UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
In the Matter of CFTC Docket No. 91-19 ROBERT MOSKY OPINION AND ORDER
The Division of Enforcement ("Division") appeals from an Administrative Law Judge's ("ALJ") decision refusing to prohibit Robert D. Mosky from trading on markets regulated by the Commission. The Division challenges the ALJ's analysis as unsupported by the record and inconsistent with the Commission's precedent establishing guidelines for imposing trading prohibitions on convicted felons. Mosky opposes the appeal and maintains that the ALJ fairly considered and properly rejected all of the Division's arguments.
As explained more fully below, based on our independent assessment of the factual record, we impose a permanent trading prohibition on Mosky.
In August 1991 the Division filed a three-count complaint against
Counts I and II charged Mosky with the following: (1) five felony violations of Section 4b(A) of the Commodity Exchange Act ("Act"),(2) 7 U.S.C. § 6b(A) (1988), for cheating and defrauding, or attempting to cheat and defraud, other persons in connection with the execution of futures contracts; and (2) two felony violations of Section 4b(D) of the Act, 7 U.S.C. § 6b(D)(1988), for knowingly filling customer orders by offset. The Division sought a cease and desist order, a registration revocation, a trading prohibition, and a civil money penalty as sanctions for Mosky's alleged wrongdoing. (3)
Count III alleged that Mosky was statutorily disqualified from registration pursuant to Sections 8a(2)(D) and 8a(2)(E) of the Act, 7 U.S.C. §§ 12a(2)(D) and 12a(2)(E)(1988), by virtue of his conviction of eight felony violations (seven felony violations of Section 4b and a violation of the federal felony wire fraud statute, 18 U.S.C. §1343, in a 1991 criminal case.(4) The third count sought revocation of Mosky's floor broker registration.
In September 1991, Mosky stipulated that he was subject to statutory disqualification and consented to the entry of an order suspending his registration. Shortly thereafter, the ALJ found that Mosky was subject to statutory disqualification, suspended his floor broker registration for six months, and ordered him to show cause why his registration should not be revoked.
Mosky then moved to dismiss the complaint. He admitted to the criminal convictions, but contended that the imposition of any civil sanctions would violate the Double Jeopardy Clause of the Fifth Amendment to the United States Constitution. Mosky also claimed that the criminal sanctions already imposed were sufficient to protect both the trading public and the financial markets. The ALJ denied the motion to dismiss and ordered Mosky to answer Counts I and II of the complaint. In his answer to the complaint, Mosky again admitted to his criminal convictions, but denied the allegations describing the activities upon which the convictions were based. Mosky also raised three affirmative defenses. In addition to the Double Jeopardy Clause, he contended that the Commission's participation in the FBI's undercover criminal investigation both estopped the imposition of civil sanctions and constituted a waiver of the agency's right to take further civil action.
The Division moved for partial summary disposition on the issue of liability only, contending that the criminal convictions collaterally estopped Mosky from denying the facts upon which his convictions were based. Mosky filed a response indicating that he did not intend to contest factual allegations underlying the complaint but reasserted his three affirmative defenses.
In February 1992, the ALJ found that collateral estoppel applied and that respondent's affirmative defenses were not applicable. Consequently, the ALJ granted the Division's motion for partial summary disposition. He revoked Mosky's floor broker registration and ordered the parties to file briefs on the issue of sanctions. Mosky moved for a hearing on sanctions. Later that month the ALJ denied the motion but invited the parties to submit briefs and documentary evidence.
In May 1992, the Division filed a memorandum recommending that the ALJ impose a cease and desist order and a permanent trading prohibition. In his response, Mosky did not contest the entry of a cease and desist order. He argued, however, that the imposition of a trading ban of any length would be unfair and was barred by the doctrine of estoppel. Mosky also asserted that both his character evidence and the sanctions previously imposed established that his continued trading would not threaten the public interest.
In December 1992, the ALJ issued an initial decision imposing sanctions. In re Mosky, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,637 (ALJ Dec. 22, 1992) ("First Initial Decision"). He concluded that a cease and desist order was appropriate because the record established that there was a reasonable possibility that Mosky would repeat his illegal conduct. As to the propriety of the trading ban, the ALJ reasoned that:
It cannot be seriously disputed that respondent's conduct damaged the market's integrity. To defraud a customer is a serious crime, no matter what the amount of money involved, and contributes to the public perception that insiders can distort the market for their own profit and convenience.
. . . Respondent's conduct cannot be characterized as "technical violations;" rather, it is part and parcel of the shadow market. Some trading ban is necessary if such conduct is to be deterred. Considering the nature and gravity of respondent's violations and the evidence of mitigation and rehabilitation, this court finds that a trading ban of one year will serve to protect the public interest.
Id. at 40,042-40,043.
In August 1993, the Commission 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.(5) In this regard, the Commission 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).(6) The opinion went on to hold that, under Section 9(b) of the Act, Mosky's multiple felony convictions under Section 4b of the Act raised a presumption that he should be banned permanently from trading. The Commission therefore vacated the one-year trading ban imposed by the ALJ and remanded for a hearing to permit Mosky to attempt to rebut this presumption.
Further, the Commission directed the ALJ to impose a permanent trading prohibition on Mosky unless respondent could establish, by the weight of the evidence, that Mosky's 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 Mosky, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,841 at 40,760-40,761 (CFTC Aug. 13, 1993) ("Mosky I").
During the pendency of the proceedings on the administrative complaint, Mosky applied for registration as a floor trader.(7) In July 1993, the Division challenged the application by instituting a new proceeding (CFTC Docket No. SD 93-16) ("registration case"). Shortly thereafter, Mosky stopped trading voluntarily, gave up his membership at the CME, formally withdrew his application, and moved to dismiss the registration case as moot. Since Rule 1.66 does not contemplate a motion to dismiss, the ALJ denied Mosky's motion but determined that the matter was ready for settlement. In November 1993, the Commission entered an order accepting Mosky's offer and ordering him to comply with his undertakings to withdraw his application and ensure that his no-action status was terminated.(8)
The hearing on remand took place in February 1994. In addition to his own testimony, Mosky offered the testimony of two witnesses. The Division cross-examined Mosky's witnesses but offered no witnesses of its own.(9)
Mosky's testimony and the documents introduced at the hearing described five transactions during 1988 in Swiss franc futures. On March 4, March 8, March 30, April 4, and October 14, Mosky, acting as a floor broker, engaged in prearranged transactions which defrauded customers in violation of Section 4b(A) of the Act.
None of the trades were executed by open outcry and all were effected at prices which were different from the market price. (Tr. at 30, 34, 37-38, 42.) In two instances (March 4 and October 14), Mosky also offset customer orders in violation of Section 4b(D). (Tr. at 31-32; 42.) One of the transactions (April 14) also resulted in Mosky's conviction for one felony violation of the federal wire fraud statute.(10) (Tr. at 39-40; Division Exhibit 2 at ¶ 5.)
Mosky admitted that he may have engaged in a few noncompetitive transactions during 1988 in addition to the trades for which he was convicted. (Tr. at 74-75, 76.) Respondent also testified that he offset orders a couple of times and withheld customer orders from execution by open outcry on several occasions. (Tr. at 81-82, 83.) Mosky acknowledged that he was ordered to pay $7,000 in restitution based on the counts in the indictment for which he was convicted and the counts on which the jury was hung, but contended that it did not include the counts for which he was acquitted. (Tr. at 72, 79, 89.) However, Mosky claimed that losses to customers resulting from the five transactions did not exceed $363. (Tr. at 31-32, 34, 37, 37-38, 42.)
In describing the circumstances of his misconduct, Mosky emphasized the minimal losses to his customers. (Tr. at 35.) He contended that the customers were not actually harmed because their losses were "theoretical." (Tr. at 31, 33, 34, 37, 38, 42, 47.) According to respondent, he was merely filling his customers' orders "within the parameters of . . . the directions on those orders." (Tr. at 31, 34, 37, 38.) Mosky denied that the "theoretical" profits to the traders on the opposite sides of his customers were paybacks for debts he owed. (Tr. at 33, 36, 37, 41, 43.) He also denied that his noncompetitive trading was motivated by the desire to avoid responsibility for trading losses. (Tr. at 76.)
Mosky also referred briefly to the hectic markets and large volume of customer orders. He explained that these conditions, which resulted from a stock market crash in the previous year, required him to fill his customers' orders quickly. (Tr. at 77.)
With respect to his wire fraud conviction, Mosky explained he agreed to plead guilty to a fraud count in exchange for the government's agreement to drop charges against him for violating the Racketeer Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq. (1988).(11) (Tr. at 40.) Respondent testified that his incentive was to avoid expenses of a retrial and the extensive financial consequences of a possible RICO conviction. (Tr. at 104.)(12) Thus, he agreed to pay $7,000 in restitution as part of his plea agreement even though he did not believe that he had caused losses of $7,000 to his customers. (Tr. at 103.)
Mosky's testimony also addressed his activities since his wrongdoing. As an initial matter, he reviewed the sanctions imposed by the judge in the criminal proceeding. Mosky claimed that the judge had relied on numerous letters from family, friends, and colleagues before imposing a sentence.(13) (Tr. at 51-52, 52-53, 57,58-59; Mosky Exhibit 3 at 46-47.) Mosky also detailed his involvement with various charitable organizations in order to complete the order of 600 hours of community service. ( (Tr. at 60-62.)
Thereafter, Mosky described his trading activity following his indictment. He stopped filling customer orders in the summer of 1989 but continued to trade as a floor trader until July 1990. (14) (Tr. at 26-27, 84; Division Exhibit 1.) He returned to the floor in November 1990 and continued trading until July 1991, when he was incarcerated. Four months later, Mosky was released from prison. He resumed trading in late December 1991 as part of the work release portion of his sentence. (Tr. at 63.) Mosky continued to trade for his own account until August 1993, shortly after the Division instituted the registration case. (Tr. at 64, 100.) He testified that he had not broken any of the CME rules since 1988 and that he had not been accused of any misconduct since 1988. (Tr. at 66-67.)
Mosky also testified that he accepted responsibility for the actions for which he was convicted. (Tr. at 29-30, 35, 66, 76, 82.) While he did not take responsibility for the illegal trades which did not result in felony convictions, he did not deny that there may have been some wrongdoing in connection with those trades. (Tr. at 82-83.) Mosky also expressed remorse for his actions, including any illegal transactions which did not result in criminal convictions.(15) (Tr. at 70-71, 89-90.) He further asserted that he had been sufficiently punished for his misconduct. (Tr. at 66.) In addition, Mosky noted the personal and financial consequences resulting from his indictment and convictions. (Tr. at 18, 64.) In this regard, Mosky testified that he was unemployed but seeking a career in real estate. He stated that he had been unable to obtain licensing as a real estate broker during the term of his probation. (Tr. at 70, 98-99.)
With regard to his future role in the markets regulated by the Commission, Mosky noted that he had withdrawn his application for registration as a floor trader. At this time, he stated that he is only interested in trading for his own account as a customer but testified that he did not want to be precluded from functioning as a floor trader at some time in the future. (Tr. at 65.)
One witness testified briefly about the circumstances relating to Mosky's wrongdoing. Michael Lazarus, a floor trader, stated that Mosky was a "busy" broker who always had multiple customer orders to fill. (Tr. at 6-7.)
In addition, there was testimony concerning Mosky's honesty and integrity. Both Lazarus and John Murphy, an operations manager for Mosky's clearing company, offered their strong endorsement of respondent's character. (Tr. at 6, 7, 13-14.) Both witnesses also testified that Mosky complied with CME rules in the period following his return to the market. (Tr. at 8, 13-14.) In this regard, Lazarus testified about a conversation with Mosky in which respondent urged him to call the CME's out trade hotline when Lazarus raised a question about resolving an out trade. (Tr. at 8.) With respect to Mosky's future role, Murphy testified that the company which clears Mosky's trades has agreed to supervise respondent's trading and report to the CME in the event that Mosky is permitted to resume trading. (Tr. at 14-15.)
The ALJ issued a decision on remand in July 1994. In re Mosky, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,129 (ALJ Jul. 6, 1994)("Second Initial Decision"). The judge concluded that Mosky had produced sufficient evidence to rebut the statutory presumption that he should be permanently denied access to all markets regulated by the Commission. In assessing the record, the ALJ relied on the factors enunciated by the Commission in Mosky I to determine whether to impose a trading prohibition on respondent under Section 9(b).
At the outset, the ALJ found that there was a clear nexus between Mosky's wrongdoing and the integrity of the markets regulated by the Commission because respondent's violations "involved criminal conduct on the floor of the CME[.]" Id. at 41,743.
In reviewing the seriousness of Mosky's wrongdoing, the ALJ noted that Mosky had produced some evidence of mitigating circumstances. The ALJ found that in executing the noncompetitive trades, Mosky did not intend to cheat or defraud any customers for his personal gain or the benefit of another trader. Although he acknowledged that Mosky had clearly violated the Act and Commission regulations, the judge determined that respondent's misconduct was committed "more out of convenience than greed[.]" Id. As to aggravating circumstances, the ALJ determined that the record did not clearly establish evidence of other violative acts.
Balancing the evidence of mitigation against the evidence of aggravation, the ALJ concluded that the evidence of mitigation predominated.
On the issue of rehabilitation, the ALJ emphasized the length of time that had passed since Mosky's last instance of misconduct in October 1988 and his "unblemished record" since he was sentenced. Id. The judge also found very credible respondent's testimony concerning his remorse and acceptance of responsibility for his misconduct. In this regard, the ALJ noted the assessment of the district court judge at the time of sentencing. To a lesser extent, the ALJ also credited the testimony of Mosky's two witnesses for purposes of corroborating respondent's testimony as to a "changed direction" in his post-conviction trading behavior. Id.
Finally, with respect to Mosky's future role in the market place, the ALJ noted that Mosky had no current plans to reapply for registration as a floor trader. Moreover, the ALJ concluded that even if Mosky reapplied for registration, the Commission could institute another proceeding to deny his application. Thus, the ALJ determined that Mosky was unlikely to pose a substantial risk to the integrity of the markets. Id. at 41,743-41,744. The judge concluded that Mosky had successfully rebutted the presumption that he should be denied access to all markets regulated by the Commission for five years and accordingly determined that "no trading ban is necessary to protect the public interest." Id. at 41,744.
On appeal, the Division challenges the ALJ's refusal to impose a trading ban on Mosky. The Division asserts that the ALJ did not properly assess the factual record on appeal because he erroneously assumed that Mosky's seven Section 4b felony convictions raised the presumption of a five-year trading ban rather than a permanent trading prohibition.
With respect to mitigation, the Division challenges the ALJ's determination that Mosky did not intend to harm customers as inconsistent with the jury's conclusion in the criminal case. The Division also contends that the ALJ failed to explain how Mosky's assertions of minimal customer loss and the absence of kickbacks mitigates his wrongdoing. Further, the Division claims that the ALJ erroneously ignored evidence of aggravating circumstances such as Mosky's mail fraud conviction and his admissions to other violations of Section 4b. The Division also asserts that if the ALJ had properly assessed the evidence of mitigation and aggravation in light of the presumption of a permanent trading prohibition raised by Mosky's seven Section 4b felony convictions, the evidence of mitigation would have been outweighed by the evidence of aggravation.
On the issue of rehabilitation, the Division claims that the ALJ erroneously credited the testimony of Mosky and his two witnesses that respondent has established a change in direction. The Division also challenges the determination that Mosky expressed contrition for his wrongdoing. In this regard, the Division emphasizes that Mosky only accepted responsibility for the trades relating to his convictions but not for other noncompetitive trades in which he admitted he participated.
Finally, with respect to Mosky's future role in the markets regulated by the Commission, the Division argues that Mosky's offer to limit his trading to his own account is not dispositive, citing Commission precedent that a reduced role in the market cannot serve as a substitute for persuasive evidence of mitigation and rehabilitation. The Division also warns that Mosky has expressed a desire to resume trading in the future and contends that a permanent trading prohibition would serve as a symbolic deterrent to protect regulated futures markets.
In response, Mosky contends that the guidelines for imposing a five-year ban and a permanent ban are largely the same. Accordingly, he claims, the ALJ's assessment of respondent's rebuttal evidence against the presumption of a five-year ban is not by itself erroneous.
On mitigation, Mosky argues that: (1) he was motivated by convenience during a period of hectic markets; (2) he did not benefit personally or engage in kickbacks to repay debts; (3) such behavior was not unusual at the CME and the amounts involved were de minimis. As for the aggravation evidence raised by the Division, Mosky asserts that his wire fraud conviction does not represent other violative conduct since it was based on a transaction for which he had already been convicted. Moreover, his entry into a plea agreement on this charge was done as a matter of convenience to both parties to avoid retrial. Furthermore, he claims that his general admissions to other misconduct did not constitute sufficient evidence since he repeatedly testified that he did not specifically recall these other episodes and the Division did not produce evidence of other illegal trades.
With respect to rehabilitation, Mosky relies on four factors: (1) his acceptance of responsibility for his misconduct and expressions of remorse; (2) his trading as a floor trader for almost two years following his release from prison without further wrongdoing; (3) the testimony of his character witnesses; and (4) the conclusion of both his probation officer and the district court judge that he had been rehabilitated, as evidenced by the reduction of his fine and the early termination of his probation.
Finally, on the issue of his proposed role in the market place, Mosky claims that his agreement to restrict his activities to trading solely for his own account off the floor through a third party is sufficient. In particular, respondent contends that the Division's argument that the aims of deterrence must be served bears no relationship to whether he has sought to limit his role sufficiently.
We have considered the entire record and have determined that the weight of the evidence supports the imposition of a permanent trading ban. As noted above, Section 9(b) of the Act directs us to impose a trading prohibition of at least five years on any person convicted of a felony under the Act. In Mosky I, ¶ 25,841 at 40,760, we inferred 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. Furthermore, we found that, as a general matter, the threat to market integrity posed by respondents convicted of more than five Section 4b felonies is sufficiently grave to support a presumption that a permanent trading prohibition is necessary. Id. at 40,761.
In Mosky I, we acknowledged that Congress's directive is not absolute--an exception is contemplated when the Commission determines that imposition of a trading prohibition "is not required to protect the public interest." Id. at 40,760, quoting Section 9(b) of the Act. As a result, we held that respondent should be given an opportunity to rebut the presumption by showing by the weight of the evidence that his continued access to the markets will "pose no substantial risk to their integrity." Id. We have already determined that there is a nexus between the wrongdoing underlying Mosky's conviction and a threat to the market mechanism. Mosky I, ¶ 25,841 at 40,760.
We turn then to an assessment of the nature and gravity of Mosky's misconduct. Generally, when assessing the nature and gravity of the misconduct, we examine the misconduct itself. In re Fetchenhier, CFTC Docket Nos. 91-12, SD 93-14 (CFTC May 13, 1997) slip op. at 20.
Mosky was convicted of seven felony violations of Section 4b of the Act and one felony violation of the federal wire fraud statute. Ultimately, we must weigh Mosky's rebuttal evidence against the presumption raised by his seven felony violations of Section 4b. If, as Section 9(b) indicates, a single Section 4b felony conviction raises a presumption of unfitness for continued trading, seven felony convictions raise a very strong presumption to overcome. Further, even if the conduct underlying a single felony violation were attributable to a unique misstep, Mosky's seven felony convictions reflect a pattern of conduct that establishes a strong 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).
Additionally, the record indicates that Mosky was convicted of wire fraud and committed additional noncompetitive trades. Thus, we conclude that Mosky's seven felony violations of Section 4b were not isolated incidents but part of a pattern of illegal trading practices.
To counter the gravity of the offenses, Mosky contends that his misconduct was not harmful to customers. In this regard, he emphasizes the small size of the trades and his minimal personal benefit. This argument, however, is unpersuasive. As we have previously noted, customers were harmed by the practice of shifting customer profits to floor traders and floor brokers. The assignment of prearranged prices to the customer orders deprived those customers of an economic opportunity. In re Cox, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,939 (CFTC Jan. 17, 1997) ("Cox II"); see also United States v. Ashman, 979 F.2d 469, 478 (7th Cir. 1992).(16) In this context, we give little weight to Mosky's testimony that his misconduct did not significantly harm his customers.
Respondent's argument that he did not intend to harm these customers is similarly unavailing. Rather, Mosky contends that he only intended to carry out his customers' wishes by getting their orders filled at a fair price. This contention, however, is inconsistent with the jury's conclusion in the criminal case.
Mosky also suggests that his behavior was commonplace at the CME, resulting from the need to fill orders more conveniently as a result of hectic trading conditions. However, the fact that some CME members other than Mosky may have acted illegally during this period neither explains nor mitigates Mosky's wrongdoing. At the time of Mosky's violations, all CME members were on notice that defrauding customers and matching customer orders was illegal. 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 Mosky's offenses are very grave, we turn to consideration of Mosky's evidence of mitigation. Mosky claims that hectic and volatile market conditions mitigated his violations. The hectic trading conditions that often accompany volatile markets, however, are a fact of life in the futures markets that can neither justify nor mitigate the resort to illegal practices. While we are aware that market conditions may have created incentives to cut corners, we conclude that hectic market conditions during this period did not mitigate Mosky's wrongdoing.
Based on the foregoing analysis, we conclude that Mosky 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 In re Horn, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,836 at 36,940 (CFTC Apr. 18, 1990); In re Tipton, [1977-1980 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 20,673 at 22,750 n.9 (CFTC Sept. 22, 1978); In re Akar, [1986-1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 22,927 at 31,709-10 (CFTC Feb. 24, 1986).
Mosky states that he recognizes and regrets his wrongful conduct. We agree that there is some evidence in the record which indicates some change in attitude. In the circumstances presented, however, Mosky's acceptance of responsibility amounts to only limited first steps on the path of rehabilitation. 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, the wrongful nature of Mosky's conduct was clear at the time of his violations.
Moreover, Mosky's insistence throughout this proceeding that his conduct was unintentional and did not result in harm to customers raises a substantial question about whether he actually has accepted responsibility for his criminal acts. During the criminal trial, throughout the proceedings before the ALJ, and on appeal to the Commission, he has maintained that he did not intend to harm his customers and that his misconduct only caused "theoretical" harm to these customers. Thus, after reviewing the evidence on this point, we conclude that any acceptance of responsibility and expressions of remorse by Mosky are entitled to little weight.
Mosky also urges us to consider the testimony of his character witnesses. While we accept that these witnesses testified in good faith, we can attribute only limited weight to their opinions that Mosky has changed. The statements were conclusory, and as the ALJ acknowledged, none of the witnesses were qualified as experts on rehabilitation. Compare Walter, [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,215 at 35,008 (CFTC Apr. 14, 1988) (probation officer, who worked closely with respondent for a significant period following his conviction, had the type of experience and expertise that buttressed the reliability of his opinion on the likelihood of future violations) with In re LeClaire, [1994-1996 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). Mosky did not attempt to qualify either of his witnesses as experts in the area of rehabilitation.
In addition, Mosky contends that he has committed no wrongdoing in the six years that have passed since the misconduct underlying his felony convictions (including almost two years of trading). The inference of a "changed direction" is undercut by the fact that Mosky 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 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).
Finally, Mosky urges us to consider that he presently seeks to trade solely for his own account through a third party without having a presence on the trading floor.(17) Accordingly, he contends that the risk presented by this role is lower than the threat from performing activities associated with the broader role of a floor broker or floor trader. Although we previously stated in this case that a respondent who restricts his activities in this way "is less likely to pose a substantial risk to market integrity" than a person who seeks to perform as a floor broker or floor trader, we noted that the weight accorded this limitation cannot be viewed as an adequate substitute for persuasive evidence of mitigation and rehabilitation. Mosky I, ¶ 25,841 at 40,761 n.4 (citing Horn, ¶ 24, 836 at 36,942 n.23).
As indicated above, Mosky 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 Mosky 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 permanent trading ban.
In light of the mandate in Section 9(b) and our assessment of the record as a whole, we conclude that respondent should be prohibited permanently from trading on the markets regulated by the Commission. This trading prohibition, and the cease and
desist order and registration revocation imposed in the ALJ's First Initial Decision, shall become effective 30 days from the date this order is served.(18)
IT IS SO ORDERED.
By the Commission (Chairperson BORN, Commissioners DIAL, TULL, HOLUM, and SPEARS).
Jean A. Webb
Secretary of the Commission
Commodity Futures Trading Commission
Dated: June 25, 1997
1. The Division's complaint had its genesis in a sting operation the Federal Bureau of Investigation ("FBI") conducted during 1987-1988 in the Swiss franc futures pit of the Chicago Mercantile Exchange ("CME").
2. The Commodity Exchange Act was redesignated and amended in part by the Futures Trading Practices Act of 1992 ("FTPA"), P. 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. Mosky had been a member of the CME since 1983 and was registered as a floor broker. (Division Exhibit 1.)
4. In July 1990, a jury convicted Mosky of seven felony violations of Section 4b. In March 1991, Mosky pled guilty to one felony count of federal wire fraud. In the plea agreement, Mosky agreed to waive his right to appeal his violations. Plea Agreement at ¶¶ 10-11 (Division Exhibit 2.) Mosky also agreed that his entry of a guilty plea to this violation would not limit any enforcement action undertaken by the Commission against him. (Division Exhibit 2 at ¶ 14.) In July 1991, Mosky was sentenced to four months of imprisonment, four months of work release, and three years of probation. He was also ordered to pay restitution of $7,000, a special assessment of $400, and a fine of $40,000. In addition, he was ordered to provide 600 hours of community service. Judgment Order, July 16, 1991.
5. In that same order, the Commission also rejected Mosky's contention that the imposition of a trading ban would violate the Double Jeopardy Clause.
6. At the time this case was commenced, Section 9(b) provided that it was a felony to knowingly violate several specific provisions of the Act, including Section 4(b). It further stated that:
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.
7. Prior to the enactment of the FTPA, floor traders were not required to be registered. As part of the transition between the old and the new statutory requirements, the Commission conferred no-action status on those who retained exchange trading privileges as of April 26, 1993 and applied for floor trader registration by June 11, 1993. This status permitted certain individuals to continue to act as floor traders while their applications for registration were being processed. 58 Fed. Reg. 19575 (Apr. 15, 1993); 58 Fed. Reg. 21776 (Apr. 23, 1993), reprinted at [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,616. The no-action positions, and the procedures for suspending them pending final determination of a registration application, are described in 17 C.F.R. § 1.66 (1997).
8. In January 1994, the ALJ issued an order for the Division to show cause as to why the proceeding should not be dismissed as moot. In its response, the Division explained that the issue of whether to impose a trading ban, broader in scope than revocation of Mosky's registration, remained unresolved.
9. Testimony from the hearing is cited as "(Tr. at __.)."
10. Mosky mistakenly referred to his wire fraud violation as a mail fraud violation throughout the hearing. The Division has repeated the incorrect description of Mosky's violation as mail fraud instead of wire fraud.
11. Mosky testified that the jury which convicted him of seven Section 4b violations had acquitted him on some counts of the indictment but had been unable to reach a verdict as to the remaining counts, which resulting in a mistrial. (Tr. at 39-40, 103-104.)
12. In his plea agreement, Mosky admitted that the transaction underlying his wire fraud violation "was among a number of noncompetitive trades engaged in for the purpose of minimizing liability for order filling errors and maximizing income from commissions." (Tr. at 86; Division Exhibit 2 at ¶ 5.) Mosky insisted, however, that the "number of trades" was limited to the trades for which he had already been convicted of violating Section 4b of the Act. (Tr. at 86-89.)
13. Mosky emphasized the judge's statement that the sentence did not restrict his ability to trade while on probation. (Tr. at 58; Mosky Exhibit 3 at 52.) Mosky also noted the judge's warning that if respondent engaged in subsequent violations while on probation, she would impose a harsher sentence. (Tr. at 58; Mosky Exhibit 3 at 53.) However, Mosky testified, the judge terminated the three-year period of probation after he completed one and a half years of its term. (Tr. at 67.) In addition, the judge reduced the original fine of $40,000 to $15,000 based on Mosky's poor financial situation resulting from his unemployment. (Tr. at 69.)
14. n September 1990, Mosky settled a CME disciplinary proceeding based on the misconduct underlying his indictment. The settlement agreement suspended Mosky's floor broker privileges for three years and his other membership privileges for four months. The CME also credited the two months (July and August 1990) that Mosky had voluntarily remained off the trading floor toward his four-month suspension. As a result, Mosky was permitted to resume trading in November 1990. (Tr. at 49.)
15. Mosky testified:
. . . I'm sorry for what I've done. I'm sorry for what's happened. I'm more than just saying it. I think that over the years I've tried to live my life in a way that was more than just saying it, by action of helping other people out, whether it be an organization that's structured, or just the neighbor, or just people on the street, and just trying to live that way with my children, my wife, my family. (Tr. at 70-71.)
16. The court in Ashman described the resulting harm to customers:
By picking customer prices and opposing traders, the defendants removed their customers from the pit's competitive marketplace and forced the customers to accept the results they selected, guaranteeing profits to the local and denying the customer the opportunity to obtain a better price. In previous cases, we have held that shifting or altering of economic risk or opportunity to affect a person's financial position adversely deprives that person of money or property.
U.S. v. Ashman, 979 F.2d at 477-78.
17. Nonetheless, he has also arranged to have his trading supervised by the firm which clears his trades in the event he is permitted to continue trading for his own account.
18. A motion to stay the effect of this decision pending reconsideration by the Commission or review by a court must be filed within 15 days of the date this order is served. Compare Commission Rule 10.106, 17 C.F.R. ¶ 10.106 (1997).