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
On May 8, 1997 we issued an opinion and order imposing a cease and desist order on Joel J. Fetchenhier, denying his application for registration as a floor trader, and ordering him to show cause as to why we should not impose a ten-year trading prohibition on him. Upon consideration of Fetchenhier's response, we have determined to impose a ten-year trading ban under Section 9(b) of the Act, 7 U.S.C. § 13(b)(1988).
On June 6, 1991, the Division of Enforcement ("Division") brought a three-count complaint against Fetchenhier.(1) Specifically, the three counts alleged the following violations of the Commodity Exchange Act(2) ("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.(3) The Division sought a cease and desist order, a suspension or revocation of all registrations, a trading prohibition, and a civil monetary penalty. After granting the Division's motion for summary disposition on the liability issues, in October 1991 an Administrative Law Judge ("ALJ") imposed a cease and desist order and five-year trading ban. In re Fetchenhier, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,173 (ALJ Oct. 23, 1991) ("First Initial Decision").
In August 1993, we held 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 vacated the five-year trading ban imposed by the ALJ and remanded for a hearing to permit Fetchenhier to attempt to rebut this presumption.(4) 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. In re Fetchenhier, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,838 at 40,746-47 (CFTC Aug. 13, 1993) ("Fetchenhier I").
After a hearing at which the parties offered evidence regarding mitigation and rehabilitation, the ALJ issued a decision on remand in June 1994.(5) In re Fetchenhier, [1992-1994 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. Id. at 41,630. Consequently, the ALJ denied Fetchenhier's application for registration and imposed a cease and desist order and a five-year trading ban. Fetchenhier appealed.
On appeal from the Second Initial Decision, we held that the weight of the evidence supports the imposition of a cease and desist order, a ten-year trading ban, and denial of Fetchenhier's registration application. In re Fetchenhier, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,055 (CFTC May 8, 1997) ("Fetchenhier II"). With regard to the trading ban, we explained that 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 at least five years. Id. at 45,016 (citing Fetchenhier I, ¶ 25,838 at 40,746). We held that this presumption arises under the statute without regard to the nature or gravity of respondent's felony violation. Id. Thus, Fetchenhier would be able to continue to trade only if he showed by the weight of the evidence that his continued access to markets regulated by the Commission would pose no substantial risk to their integrity. Id. However, we determined that the mitigation evidence offered by Fetchenhier did not mitigate his wrongdoing and his evidence of rehabilitation was unconvincing.
Turning to determination of the appropriate length of the trading ban, we concluded that our instructions to the ALJ in Fetchenhier I that aggravating evidence cannot form the basis for an increase in the sanction beyond five years were contrary to the statute and clearly erroneous because Section 9(b) requires the imposition of a trading ban of five years or longer unless such ban is not required to protect the public interest. Thus, our statement in Fetchenhier I, ¶ 25,838 at 40,747, 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 assessing the record as a whole, we noted "the very serious nature and gravity of [the] additional felonies and the pattern of wrongdoing" demonstrated by Fetchenhier's convictions for one RICO and two wire fraud felony violations and three misdemeanors in addition to the Section 4b felony. Fetchenhier II, ¶ 27,055 at 45,017. Moreover, Fetchenhier's offenses were more serious than those of respondents in other proceedings whose offenses warranted a five-year trading ban, and it would be inequitable not to impose a longer trading ban on Fetchenhier. Fetchenhier II, id. n.43 citing, In re LaCrosse, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,960 (CFTC Feb. 28, 1997); In re Smith, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,991 (CFTC Mar. 11, 1997); and In re Ryan, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,049 (Apr. 25, 1997). We found that a five-year trading ban was not sufficient to protect the integrity of the markets and imposed a ten-year trading ban.
In view of our departure from the reasoning of Fetchenhier I with regard to the role of other wrongdoing in imposing a trading ban, we provided Fetchenhier an opportunity to introduce any additional evidence or argument directed to his violations in order to show cause why a ten-year trading ban should not be imposed. Both Fetchenhier and the Division filed timely responses.
In his response, Fetchenhier argues that he is entitled to a new hearing because he did not receive fair notice of the severity of the sanction and that he might have presented different evidence had he known the trading ban could have been increased to ten years. Noting that his wrongdoing occurred nine years ago, Fetchenhier also contends that he can adduce additional evidence which would support his assertion that he is fully rehabilitated. To support this claim, Fetchenhier submitted his own affidavit and those of Thomas R. Donovan, President and Chief Executive Officer of CBOT, and Marc Cardoza, a CBOT trader.
Moreover, Fetchenhier contends that we improperly changed our legal interpretation of the appropriate period of a trading ban from five years to ten years. Fetchenhier contends that the doctrine of the law of the case prevents reconsideration of the Commission's instructions in Fetchenhier I absent unusual circumstances or a compelling reason.
The Division argues that Fetchenhier has not shown cause why he should not be prohibited from trading for ten years because he has not presented any evidence mitigating or otherwise addressing his wrongdoing. The Division also maintains that the new evidence does not support a finding of rehabilitation. It notes that the mere passage of time is not enough to show rehabilitation and that Fetchenhier's good behavior occurred while he was the subject of an administrative complaint. Moreover, the Division argues, Fetchenhier has not acknowledged the gravity of his wrongdoing. Finally, the Division asserts that evidence offered by Fetchenhier's character witnesses deserves little weight because they have no expertise in rehabilitation and their testimony does not reflect the public interest.
The Division also argues that no new hearing is required. The Division points out that our powers of review include the authority to increase the level of sanctions initially imposed and that the language of Section 9(b) put Fetchenhier on notice that he was subject to a trading prohibition of more than five years. Additionally, the Division asserts that the doctrine of the law of the case does not bind us to an erroneous ruling.
Fetchenhier's Contention that He Has Demonstrated Rehabilitation and
Is Entitled to a New Hearing.
In arguing that he should be granted a new hearing, Fetchenhier relies on BMW of North America, Inc. v. Gore, __ U.S.__, 116 S. Ct. 1589, 1598 (1996) ("Elementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment but also of the severity of the penalty. . . ."). Fetchenhier's reliance on BMW is unavailing. BMW involved the imposition of a "grossly excessive" punitive damage award in a tort case. Id. at 1592.
It is significant that, not only has Fetchenhier failed to inform us as to what evidence he would have submitted initially had he known that he was subject to a ten-year trading ban, but he has not presented any evidence at this time showing that a ten-year trading ban is an inappropriate sanction. Moreover, Fetchenhier has been given fair notice of the severity of the proposed sanction. On its face, the statute provides for a trading ban of five years or longer for a Section 4b felony conviction. We gave Fetchenhier notice that we contemplated a ten-year trading ban and accorded him the opportunity to submit additional evidence to address that sanction. This is all that is required. Compare U.S. v. Stone, 954 F.2d 1187 (6th Cir. 1992) (since defendant in a check kiting case had adequate notice of amendment of criminal information before trial, and stipulated to amendment, defendant's substantial rights were not prejudiced by amendment) with Lankford v. Idaho, 500 U.S. 110, 127 (1991) (due process violated because defendant and his counsel did not have any notice that judge might impose death sentence creating "an impermissible risk that the adversary process may have malfunctioned in this case").
We gave Fetchenhier the opportunity to buttress the evidence on the record to address the gravity of the crimes (in addition to the Section 4b conviction) for which Fetchenhier was convicted and any mitigating factors.(6) The show cause order was intended to allow Fetchenhier to demonstrate why we may have erred in relying on those additional convictions in imposing a ten-year trading ban. However, Fetchenhier has not submitted evidence addressing the wrongdoing.(7) Thus, we do not change our conclusion that Fetchenhier has failed to produce evidence to mitigate the seriousness of his wrongdoing. Fetchenhier II, ¶ 27,055 at 45,014.(8)
Fetchenhier's response to our show cause order centers on new evidence he would like to submit regarding his rehabilitation since the time of his last hearing. Specifically, Fetchenhier asks us to consider his trading record during a period which commenced after the hearing before the ALJ and requests a new hearing at this time. While the subject of the current inquiry was not intended to be Fetchenhier's alleged rehabilitation since the last hearing, nevertheless, we have considered the additional rehabilitation evidence Fetchenhier has submitted and have found it insufficient.
First, Fetchenhier submitted his own affidavit in which he states that he acknowledges and regrets the "facts underlying his violations." Fetchenhier has not stated what those facts are or explained what it is that he acknowledges is wrong. Furthermore, Fetchenhier still has not acknowledged that he harmed anyone. Fetchenhier therefore has not demonstrated that he has confronted his wrongful behavior, understands his misconduct, and is committed not to repeat it. Consequently, we do not accord much weight to his acknowledgment of wrongdoing. Fetchenhier also asserts that he has been trading since February 1993 without incident and promises not to violate the rules in the future. While his affidavit discusses the number of the trades he executes and asserts that he has been following the rules, Fetchenhier does not discuss any change in his attitude or how his trading has been affected.(9) Fetchenhier's affidavit reports that he did not violate the terms of his probation and thus the probation was terminated early. However, Fetchenhier has not explained what the terms of his probation were and how these terms affected his trading and whether the probation officer was monitoring his trading and would have been able to detect violations of the trading rules.(10) Thus, we are unable to conclude that a change in direction has been demonstrated.
Finally, in his affidavit Fetchenhier consents to any monitoring and restrictions the Commission might place on him. Fetchenhier presented an affidavit of Thomas R. Donovan, President and CEO of the CBOT, who offers, on behalf of CBOT, to assume primary responsibility for supervision of Fetchenhier's trading activity. However, we will not impose monitoring and restrictions upon Fetchenhier's trading unless we are first convinced that he has been rehabilitated. Our precedent indicates that supervisory arrangements are not a substitute for persuasive evidence of rehabilitation. In re Scheck, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,072 at 45,126 (CFTC June 4, 1997) (citing In re Horn, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,836 at 36,942 n.23 (CFTC Apr. 18, 1990)), and Mosky, ¶ 27,097 at 45,188 (same).
Donovan's affidavit also reports that since Fetchenhier's return to trading, CBOT members have had an opportunity to observe his trading and have not noticed or reported any irregularity or breach of the rules by him. However, the type of trading violations committed by Fetchenhier were very hard to detect and were discovered only by an undercover FBI agent who was on the floor of the exchange. Two of Fetchenhier's witnesses at the hearing testified that they had traded with Fetchenhier prior to his convictions and had never observed any wrongdoing. Fetchenhier II, ¶ 27,055 at 45,010. Furthermore, Donovan does not describe the methods exchange members are now using to observe Fetchenhier and how it has improved their ability to determine whether Fetchenhier has violated any rules. Accordingly, his representations are of limited value.
Finally, Fetchenhier offers an affidavit of Marc Cardoza, a 28-year-old CBOT trader with two years experience. Cardoza states that he trades near Fetchenhier and has never observed him doing anything wrong. However, Cardoza does not explain how he would be able to detect wrongdoing by Fetchenhier. There is no indication in the affidavit of the intensity and type of scrutiny Cardoza has applied to his observation of Fetchenhier's trading. Further, since Cardoza did not know Fetchenhier earlier, his testimony does not provide insight into a change in Fetchenhier's character. Accordingly, we conclude that the evidence Fetchenhier has offered does not demonstrate his rehabilitation. A new hearing is denied.
Fetchenhier's Argument that Law of the Case Doctrine Binds the Commission to a Five-Year Trading Ban.
Fetchenhier argues that "[t]he doctrine of the law of the case prevents reconsideration of that decision barring `unusual circumstances or a compelling reason'," quoting Wzorek v. City of Chicago, 906 F.2d 1180, 1185 (7th Cir. 1990). Fetchenhier submits that there are no unusual circumstances or compelling reasons in this case. He maintains that the Commission did not misread Section 9(b) of the Act, when in Fetchenhier I it directed the ALJ to impose a trading ban of five years on Fetchenhier if he did not rebut the statutory presumption. Consequently, Fetchenhier asserts that the Commission is bound by the law of the case and must adhere to its initial ruling applying a presumption of a five-year trading ban.
Under the law of the case doctrine, a presumption arises that a ruling made at one stage of a lawsuit will be adhered to throughout the suit. Nacht v. Merrill Lynch, CFTC Docket No. R295, 1996 CFTC Lexis 250, at *15 (CFTC Dec. 11, 1996), citing Avitia v. Metropolitan Club of Chicago, Inc., 49 F.3d 1219 1227 (7th Cir. 1995). Nonetheless, reexamination of an earlier ruling is appropriate if there is "a strong and reasonable' conviction that the earlier ruling was wrong, and the record demonstrates that rescinding the ruling `would not cause undue harm to the party that had benefited from it'." Id. citing Avitia, citing Arizona v. California, 460 U.S. 605, 618 n.8. See also Kori Corp. v. Wilco Marsh Buggies and Draglines, 761 F.2d 649, 657 (Fed. Cir. 1985) (law of the case does not apply when the decision was clearly erroneous).
We decided that there was a compelling reason for departing from the reasoning of Fetchenhier I with respect to the length of the trading ban. We concluded that the Commission's statement in Fetchenhier I, ¶ 25,838 at 40,747, that the ALJ should consider a trading ban of no more than five years is inconsistent with the plain language of Section 9(b) which requires that a trading ban of five years or longer be imposed for a conviction of a single Section 4b felony unless the Commission finds that such ban is not required to protect the public interest. The law of the case doctrine does not require us to perpetuate such an error of law. Champaign-Urbana News, Etc. v. J.L. Cummins, 632 F.2d 680, 683 (7th Cir. 1980), citing Messinger v. Anderson, 225 U.S. 436, 444 (1912).
In light of the mandates in Sections 8a(2) 7 U.S.C. 7 U.S.C. 12a(2) (1988) 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.(11)
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.(12)
IT IS SO ORDERED.
By the Commission (Chairperson BORN, Commissioners TULL, DIAL, SPEARS and
Jean A. Webb
Secretary of the Commission
Commodity Futures Trading Commission
Dated: October 31, 1997
1. The Division's complaint had its genesis in a joint sting operation between the Commission and the Federal Bureau of Investigation ("FBI") conducted during 1987-1988 in the soybean futures pit of the Board of Trade of the City of Chicago ("CBOT"). Fetchenhier had been a member of the CBOT since 1976. Fetchenhier traded for his own account and was not registered with the Commission in any capacity.
2. The Act was redesignated and amended, in part, by the Futures Trading Practices Act of 1992 ("FPTA"), Pub. L. No. 102-546, 106 Stat. 3590. As this proceeding was conducted exclusively under the Act as it existed prior to enactment of the FTPA, the decision refers to the Act's provisions by their pre-FTPA designations.
3. Fetchenhier was sentenced to 24 months
incarceration to be followed by three years of supervised release. The
court also ordered Fetchenhier to pay restitution in the amount of
$1,250, a forfeiture of $150,000, a $10,000 fine, and a special
assessment in the amount of $275. United States v. Dempsey, 768 F.
Supp. 1277 (N.D. Ill. May 31, 1991).
Fetchenhier appealed to the U.S. Court of Appeals for the Seventh Circuit ("Seventh Circuit"). The court affirmed Fetchenhier's convictions and rejected his challenge to sentencing. United States v. Ashman, 979 F.2d 469 (7th Cir. 1992), cert. denied sub nom. Barcal v. United States, 510 U.S. 814 (1993).
4. At the time this case was commenced,
Section 9(b) provided that it was a felony to violate knowingly several
specific provisions of the Act, including Section 4b. It further stated
A person convicted of a felony under this subsection 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 shall prescribe, unless the Commission determines that imposition of such . . . market bar is not required to protect the public interest. The Commission may upon petition later review such . . . market bar and for good cause shown reduce the period thereof.
5. During the pendency of the proceeding, Fetchenhier applied for registration as a floor trader. In response, the Division challenged the application by instituting a second proceeding (CFTC Docket No. SD 93-14). In November 1993 the ALJ consolidated the sanctions and registration cases in response to a joint motion by the parties.
6. Fetchenhier charges that the Commission
erroneously relied upon statements by FBI Agent Ostrom concerning other
transactions for which respondent was not charged. Challenging
Ostrom's credibility, Fetchenhier argues that the Commission should
not have given Ostrom's testimony any weight and should not increase
the ban for an additional five years based on that record.
We do not find Ostrom's testimony to lack credibility, nor did the ALJ. In view of Fetchenhier's own admission that he engaged in other violative conduct, Tr. at 55, we reject his contention that we relied on questionable evidence. In focusing on the agent's testimony, Fetchenhier misapprehends the basis upon which we increased the length of the trading ban. We have relied on Fetchenhier's convictions of three felonies and three misdemeanors in deciding that a trading ban of ten years is warranted.
7. Fetchenhier reiterates his argument that the trading ban is disproportionate to sanctions imposed in other cases. (Citing In re Incomco, Inc., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,198 (CFTC Dec. 30, 1991) and In re Bear Stearns & Co., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,994 (CFTC Jan. 25, 1991)). As we stated in Fetchenhier II, ¶ 27,055 at 45,017 n.44, Incomco was commenced prior to the effective date of Section 9(b), and the Commission did not rely on it in imposing sanctions. The same is true for Bear Stearns.
8. Fetchenhier objects to our reference in Fetchenhier II, ¶ 27,055 at 45,013, to the Seventh Circuit finding "that Fetchenhier was clearly involved in a systematic scheme to match trades whereby profits were shifted to floor traders at the expense of customers." Fetchenhier states that he "was neither charged with nor convicted of any violation of federal law which involved `matching trades'." Res. Br. at 13. It is clear that the Seventh Circuit found that Fetchenhier was "part of an ongoing and flexible agreement to commit fraud as the need--or perhaps the opportunity--arose" and that he was found guilty of racketeering activity and wire fraud because he accepted losses from a broker and was repaid from customer orders. U.S. v. Ashman, 979 F.2d at 492. Consequently, Fetchenhier's argument does not affect our decision that a ten-year ban is needed to protect the public interest.
9. Moreover, the inference of a "changed direction" is undercut by the fact that Fetchenhier was subject to an outstanding administrative complaint. As we have previously noted, the weight accorded such evidence must be limited in these circumstances. In re Mosky, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,097 at 45,188 (CFTC June 25, 1997) citing 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).
10. Fetchenhier submitted a copy of the court order terminating probation. The court order shows that probation was terminated but does not discuss a change in Fetchenhier and does not explain the criteria upon which the termination was based. Accordingly, we cannot rely upon it as evidence of rehabilitation.
11. Once a trading prohibition has been imposed in accordance with Section 9(b), the Commission is authorized to accept petitions and, for good cause shown, to reduce the period of the prohibition. As a matter of guidance, we note that we will consider a petition from Fetchenhier after five years from the date the trading prohibition becomes effective.
12. A notice of appeal must be filed with the relevant United States Court of Appeals must be filed within 15 days of the date this order is served. See Section 6(c) of the Act, 7 U.S.C. § 9 (1994). A motion to stay the effect of this decision pending reconsideration by the Commission must be filed with the Commission within 15 days of the date this order is served. See Commission Rule 10.106, 17 C.F.R. § 10,106 (1997).