was prepared to sign a supplemental sponsor certification on behalf of Fetchenhier and supervise his compliance with any registration conditions or restrictions imposed by the Commission. (Early Sworn Statement, Ex. RXK at 5; Tr. at 42-45.)
The rest of Fetchenhier's witnesses opined that, despite his convictions, Fetchenhier would not be a risk to the integrity of the market. Three of Fetchenhier's witnesses testified to his reputation for honesty and integrity in the community. Fetchenhier's other witnesses attested to the high regard in which his colleagues hold him. Thomas J. Cashman stated that Fetchenhier is a very careful trader and would not knowingly break a rule. Cashman Sworn Statement, Ex. RXJ at 3. Both John K. Cardoza and Jacob J. Morowitz testified that they had traded with Fetchenhier and had never observed any wrongdoing by him. Cardoza Sworn Statement, Ex. RXI at 2, 3; Morowitz Sworn Statement, Ex. RXN at 2, 3.
Fetchenhier's witnesses testified that the activities for which respondent was convicted were not serious and that the violations were technical. Morowitz asserted that curb trading was a common practice and that traders utilized accommodation trading to pay each other, conduct he described as "no different than writing a check. . . ." (Tr. at 101-102.) Both Cardoza and Morowitz testified that curb trading is now legal under current CBOT rules. (Tr. at 91-92, 101.) Cashman stated his belief that, because the rules were technical, Fetchenhier did not understand that he was violating them. (Tr. at 78.) Cashman, Cardoza, and Morowitz also expressed their opinions that Fetchenhier was unfairly indicted, convicted, and incarcerated. (Tr. at 83, 91, 99-100.)
Fetchenhier's witnesses also testified concerning rehabilitation. Honsik and Queen testified that Fetchenhier had expressed remorse for his wrongdoing and that his family had suffered. (Tr. at 11, 29.) Fisher stated that he had had the opportunity to trade with Fetchenhier since his return to the trading floor and had not observed any improprieties. Fisher Sworn Statement II at 9. On the other hand, Morowitz denied that Fetchenhier's character had changed. (Tr. at 99.)
FBI undercover agent Richard Ostrom testified on behalf of the Division. Ostrom challenged the testimony of Fetchenhier's witnesses as to the benign nature of the wrongdoing by describing several schemes of traders and brokers to withhold customer orders from the market and trade them after the market had closed for their own profit at the expense of customers. (Ostrom Sworn Statement at 7-9; Tr. at 124-126.) Ostrom insisted that Fetchenhier was indicted for abusing customers' orders, not for curb trading. (Tr. at 125.)
To show that the acts for which Fetchenhier was convicted were not isolated incidents, Ostrom stated that he had engaged in a "number" of trades with Fetchenhier and had observed him trading on a "number of occasions" after the close of trading. Ostrom Sworn Statement at 12. He described two illegal trades which did not include customer orders and for which Fetchenhier was not indicted. (Ostrom Sworn Statement at 7, 14-16; Tr. at 119-120.) Ostrom related a transaction in which Fetchenhier sold him a quantity of soybeans for a price which had not traded that day and made it look as though the trade had occurred within the trading session. Ostrom Sworn Statement at 14-15. He also reported a trade with Fetchenhier which occurred about 24 minutes after the close. Id. at 16.
The ALJ issued a decision on remand in June 1994. In re Fetchenhier, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) 26,098 (ALJ June 1, 1994) ("Second Initial Decision"). Concluding that Fetchenhier had not submitted substantial evidence in mitigation of his egregious offenses or of rehabilitation, the ALJ determined that Fetchenhier had failed to establish that his continued access to the markets regulated by the Commission would pose no substantial risk to their integrity. Second Initial Decision at 41,630, 41,634.
As a preliminary matter, the ALJ noted that Fetchenhier had been found to participate deliberately in a scheme whereby traders profited at customers' expense. With regard to mitigation, the ALJ found that Fetchenhier was estopped from denying that he had acted with intent to defraud customers and had committed fraud because the Seventh Circuit had affirmed the jury's findings to the contrary. Id. n.35. The ALJ gave no significant weight to Fetchenhier's witnesses, whom he found to be colleagues and social friends who expressed affection and sympathy for Fetchenhier but provided not "even the slightest suggestion of any mitigating factors directly related to Fetchenhier's admitted felonious conduct." Id. Likewise, the ALJ accorded little weight to Fetchenhier's documentary submission showing a two-level reduction in his sentence for being a "minor participant" in the scheme to defraud because it reflected only that "his felonious conduct did not rise to the level of his co-conspirators." Id. at 41,636.
As to rehabilitation, the ALJ determined that Fetchenhier's expressions of regret and responsibility were negated by his testimony that he had not done anything wrong and had caused no harm to anyone. Id. at 41,636 n.45. Accordingly, the ALJ concluded that Fetchenhier's acceptance of responsibility during the sentencing in the criminal case was motivated by a desire for leniency in sentencing under the Federal Sentencing Guidelines rather than a "changed direction." Id. The ALJ also found that none of the witnesses had any expertise in evaluating the risk that Fetchenhier may pose to the public or to the integrity of the market. Id. at 41,636.
The ALJ also rejected Fetchenhier's proposed supervisory arrangements. Id. at 41,636. Citing In re Horn, [1990- 1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) 24,836 at 36,942 n.23 (CFTC Apr. 18, 1990), the ALJ determined that "[w]hile a suitable supervisory arrangement may complement persuasive evidence of mitigation and rehabilitation, it cannot serve as a substitute for such evidence". Id. at 41,636.
Accordingly, the ALJ denied Fetchenhier's application for registration and imposed a five-year trading ban. Id. at 41,637. Fetchenhier appealed.
Fetchenhier appeals the ALJ's refusal to allow him to register and the trading ban. He contends that the ALJ did not give appropriate weight to his evidence of mitigation and rehabilitation.
Fetchenhier maintains that the record contains facts and circumstances which mitigate the seriousness of his wrongdoing and relate specifically to the conduct at issue. Fetchenhier argues that the testimony as to his good character by both industry experts and knowledgeable lay witnesses demonstrates that his violative conduct was aberrant. He points to the district court's finding that he was a "minor participant" and the small amount of restitution required. Fetchenhier contends that the evidence shows that the wrongdoing was "undertaken as a matter of convenience . . . more akin to a technical violation than something bad in itself." Fetchenhier argues that the conduct at issue was common and widespread and known to enforcement authorities. He asserts that most of the trades at issue did not involve customer orders. Finally, he argues that curb trading is no longer illegal because the CBOT has adopted a new rule.
As to rehabilitation, Fetchenhier emphasizes his acknowledgment of the wrongful nature of his conduct and the resulting reduction in his sentence by the district court in recognition of his acceptance of responsibility. Fetchenhier stresses his vow never to repeat the illegal conduct and his unblemished trading record since his wrongdoing. Fetchenhier argues that his testimony to the effect that he did not think what he did was wrong should not have been given controlling weight by the ALJ because it is a "confused passage" and because he has traded without incident since the conviction, thus demonstrating his rehabilitation. Finally, Fetchenhier argues that the punishment he received is probative of his rehabilitation.
The Division responds that the ALJ's analysis of Fetchenhier's mitigation and rehabilitation evidence is fully supported by the record. The Division argues that the record demonstrates that Fetchenhier's illegal trading was not due to peculiar circumstances but the result of willful planning executed over a long period of time. It points to Fetchenhier's two-level increase under the sentencing guidelines for special skills which directly and significantly facilitated the commission and the concealment of the crime. The Division also points to Fetchenhier's convictions for RICO, mail and wire fraud, and accommodation and curb trading as aggravating factors. The Division contends, contrary to Fetchenhier's claim that the violations were merely technical, that the wrongdoing was grave and, for support, cites to the two-year prison term and other sanctions imposed by the district court.
The Division argues that Fetchenhier is not rehabilitated. The Division contends that Fetchenhier has not demonstrated a change in direction and that his witnesses provided no insights as to any changes. The Division emphasizes Fetchenhier's testimony throughout the hearing in which he failed to acknowledge the wrongfulness of his actions. In addition, the Division urges that the 18-month period prior to the hearing in which Fetchenhier had been trading is too short to demonstrate rehabilitation.
We have reviewed the entire record and have determined that the evidence supports the following findings and conclusions. We consider first Fetchenhier's application for floor trader registration.
Proof that Fetchenhier is statutorily disqualified under Sections 8a(2)(D) and (E) of the Act raises a presumption that he is unfit to act as a Commission registrant. Horn, 24,836 at 36,939. This presumption rests on the common sense inference that, once an individual has undertaken serious wrongdoing, there is a substantial risk he will undertake similar wrongdoing in the future. In re Akar, [1986-1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) 22,927 at 31,708 (CFTC Feb. 24, 1986). Thus, we will register Fetchenhier only if he makes a clear and convincing showing that his continued registration would not pose a substantial risk to the public. See Commission Rule 3.60(e), 17 C.F.R. 3.60(e)(1)(1996).
Fetchenhier was convicted of four felonies, including a felony under Section 4b of the Act for willfully aiding and abetting the generation of a false record. The ALJ correctly concluded that Fetchenhier's felony convictions constituted statutory disqualifications from registration pursuant to Sections 8a(2)(D) and (E) of the Act (ALJ Order, Sept. 1993), and Fetchenhier does not dispute that his convictions consequently raised a presumption that he is disqualified from registration.
First, we assess the nature and gravity of Fetchenhier's misconduct. Generally, when assessing the nature and gravity of the misconduct, we examine the misconduct itself. During the hearing two additional transactions were described and were presented as aggravating evidence to show that the wrongful transactions which resulted in Fetchenhier's convictions were not isolated incidents.
The best description of Fetchenhier's wrongful conduct is found in the Seventh Circuit's opinion in Ashman, 979 F.2d at 469. That opinion states that Fetchenhier was a local trader who functioned as a "bagman." Ashman, 979 F.2d at 476. Two brokers orchestrated a series of trades to create profits in Fetchenhier's account. Ashman, 979 F.2d at 485. The Seventh Circuit stated that "Nowak [a broker] directed Ostrom [an FBI undercover agent acting as a trader] to pass $4,000 that Ostrom was holding for him back to Nowak in two sets of prearranged trades. Nowak recruited Fetchenhier to trade between them so that it would not, in Nowak's words, 'look terrible'--that is, 'look like a prearranged trade'." Ashman, 979 F.2d at 486. Nowak testified that he selected certain prices that generated profits for Fetchenhier because Nowak owed him money for having accepted losses. Ashman, 979 F.2d at 481. Fetchenhier accepted losses from Nowak and was repaid from customer orders. Ashman, 979 F.2d at 492. The defendants, including Fetchenhier, "agreed to commit a pattern of racketeering activity." Ashman, 979 F.2d at 491-492. Based on the evidence, it is clear that Fetchenhier's violations were serious.
To counter the gravity of his offenses, Fetchenhier points to the finding by the district court judge that he was a "minor" participant. Consequently, we have examined the district court judge's opinion. The district court found that Fetchenhier was a "minor" but not a "minimal" participant in the offense. Dempsey, 768 F. Supp. at 1284. The court explained that, under the federal sentencing guidelines, the base offense for a minor participant is decreased by two levels and the base offense for a minimal participant is decreased by four levels. Id. In determining a minor participant, the court stated that it looks to whether a particular defendant is less culpable than the average participant in the criminal activity. Id. However, nothing that the court said implies that Fetchenhier's behavior was qualitatively different from the wrongdoing underlying the heart of the mail and wire fraud scheme. Thus, we conclude that Fetchenhier's status as a "minor" participant does not render Fetchenhier's offenses significantly less serious.
Fetchenhier suggests that the misconduct leading to his felony convictions harmed no one. On appeal, the Seventh Circuit rejected this argument and found that Fetchenhier was clearly involved in a systematic scheme to match trades whereby profits were shifted to floor traders at the expense of customers. Ashman, 979 F.2d at 477, 485. In this context, we give little weight to the testimony of Fetchenhier's witnesses, who described respondent's misconduct as technical violations. That some CBOT members other than Fetchenhier also apparently chose to evade the clear requirements of Commission Rule 1.38 neither explains nor mitigates Fetchenhier's wrongdoing. Open and competitive execution is the bedrock underlying public confidence in the objectivity and fairness of futures trading. A belief that such a fundamental protection may be casually discarded as a matter of business convenience is incompatible with the privilege of trading on such markets. Such a belief does not become more acceptable simply because it is shared by others with a similar motive to raise personal interest and convenience above the basic rules of the market.
Having determined that Fetchenhier's offenses are very grave, we turn to consideration of Fetchenhier's evidence of mitigation. Fetchenhier claims that hectic and volatile market conditions mitigated his violations. The hectic trading conditions that often accompany volatile markets, however, are neither unusual nor unforeseeable. Such conditions are a fact of life in the futures markets that can neither justify nor mitigate resort to illegal practices. While we are aware that market conditions may have created incentives to cut corners, we conclude that the hectic market conditions during this period did not mitigate Fetchenhier's wrongdoing.
Further, we are not persuaded that alleged widespread trading after the market close at the CBOT mitigates Fetchenhier's wrongdoing. First, to the degree that Fetchenhier claims that this evidence shows "confusion" as to the legality of his conduct, we disagree. All CBOT members, including Fetchenhier, were on notice that noncompetitive trading was illegal. At the time of Fetchenhier's violations, Commission Rule 1.38 provided that noncompetitive trades were unlawful unless executed "in accordance with written rules of the contract market which have been submitted to and approved by the Commission." The CBOT did not have a written rule that authorized members to use noncompetitive trades to execute trades after the market close, and Fetchenhier's evidence does not demonstrate any legitimate confusion about the legality of his conduct.
Second, we view evidence that others at the CBOT may have acted illegally during this period as providing little basis for mitigation. To the contrary, we view the exchange's inability or unwillingness to enforce compliance with applicable law as giving rise to a greater need for the Commission to impose sufficiently significant sanctions to deter others from similar behavior and to protect the public interest. Nor do we believe that the fact that others at the CBOT may also have violated the Act and Commission rules in any way lessens Fetchenhier's personal culpability.
Third, even if trading after the close were prevalent, at best it would be relevant to Fetchenhier's incidents of accommodation trading in violation of Section 4c(a)(A) of the Act and noncompetitive trading in violation of Commission Rule 1.38. Respondent does not explain how "confusion" with regard to the legality of late trading caused him to commit felony violations of Section 4b of the Act, the RICO statute, and the federal wire fraud statute by aiding and abetting in the deceit of customers.
Nor does the CBOT's adoption of a rule permitting a limited period of trading after the market close somehow justify Fetchenhier's misconduct. The new rule does not permit prearranged transactions in which prices are assigned to the detriment of customers.
Based on the foregoing analysis, we conclude that Fetchenhier has failed to produce significant evidence to mitigate the seriousness of his wrongdoing. Accordingly, we turn to the issue of "the changed direction of his activities," which is the focus of a rehabilitation analysis. Compare Horn, 24,836 at 36,940; In re Tipton, [1977-1980 Transfer Binder] Comm. Fut. L. Rep. (CCH) 20,673 at 22,750 n.9 (CFTC Sept. 22, 1978); Akar, 22,927 at 31,709-10.
Our rehabilitation inquiry begins with respondent's conduct from "the time of the wrongdoing underlying the statutory disqualification . . . ." 17 C.F.R. 3.60(b)(2)(ii)(B)(1996). Fetchenhier points out that the district court judge's sentencing order entered a two-point reduction in sentencing due to Fetchenhier's acceptance of responsibility. Also, Fetchenhier's witnesses testified that he had expressed remorse. We have previously noted that expressions of contrition following detection only deserve significant weight if the wrongful nature of the conduct was unclear at the time of the violations. Horn, 24,836 at 36,940. As demonstrated above, Fetchenhier has not shown that he was confused about the illegality of his conduct at the time of his wrongdoing.
We find that Fetchenhier has not acknowledged the gravity of his misconduct in purportedly taking responsibility for his actions. During the criminal trial and throughout much of the proceedings before the ALJ, respondent continued to maintain that there was no harm to customers as a result of his misconduct. In fact, at the hearing before the ALJ, more than two years after his release from prison, Fetchenhier stated that "[t]here was no harm to anyone. No customer ever lost a penny because of an accommodation trade." (Tr. at 62.) Thus, Fetchenhier has not even taken the important first step on the path of rehabilitation.
As a general rule, we do not accord significant weight to the character testimony of a witness unless such witness was qualified as an expert. Compare In re Walter, [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) 24,215 at 35,015 (CFTC Apr. 14, 1988) (probation officer, who worked closely with respondent for significant period after his conviction, had experience and expertise that buttressed the reliability of his opinion that respondent did not present negative risk to community), with In re LeClaire, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) 26,282 at 42,428 (CFTC Dec. 12, 1994) (noting that almost every respondent can produce evidence such as testimony from a friend or colleague attesting to the witness's trust in respondent and belief he will not repeat his violative conduct). Fetchenhier did not attempt to qualify any of his witnesses as experts in the area of rehabilitation.
Even apart from this general weakness, the character testimony of Fetchenhier's witnesses is not persuasive. These witnesses made only passing reference to the requirements of the Act or the Commission's regulations in analyzing respondent's conduct and the propriety of his illegal trading. The testimony reflected, little concern with the customers harmed by Fetchenhier's wrongdoing. In short, respondent's character witnesses showed limited appreciation for the interest of the public.
Similarly, Fetchenhier's "lay witnesses" (Res. Ap. Br. at 9) were neither experts in trading nor experts in rehabilitation. They testified to Fetchenhier's reputation in the community, but could offer no insight as to how Fetchenhier had changed or how his trading practices had been affected. Since they admittedly were not familiar with the "intricacies of the trading conduct at issue" (Res. Ap. Br. at 9), the value of their opinions as to the threat Fetchenhier would pose to the integrity of the market is limited. In addition, Fetchenhier contends that he has committed no wrongdoing since the misconduct underlying his felony convictions and urges that the inference of a changed direction is strengthened by the fact that he traded for 15 months under heightened scrutiny. The inference of a "changed direction" is undercut by the fact that Fetchenhier was subject to an outstanding administrative complaint. As we have noted in the past, the weight accorded such evidence must be limited in these circumstances. In re Silverman, [1977-1980 Transfer Binder] Comm. Fut. L. Rep. (CCH) 20,410 at 21,643 (CFTC Mar. 14, 1977), aff'd sub nom. Silverman v. CFTC, 562 F.2d 432 (7th Cir. 1977). Fetchenhier has offered no persuasive evidence of a change in trading practices that occurred prior to the issuance of our administrative complaint, and thus we accord limited weight to his evidence concerning his trade practices following his return to the market. Furthermore, under the circumstances we consider 15 months of trading without disciplinary action as insufficient to demonstrate a clear change in direction.
Ultimately, we must weigh Fetchenhier's rebuttal evidence against the presumption raised by his four felony convictions, including one felony violation of Section 4b. If as Sections 8a(2)(D) and (E) indicate, a single felony conviction raises a presumption of unfitness for continued registration, four felony convictions raise a even stronger presumption to overcome. Fetchenhier's four felony convictions, taken together with three misdemeanor convictions and other evidence of wrongdoing, reflect a pattern of conduct that establishes a likelihood the wrongdoing will be repeated. Cf. Precious Metals Assoc. v. CFTC, 620 F.2d 900, 912 (1st Cir. 1980) (holding that a proclivity to violate the law may be inferred from persistent attempts to interfere with legislatively protected rights).
In light of our evaluation of the record as a whole, we conclude that Fetchenhier has failed to make a clear and convincing showing that his continued registration would pose no substantial risk to the public. Accordingly, based on the evidence that Fetchenhier is subject to multiple statutory disqualifications from registration, we deny his application for registration as a floor trader.
Turning to a prohibition on trading, we have considered the entire record and have determined that the weight of the evidence supports the imposition of a ten-year trading ban. Under Section 9(b) of the Act, proof of Fetchenhier's felony conviction under Section 4b of the Act gives rise to the presumption that he should be banned from trading for five years or longer. Fetchenhier I, 25,838 at 40,746. In Fetchenhier I we stated that this statutory directive rests on a common sense judgment that, once an individual has undertaken serious wrongdoing, there is a substantial risk that he will undertake similar wrongdoing in the future. As a result, we held that, once the Division has demonstrated the appropriate type of felony violation, a presumption arises that respondent will pose a substantial risk to the markets regulated by the Commission for at least five years. Under the terms of the statute, this presumption arises without regard to the nature or gravity of respondent's felony violation. Thus, respondent may continue to trade only if he shows by the weight of the evidence that his continued access to markets regulated by the Commission will pose no substantial risk to their integrity. Id. We have already determined that there is a nexus between the wrongdoing underlying Fetchenhier's conviction and a threat to the market mechanism. Fetchenhier I 25,838 at 40,746.
With respect to the role he intends to play in the market, Fetchenhier proposes to trade as a floor trader, the same role in which he was functioning at the time of his wrongdoing. In essence this would put him in a position to repeat his misconduct. Moreover, this proposal is based on the assumption that respondent will remain a Commission registrant. As discussed above, we have determined not to grant Fetchenhier's registration application.
We have already assessed the mitigation evidence offered by respondent and found that it does not mitigate his wrongdoing. In determining the appropriate sanction, we must also consider the evidence which compounds the seriousness of the offense and evidence of other wrongdoing offered by the Division.
In Fetchenhier I we stated that
[A]ggravating evidence should not be used to extend the length of a trading prohibition, it should be carefully weighed against a respondent's mitigation arguments in assessing the public interest. Thus, on remand, the ALJ should impose a five year trading prohibition on Fetchenhier unless he establishes, by the weight of the evidence, that his continued access to the markets regulated by the Commission will pose no substantial risk to their integrity.
Fetchenhier I 25,838 at 40,747.
Upon further consideration, we have come to the conclusion that our instructions to the ALJ that aggravating evidence cannot form the basis for an increase in the sanction beyond five years was contrary to the statute and clearly erroneous. Although Fetchenhier was convicted of only one Section 4(b) felony, he was also convicted of one RICO and two wire fraud violations and three misdemeanors. Additionally, evidence was introduced indicating that Fetchenhier committed other violations for which he was not charged. We are struck by the very serious nature and gravity of these additional felonies and the pattern of wrongdoing established by the other offenses.
Section 9(b) provides that a conviction of a single Section 4(b) felony requires the imposition of a trading ban of five years or longer unless such ban is not required to protect the public interest. Our prior statement that the ALJ should consider a trading ban of no more than five years is inconsistent with the plain language of Section 9(b). In light of the pattern of violations by Fetchenhier, we do not believe that a five-year trading ban is sufficient to protect the integrity of the markets. The pattern of wrongdoing displayed by Fetchenhier establishes a strong likelihood that his wrongdoing will be repeated and that he will remain a threat to these markets. Cf. Precious Metals Assoc., 620 F.2d at 912.
As indicated above, Fetchenhier has failed to adduce evidence sufficient to support, by the weight of the evidence standard, a finding of rehabilitation or otherwise rebut the presumption raised by his felony convictions and other serious violations committed on the floor of the exchange. Thus, we conclude that Fetchenhier has failed to show that his continued access to markets regulated by the Commission will pose no substantial risk to their integrity and we impose a ten-year trading ban.
In light of the mandates in Sections 8a(2) and 9(b) and our assessment of the record as a whole, we conclude that respondent should be denied registration as a floor trader and prohibited from trading on the markets regulated by the Commission for a period of ten years.
We have modified our interpretation of Section 9(b) set forth in Fetchenhier I and have determined that Fetchenhier should be banned from trading for ten years. Because of our departure from the reasoning of Fetchenhier I with regard to the role of other wrongdoing in imposing a trading ban, we will confer an opportunity to Fetchenhier to introduce any additional evidence or argument directed to the other violations in order to show cause as to why a ten-year trading ban should not be imposed. Fetchenhier must submit his showing within 30 days from the date of this decision. The Division may reply within 20 days of receipt of any filing by Fetchenhier.
The registration application denial, the cease and desist order, and the ten-year trading ban shall become effective 30 days from the date this order is served unless Fetchenhier files a response to our order to show cause as to why a ten-year trading ban should not be imposed.
IT IS SO ORDERED.
By the Commission (Chairperson BORN, Commissioners TULL, DIAL, SPEARS, and HOLUM).
Jean A. Webb
Secretary of the Commission
Commodity Futures Trading Commission
Dated: May 8, 1997