UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
In the Matter of :
DOCKET NOS. 96-E-1 and 96-E-2
MICHAEL CLARK and
Michael Clark and Dominick Auciello appeal from a decision of the Appeal Panel of the Board of Governors ("Appeal Panel") of Commodity Exchange, Inc. ("COMEX" or "Exchange") suspending Clark for three months and fining him $25,000, and suspending Auciello for five months and fining him $30,000. The Appeal Panel assessed these sanctions based upon its conclusion that Clark and Auciello had violated exchange rules by engaging in prearranged and noncompetitive trading and that Auciello had violated exchange rules by submitting falsified trading cards during the exchange investigation. On appeal, Clark argues, among other things, that there was an illegal agreement between the New York Mercantile Exchange ("NYMEX"), COMEX's parent, and his former counsel prohibiting his former counsel from representing Clark in this proceeding.
As explained more fully below, we find that there is insufficient evidence in the record to evaluate Clark's allegations concerning the purported agreement between NYMEX and Clark's former counsel and its effect, if any on Clark's right of appeal to the Commodity Futures Trading Commission ("Commission"). Given these circumstances, we are appointing an Administrative Law Judge to conduct an evidentiary hearing on Clark's allegations regarding the illegal agreement and any prejudice to Clark arising from the existence of such an agreement.
During the relevant time period, Clark and Auciello were floor brokers and members of COMEX who traded for customer accounts as well as their own accounts.1 The complaint underlying this appeal ( the "First Complaint") was issued by the COMEX Committee on Business Conduct on March 11, 1991 (COMEX Docket Nos. 02/516/1991 and 03/516/1991), alleging that Clark and Auciello engaged in prearranged and noncompetitive trading and that Auciello falsified his trading cards during a COMEX Compliance Department investigation.2 Auciello and Clark filed answers denying the allegations in the First Complaint.3 On December 4 and 5, 1991, hearings were conducted before the Supervisory Committee "B" Hearing Panel (the "Hearing Panel").4 Following the presentation of evidence, the Hearing Panel rendered a decision on the First Complaint on June 3, 1992, finding that Clark and Auciello had engaged in five of the alleged noncompetitive trading sequences.5 The Hearing Panel fined Auciello $30,000 and imposed a five-month suspension and a cease and desist order; it fined Clark $25,000 and imposed a three-month suspension and a cease and desist order.6 Clark and Auciello filed timely requests for review of the First Complaint by the COMEX Appeal Panel, both of which were granted. Clark's appeal was limited to the issue of the timeliness of the hearing under COMEX Rule 8.37. Auciello's appeal sought review of the substantive aspects of the Hearing Panel's decision as well as the timeliness issue. Oral argument on the appeal was held before the Appeal Panel on August 18, 1992.
The Appeal Panel issued its decision on September 12, 1996, four years after the hearing, affirming both the liability findings and the sanctions of the Hearing Panel. In reviewing the five violative trading sequences, the Appeal Panel found that the record provided ample support for the detailed findings of the Hearing Panel. On the timeliness issue, the Appeal Panel held that the failure to hold the hearing in strict compliance with Rule 8.37 was, at worst, harmless error and that respondents had waived their right to require strict compliance.
Auciello and Clark filed appeals to the Commission from the COMEX disciplinary action and petitioned to stay the sanctions. The Commission denied their petitions to stay.7
On appeal, Clark and Auciello largely ignore the merits of the case, focusing instead on perceived procedural flaws in the proceedings below. Among other things, Clark argues that he was denied fundamental fairness during the exchange proceedings because there was an undisclosed agreement between NYMEX and his prior counsel (Scott Brenner) prohibiting Brenner from representing Clark in this matter. COMEX avers that Clark dismissed Brenner as counsel only because Brenner refused to lie to the Commission and to commit other unethical conduct for Clark and that NYMEX never sought to enforce any agreement between it and Brenner. Clark points out, however, that COMEX does not deny in its brief that there was an agreement between NYMEX and Clark's former counsel prohibiting his representation of Clark. He attaches as an exhibit an alleged transcribed tape of a telephone conversation between himself and Brenner which occurred on January 6, 1997, discussing this agreement. Clark maintains that Brenner lied to the Commission about the circumstances surrounding his withdrawal from Clark's representation. Clark further claims that Brenner acted as a "double agent" for NYMEX, filing several motions for Clark and then failing to represent him vigorously on certain unidentified issues in this appeal.
If, in fact, there was such an agreement between NYMEX and Clark's former counsel and Clark's allegations of prejudice are true, Clark may have been denied a fair opportunity to pursue his appeal to the Commission. We have determined, therefore, that in order to review the Appeal Panel's decision, we must first address this issue.
The alleged agreement between NYMEX and Brenner is not part of the record. Clark first refers to this agreement in his appeal brief to the Commission. He also wrote a letter to CFTC Chairperson Born, dated March 8, 1997, claiming that he first found out about the agreement on August 25, 1996, when NYMEX General Counsel and Executive Vice President Ronald Oppenheimer informed him that Brenner, whom Clark had hired in May 1994, had an agreement with NYMEX under which Brenner would not represent him in this appeal or any other legal matter involving NYMEX in the future. In that letter, Clark maintains that Brenner entered into this agreement with NYMEX in November 1994 as part of a settlement of a NYMEX disciplinary action against Edward Mandelbaum, whom Brenner was representing. Clark further claims that, although Mr. Oppenheimer refused to give Clark a copy of the agreement, Mr. Oppenheimer told Clark that NYMEX would enforce the agreement with Brenner. In addition, in Clark's motion for leave to file a reply brief to COMEX's answering brief on appeal, Clark has attached an unauthenticated transcript of a tape of a January 6, 1997 telephone conversation with Brenner discussing the agreement with NYMEX.
Assuming such an agreement exists, it is not clear on this record whether the agreement affected Clark's appeal to the Commission. Our review of the record shows that Clark was represented fully by another attorney (Jeffrey T. Golenbock) during the exchange proceedings including the oral argument before the Appeal Panel in August 1992. If it is true, as Clark contends, that Brenner was his attorney of record as of May 1994, it does not appear that Brenner actively participated as Clark's counsel during the exchange proceedings. Rather, Brenner was hired while Clark was awaiting the Appeal Panel decision.
Then, despite the alleged existence of the agreement, once the Appeal Panel entered its decision in September 1996, Brenner represented Clark before the Commission from September 1996 until December 4, 1996, when Clark dismissed him. While representing Clark during this period, Brenner filed a notice of appeal, a petition for a stay, a motion to vacate the exchange decision because of COMEX's untimely filing of the record at the Commission, and a petition for reconsideration of the Commission's Order granting COMEX an extension to file the exchange record.
Although Clark contends that he dismissed Brenner because of his suspicions concerning the agreement, Brenner asserts that Clark dismissed him because he refused to lie to the Commission and to commit other unethical conduct as Clark had requested.8 Clark apparently knew of the alleged agreement as of August 1996,9 but did not mention the agreement to the Commission until he filed his appeal brief and did not replace Brenner immediately.
Rather, in December 1996, Clark requested an extension of time to file his appeal brief because he "recently discharged his attorney." The Commission granted him the extension.
Based solely upon this record, the Commission is unable to determine whether an agreement between NYMEX and Brenner existed and, if so, whether the agreement was improper and whether it prejudiced Clark in his appeal to the Commission. Because Brenner did not participate as Clark's counsel at the exchange level, there does not appear to be any potential adverse effect on the exchange proceedings from the alleged illegal agreement.
Nevertheless, to protect the Commission's appeals process and to ensure fundamental fairness in the conduct of the proceeding, we have determined to develop the record further on the issue of whether an improper agreement existed which may have prejudiced Clark in his appeal to the Commission. In order to do so, we are appointing an Law Judge to conduct a hearing concerning the narrow issue of the alleged agreement and its effect, if any, on Clark's appeal to the Commission and to issue a written decision within 60 days.10
At the hearing, the ALJ should request that NYMEX and Scott Brenner produce the alleged agreement, if any, and testify concerning its terms and related matters. In addition, the ALJ should give Clark an opportunity to authenticate and to introduce the alleged transcript of the tape of the January 6, 1997 telephone conversation between Clark and Brenner and to authenticate and to introduce the underlying tape. Moreover, the ALJ should provide Clark with an opportunity to demonstrate how the agreement prejudiced him in his appeal of the exchange disciplinary action to the Commission. Along these same lines, Clark should explain why, even though he admittedly knew of the existence of such an agreement in August 1996, he delayed raising the issue until he filed his appeal brief in February 1997. Both parties should be given an opportunity to testify, to cross- examine and to raise objections to the introduction of evidence.
After completion of the hearing, the ALJ should issue a written decision containing his findings within 60 days of the date of this order. We will defer ruling on the merits of Clark's and Auciello's appeal as well as the remainder of the procedural issues until the Commission has considered the ALJ's findings.
IT IS SO ORDERED.
By the Commission (Chairperson BORN, and Commissioners TULL, HOLUM, and SPEARS).
Jean A. Webb
Secretary of the Commission
Commodity Futures Trading Commission
Dated: February 2, 1998
1 In April 1997, the Commission issued an Opinion and Order revoking Clark's floor broker registration, which is currently on appeal before the U.S. Court of Appeals for the Second Circuit. In re Clark, CFTC Docket No. SD 93-2 [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) 27,032 at 44,918 (CFTC Apr. 22, 1997).
2 After the exchange held the hearing in this matter but prior to its issuance of the decision, COMEX became a wholly-owned subsidiary of the New York Mercantile Exchange ("NYMEX"). Appeal Panel Decision at 1.
3 On July 25, 1991, before a hearing on the First Complaint was held, the COMEX Committee on Business Conduct issued a Second Complaint (COMEX Docket No. 24/615/91) against Clark alone. In that complaint, COMEX alleged that, based on two NYMEX disciplinary actions unrelated to the conduct at issue in the instant action, Clark was subject to disciplinary proceedings under COMEX Rule 3.13(b)(iii). That rule authorizes COMEX to take disciplinary action against any COMEX member sanctioned by another contract market. On August 12, 1991, Clark filed an answer admitting in part and denying in part the allegations of the Second Complaint.
4 On December 4, 1991, the Hearing Panel met to consider the charges in the First Complaint against Clark and Auciello. Before the hearing on the First Complaint was concluded, the same Hearing Panel met again on December 5, 1991 to conduct a hearing on the Second Complaint against Clark alone. At that hearing, Robert Anderson, a NYMEX investigator, testified on behalf of NYMEX solely for purposes of introducing the NYMEX decisions sanctioning Clark. Later that same day, the Hearing Panel continued the hearing on the First Complaint.
5 Specifically, it found that Clark and Auciello knowingly and intentionally engaged in prearranged trading, at times to the disadvantage of their customers. The Hearing Panel also found that Clark and Auciello later attempted to hide their dishonesty, with Clark altering his trading cards to reflect the prearranged trades and Auciello completely rewriting his trading cards to incorporate the prearranged trades.
6 On December 18, 1991, the Hearing Panel issued its decision on the Second Complaint (COMEX Docket No. 24/615/91), finding that Clark was subject to two NYMEX disciplinary proceedings--NYMEX Docket No. 88-06, which was settled and resulted in a three-month suspension and $35,000 fine, and NYMEX Docket No. 90.02, which resulted in a three-and-one-half year suspension and a fine of $75,000. As a result of these NYMEX disciplinary proceedings, the Hearing Panel found that Clark was subject to sanctions under COMEX Rule 3.13(b)(iii); it suspended Clark for nine months. The Appeal Panel affirmed the Hearing Panel's decision on September 8, 1992. Clark did not file an appeal from this decision to the Commission.
7 On October 30, 1996, six days after the record of the exchange proceedings was due, COMEX sought an extension of time to file the record. The exchange explained that an extension was needed because its lead counsel was "currently in trial in federal court in Florida." Clark opposed COMEX's request for an extension and filed a motion asking the Commission to set aside the COMEX decision. In an Order Pursuant to Delegated Authority dated November 19, 1996, the Deputy General Counsel for Opinions and Review granted COMEX's request for a two-week extension and denied Clark's motion to vacate the COMEX decision. In that Order, the Deputy General Counsel stated that a delay of a few days in filing an appellate record does not affect the Commission's jurisdiction or its ability to render a fair and proper decision. As a separate matter, the Order noted that granting COMEX's request for an extension of time to file the record also extends the time for Clark to file his appeal brief and he therefore suffers no prejudice. Clark filed a petition for reconsideration of the Order, which we hereby deny.
8 See Letter to the Commission from Scott Brenner dated March 3, 1997.
9 Letter from Clark to Chairperson Born, dated March 8, 1997, at 1. 10 Under Section 8c(b) of the Commodity Exchange Act, 7 U.S.C. 12c(b) (1994), "the Commission may, in its discretion and in accordance with such standards and procedures as it deems appropriate, review any decision by an exchange whereby a person is suspended, expelled, otherwise disciplined, or denied access to the exchange. In addition, the Commission may, in its discretion and upon application of any person who is adversely affected by any other exchange action, review such action." Under Commission Rule 9.30, 17 C.F.R. 9.30 (1997), the Commission may, in its review of exchange actions, consider any issue sua sponte and provide an opportunity for the parties to address such issue. See also Rule 10.1(e), 17 C.F.R. 10.1(e) (1997) (Commission may declare rules of practice applicable to any proceeding). We view these provisions as providing authority to develop the record on the alleged illegal agreement.