UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
_________________________________ : In the Matter of : CFTC Docket No. 89-23 : KENNETH R. GROSSFELD : ORDER and MURRAY L. STEIN : _________________________________:
Respondents Kenneth R. Grossfeld and Murray L. Stein move to stay the civil money penalties imposed in our opinion and order of December 10, 1996 pending their appeal to the U.S. Court of Appeals for the Eleventh Circuit. The Division of Enforcement ("Division") opposes respondents' request for a stay. For the reasons set forth below, respondents' motion is denied.
Respondents' joint motion asserts that the civil money penalties are automatically stayed by the operation of Section 6(e) of the Commodity Exchange Act ("Act"), 7 U.S.C. 9a (1994). We previously rejected that interpretation of Section 6(e) in In re Gordon, [1994-1996 Transfer Binder] Comm. Fut. L. Rep. (CCH) 26,356 (CFTC Apr. 3, 1995). In Gordon, we stated that "although civil money penalties are undoubtedly the subject matter of section 6(e), that statutory provision does not stay those penalties pending appeal. It provides that certain other sanctions [such as a trading ban and registration suspension] imposed for nonpayment of a civil money penalty, which in the absence of an appeal automatically would be imposed, may not take effect while an appeal is pending. Those other sanctions are what are stayed by section 6(e). The pendency of an appeal does not affect the Commission's authority to demand payment of the money penalty and, in its discretion, to initiate customary collection efforts to enforce that demand." Gordon 26,356 at 42,663 (footnote omitted.)
Despite our ruling in Gordon, respondents argue that the following language of Section 6(e) supports their contention:
If the person against whom the money penalty is assessed fails to pay such penalty after the lapse of the period allowed for appeal or after the affirmance of such penalty, the Commission may refer the matter to the Attorney General who shall recover such penalty by action in the appropriate United States district court. (Emphasis added.)
We have never read the language cited by respondents as providing for an automatic stay pending appeal. The portion of Section 6(e) cited by respondents was originally contained in Section 6(d) of the Commodity Futures Trading Commission Act of 1974.
Prior to the enactment of Section 6(e), our precedent construed and applied former Section 6(d) to require prompt payment of any civil money penalty imposed by a final order of the Commission. See In re GNP Commodities, Inc., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) 25,399 (CFTC Sept. 25, 1992). Nothing in the legislative history indicates that Congress intended to change the law or require an automatic stay. Instead, we view the changes to Section 6(e) as intending to strengthen the law by providing for the automatic suspension of a person's registration and a prohibition against trading on all exchanges by such person for failure to pay a civil money penalty. Thus we have never interpreted the language cited by respondents as requiring an automatic stay of civil money penalties pending appeal.
As an alternative to their statutory argument, respondents also assert that they meet the traditional stay standard: that they are likely to succeed on the merits, that they will suffer irreparable harm if a stay is denied, and that neither the public interest nor the interests of any other party will be adversely affected if a stay is granted.
The issues raised by respondents are simply not sufficient to establish a substantial likelihood of success on the merits. Initially, respondents argue that the penalties assessed against them are based on incompetent evidence of customer losses. We disagree with respondents' characterization of this evidence. As our December 10 opinion and order indicates, $2,100,474.51 is a conservative estimate of the customer losses due to respondents' wrongdoing in light of the limited number of accounts audited, the limited period of time covered by the audit, and the ongoing and pervasive nature of the fraud proven. Moreover, respondents' argument ignores the other factors we considered in the assessment of their civil money penalties. In particular, we considered evidence of the seriousness of the violations, the scope of the wrongdoing, respondents' role in the fraud, respondents' state of mind, the prior Commission cease and desist order imposed upon Grossfeld, and with respect to Stein, evidence of his financial benefit.
Respondents also argue that they were denied due process by an exclusive focus on customer losses and respondent gains. As we explained above, the civil money penalties we assessed were based on other factors in addition to evidence of customer losses and respondent gains. Moreover, respondents cannot be heard to complain that they had no notice of the factors we would consider in assessing civil money penalties as our precedent clearly identifies these various factors as relevant to such an inquiry. See In re Premex, [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) 24,165 (CFTC Feb. 17, 1988).
In addition, respondents argue that the amount of the sanctions bears no relation to their net worths. As respondents voluntarily made an informed waiver of their right to a net worth hearing, this argument, too, has no merit.
We also find respondents' argument that they will be irreparably harmed without a stay to be equally unavailing. We have previously stated that "a party moving for a stay must demonstrate that the injury claimed is 'both certain and great.' Cuomo v. Nuclear Regulatory Commission, 772 F.2d 972, 976 (D.C. Cir. 1985). The civil monetary penalty cannot be deemed an irreparable harm because it can always be refunded." GNP Commodities, 25,399 at 39,363.
Respondents assert, however, that the penalties assessed against them "could" force them into bankruptcy. Respondents' assertion amounts to nothing more than mere speculation. Respondents have provided no affidavits or other documentary evidence to support their claim that payment of the civil money penalties would result in bankruptcy.
Finally, in our view, the public interest would not be served by a stay pending judicial review. Respondents' violations established on the record are egregious and undermine public confidence in the integrity of the futures markets. The civil money penalties we imposed are consistent with the gravity of respondents' violations and the remedial purposes of the Commission's sanctioning authority. Further delay in the imposition of these sanctions would only erode public confidence in the markets. See GNP Commodities, 25,399 at 39,364.
For the foregoing reasons, the motion to stay is denied. The sanctions imposed in our December 10, 1996 opinion and order shall become effective within 15 days of the date of this order.
IT IS SO ORDERED.
By the Commission (Chairperson BORN and Commissioners DIAL, TULL, HOLUM, and SPEARS).
Jean A. Webb
Secretary of the Commission
Commodity Futures Trading Commission
Dated: February 28, 1997