UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
|In the Matter of||CFTC Docket No. 89-13|
|JOHN N. EGGUM||ORDER|
John N. Eggum petitions the Commission to modify its 1989 consent decree settling an administrative complaint.1/ In addition to the imposition of other sanctions, Eggum undertook not to seek either exchange membership or registration in any capacity. He asserts that because of these two undertakings he is subject to greater sanctions than similarly situated individuals who did not settle with the Commission because even those individuals who were sanctioned most stringently are free to apply for exchange membership and registration. The Division of Enforcement ("Division") does not oppose modification of the settlement to allow Eggum to apply for registration and exchange membership.2/ However, the Division states that it would oppose an application by Eggum for registration. For the reasons below, we deny Eggum's petition.
Eggum was a "broker-trader" in the soybean pit at the CBT. (N.D. Ill., 89 CR 666, Second Superseding Indictment at Count 1 ¶ 1, Count 2 ¶ 1A(1).) The Special April 1990 Grand Jury charged Eggum with converting customer funds and opportunities to his own use and the use of others and as a participant in a scheme to defraud customers and the investing public. (Second Superseding Indictment at Count 2 ¶¶ 1, 14.) Prior to trial, Eggum pled guilty to two felony mail fraud violations, testified as a government witness, and was sentenced to probation. United States v. Ashman, 979 F.2d 469, 476 (2d Cir. 1992); Eggum's Petition at 3.
On August 2, 1989, the Commission filed a three-count administrative complaint against Eggum charging that he violated Sections 4b(A) and 4b(D) of the Commodity Exchange Act ("Act"), 7 U.S.C. § 6b(A) and § 6b(D), by engaging in fraudulent transactions and filling orders by offset; Section 4c(a)(A) of the Act, 7 U.S.C. § 6c(a)(A), by engaging in cross trades; and Commission Rule 1.38(a), 17 C.F.R. § 1.38(a) (1989) by trading noncompetitively. (Complaint at Count One, Count Two, and Count Three, Aug. 2, 1989.) The complaint requested the imposition of a cease and desist order, suspension or revocation of respondent's floor broker registration, a trading ban of unspecified length, and a civil monetary penalty not to exceed $100,000 per violation. (Complaint at 5-6.)
On the day the complaint was filed, the Commission filed a Consent Order of Settlement, finding that Eggum had committed the violations charged. (Consent Order of Settlement 1989 WL 242102 at *1 (CFTC Aug. 2, 1989).) The Commission imposed a cease and desist order, revoked Eggum's registration as a floor broker, imposed a three-year trading ban, and ordered him to liquidate all his futures and options positions before the effective date of the denial of his trading privileges. (Id.) Eggum undertook not to apply for registration with the Commission in any capacity at any time, not to participate in or to appear on the floor of any contract market in any capacity, to cooperate with the Commission and the United States Attorney and to testify truthfully, and to make full restitution to his customers. (Id.) Eggum now seeks relief from two of the undertakings: not to apply for registration with the Commission in any capacity at any time and not to participate in or to appear on the floor of any contract market in any capacity.
In his petition, Eggum argues that in agreeing to the terms of the settlement he relied upon the Division's representations that the Division's policy was to seek a permanent trading ban for any floor broker or floor trader who had been convicted of one or more felonies and that no other trader or broker would be given a better deal than the one offered to Eggum. (Eggum's Petition at 4.) Eggum submitted a sworn declaration from the attorney who represented him in1989 corroborating Eggum's contention regarding the Division's representations. 3/
Eggum asserts that in accordance with his undertakings, he cooperated fully with the government in both the criminal and administrative proceedings. (Eggum's Petition at 4.) Eggum submitted a letter from the Assistant United States Attorney ("AUSA") who worked on the prosecution of the soybean traders and brokers stating that Eggum fulfilled his obligations to cooperate and worked long hours into the evening to help him review the evidence and prepare testimony. (Letter of Mark L. Rotert.) Eggum's attorney described Eggum's efforts as involving "literally hundreds of hours of time with government agents and attorneys reviewing trading activity and reconstructing trading activity." (Miquelon Declaration at ¶ 18.) The AUSA also stated that Eggum provided credible, effective, and significant testimony and that he recommended to the district court judge that Eggum receive favorable consideration. (Rotert letter.)
Eggum contends that, subsequent to his settlement with the Commission, the Commission decided the cases of other traders and brokers in which the law governing length of trading bans was clarified and that this clarification is a significant change in circumstances entitling him to a revision of the consent decree. (Eggum Petition at 4-5.) In essence, Eggum argues that the Divisionrepresented that all traders and brokers convicted of a felony would be permanently prohibited from exchange membership. (Id. at 6.) However, he asserts, the Commission determined that an individual who committed two to five felonies would be barred from trading for six to ten years with a right to petition for reduction. (Id., citing In re Scheck, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,834 at 40,733 n.7 (CFTC Aug. 13, 1993) ("Scheck I").) Consequently, Eggum argues, had he not settled with the Commission, rather than being prohibited permanently from being a member of the exc hange he would have been barred for only six to ten years with a right to petition for relief after three to five years. (Id. at 8.) Eggum maintains that he cooperated extensively, he suffered substantial economic losses, it has been more than eight and three quarters years since he was charged, and it is inequitable that individuals who did not cooperate have been sanctioned less severely. (Id. at 11.) Accordingly, Eggum requests relief from the provisions which prohibit him from seeking membership on the CBT and registration as a floor trader.
The Division's Response
In response the Division states that, although it does not oppose modifying the order to relieve Eggum of his undertaking to refrain from seeking membership on any contract market, it would oppose any application by Eggum for registration either as a floor trader or in an other capacity, unless and until he is able to overcome the presumption of unfitness raised by his criminal conviction. (Division's Response at 2.)
The Division also states that the settlement negotiations were conducted simultaneously with Eggum and seven other cooperating Chicago traders and brokers over a period of several days immediately before the criminal charges and the Commission's complaints were announced and that the Division established specific settlement parameters to ensure consistency and fairness amongst them. (Id. at 4.) The Division further contends that there has been no prejudice to Eggum because there is no indication that any of the other individuals convicted as a result of the sting operation will be allowed to trade. (Id. at 6.) The Division further argues that
[T]here is no basis to conclude that, but for Eggum's undertaking not to apply for exchange membership, he would be trading on the floor of an exchange today. Because Eggum can point to no actual harm that has befallen him as a result of the Commission's decision in Scheck, the Commission is under no obligation to modify its Order against him.
(Id. at 6-7.)
The 1989 consent decree with Eggum was a final order of the Commission which will not be modified except in exceptional circumstances.4/ TheCommission's Rules of Practice do not contemplate requests for relief from final decisions, except in the case of default. See Commission Rule 10.94. However, the Commission has considered motions for relief of final orders by applying the standard found in Fed. R. Civ. P. 60(b)(5).5/ That rule provides, in relevant part, that:
On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: . . .(5) the judgment has been satisfied, released or discharged . . . or it is no longer equitable that the judgment should have prospective application. . . .
We have determined previously that in implementing these criteria it is appropriate to apply the standard set forth in U.S. v. Swift & Co., 286 U.S. 106, 119(1932): "Nothing less than a clear showing of grievous wrong evoked by new and unforeseen conditions . . . . " Dickstein, ¶ 26,412 at 42,838.
Even applying this standard flexibly,6/ Eggum's petition fails. Eggum argues that modification of a final order may be warranted when the statutory or decisional law has changed to make legal what the decree was designed to prevent. Eggum's Petition at 5, citing Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 388 (1992). But in this case, there has been no change in the applicable statutory or decisional law and certainly no suggestion that Eggum's 1989 consent order prohibited conduct that has now been made legal.
Section 9(b) of the Act applicable at the time of Eggum's consent order provided 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's decisions involving traders who were convicted of felonies subsequent to Eggum's consent order rested on this provision, which did not change. See Scheck I, ¶ 25,834 at 42,838 n.3.
Eggum's reliance on Protectoseal Co. v. Barancik, 23 F.3d 1184 (7th Cir. 1994), is therefore misplaced. In Protectoseal the court had previously enjoined a shareholder from sitting as a director of a corporation based on a provision which prohibited interlocking directors of certain corporations. Because Congress had changed the law regarding the size of the corporations in which interlocking directors were prohibited and under the new law the shareholder was eligible to sit as a director, the court found that the shareholder was entitled to extraordinary relief under Rule 60(b)(5). Id. at 1187. The Court stated that "When a change in the law authorizes what had previously been forbidden it is an abuse of discretion for a court to refuse to modify an injunction founded on the superseded law." Id. at 1187, quoting American Horse Protection Ass'n v. Watt, 694 F.2d 1310, 1316 (D.C.Cir. 1982). See also, U.S. v. Western Electric, 46 F.3d 1198, (D.C. Cir. 1995). By contrast, in this case, the law authorizing the Commission to refuse to register certain individuals and to impose trading bans has not changed since the consent order. More importantly, neither Congress nor the Commission has authorized conduct that was previously forbidden.
Eggum's reliance on the Division's negotiating position during settlement discussions "that Eggum, and any other trader convicted of a felony, would be banned permanently from floor membership" (Eggum's Petition at 6) is also misplaced. First, there is no inequity in the duration of the trading ban that was imposed. Eggum received a three-year trading ban, not a permanent ban, under the consent order. Second, Eggum, through his counsel, was surely aware thatthe length of a trading ban in litigated cases would be determined by the Commission, and not the Division, based on the application of the statutory criteria to the particular litigant's circumstances. The plain language of Section 9(b) indicates that a person convicted of a felony shall be barred for five years or longer unless in the particular case the Commission determines that the market bar is not required to protect the public interest. Thus, Eggum was, or should have been, aware that a permanent trading ban would not necessarily be imposed in each future litigated case. Consequently, we do not find that the Commission's interpretation of Section 9(b) of the Act in cases subsequent to Eggum's consent decree created a change in the law warranting the extraordinary relief which Eggum seeks.
Eggum argues that as a cooperating individual he should be treated no more harshly than other traders who were convicted of felonies. Eggum also contends that subsequent cooperating traders who had similar felony convictions did not commit to such undertakings. Eggum's Petition at 1. Our review of several consent orders reveals that most of the convicted traders who settled with the Commission undertook not to apply for registration with the Commission or to apply for exchange membership, although some did not. The settlements negotiated by the Division, like the disposition of any enforcement matter, must be examined based on the individual circumstances of settling defendants, considering all relevant factors, including the gravity and number of offenses charged. That some subsequent settlements may not have included anundertaking not to seek registration is clearly insufficient grounds, without more, for modifying a consent decree entered into in 1989. Again, we find that sanctions imposed on other traders do not demonstrate an extraordinary circumstance warranting modification of the consent order.
As do courts, we generally construe settlement agreements under contract law principles. Violette v. First Options of Chicago, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,951 at 44,623 (CFTC Feb. 20, 1997) citing Air Line Stewards, Etc. v. American Airlines, Inc., 763 F.2d 875, 877 (7th Cir. 1985), cert. denied, 474 U.S. 1059 (1986). "'[A] consent decree embodies an agreement of the parties and thus in some respects is contractual in nature.' . . . By consenting to the terms of a decree, parties forego litigation and compromise their respective positions." Alexander v. Britt, 89 F.3d 194, 199 (4th Cir. 1994), quoting Rufo 502 U.S. at 378. Eggum was represented by counsel in the negotiation of the settlement and freely entered into the settlement agreement. Eggum gained several advantages by settling both the criminal and administrative proceedings. Eggum avoided litigation, he did not go to prison as did other convicted traders, and the trading ban imposed in the consent order was significantly shorter than that imposed on those who did not settle. Absent exceptional circumstances not present here, parties are bound by their contractual agreements.
Even though Eggum seeks relief under Section 9(b) of the Act (Eggum's Petition at 1) which relates to trading bans, that provision does not stand in the way of his trading on the floor of an exchange. Eggum's trading ban has expired,and he may trade on the nation's futures exchanges through the use of an intermediary. Eggum's registration was revoked under the consent decree, and it is that revocation along with his undertakings not to seek registration or membership in an exchange that prevents him from trading on the floor of an exchange.7/
Registration revocation has a prospective purpose to protect the integrity of the markets by ensuring that individuals with a proclivity to violate the law cannot repeat their wrongdoing in the markets. Cf. In re Mayer, 1998 WL 80513 at *29 (CFTC Feb. 25, 1998) (citing In re Sundheimer, [1980-1982 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 21,245 at 25,220 (CFTC Sept. 16, 1981), aff'd sub nom. Sundheimer v. CFTC, 688 F.2d 150 (2d Cir. 1982), cert. denied, 460 U.S. (1983)). "When the violations at issue involve criminal conduct committed on the trading floor of an exchange, the threat a repetition of that conduct poses to market integrity is clear and unequivocal." Scheck I, ¶ 25,834 at 40,732.
In sum, we find that Eggum has not demonstrated exceptional circumstances warranting the extraordinary relief of modification of a final judgment of the Commission.
Accordingly, Eggum's petition is denied.8/
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: July 8, 1998
1 / The complaint had its genesis in a sting operation 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 ("CBT").
2 / The Division moved for leave to respond. The Division's motion is granted, and its brief is accepted.
3 / Miriam F. Miquelon represented Eggum in 1989 in both the criminal and administrative proceedings. (Miquelon Declaration at ¶ 1.)
4 / We weigh our interest in the finality of our judgments against any exceptional circumstance that might warrant the extraordinary relief that Eggum seeks. Cf. Blalack v. First United States Coal Corp., [1986-1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶23,212 at 32,579 (CFTC Aug. 21, 1986) ("`finality in the adjudicating process [is an] appropriate weight in the scale, as reflecting a public policy which has authentic claims of its own.' Valley Telecasting v. FCC, 336 F.2d 914, 917 (D.C. Cir. 1964)."); Southerton v. Bache Halsey Stuart Shields, [1984-1986 Transfer Binder] Com. Fut. L. Rep. (CCH) ¶ 22,428 at 29,910 (CFTC Nov. 28, 1984) ("Rule 60(b)attempts to strike a balance between the sometimes conflicting principles that litigation must, at some point, be brought to an end and that justice should be done.")
5 / See In re Dickstein, [1994-1996 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,412 at 42,839 (CFTC May 30, 1995) (modification of a final order of settlement denied because movant's factual showing attested to nothing more than inconvenience); In re Brenner, [1994-1996 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,412 at 43,376 (Nov. 15, 1995) (modification of a final order denied because it had not been filed timely and was without merit); In re Conlin, 1986 WL 65927 (CFTC Oct. 30, 1986) (refusal to relieve a party from a settlement agreement simply because the sanctions may have had a greater impact than the party thought they would); and In re Humpherys, 1984 WL 48130 (CFTC Mar. 2, 1984), 1984 WL 48279 (CFTC Sept. 11, 1984) (modification of an order of settlement denied because, the hardships were known to petitioner at the time of settlement, and in light of his failure to acknowledge the gravity of his wrongdoing, the petitioner had not made a persuasive case). But see In re Angelo, 1990 WL 294010 (CFTC July 2, 1990) and In re Angelo, 1990 WL 294107 (CFTC Aug. 24, 1990) (granting petitions for modification of consent orders of settlement to change effective dates).
6 / See Dickstein, ¶ 26,412 at 42,838-42,839 n.3.
7 / Eggum's guilty plea to two felonies is a basis for statutory disqualification under Section 8a(2) of the Act, which raises a presumption that he is unfit to act as a Commission registrant. In re Horn, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,836 at 36,939 (CFTC Apr. 18, 1990).
8 / Any motion for reconsideration by the Commission or notice of appeal seeking review by 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) and Commission Rule 10.106, 17 C.F.R. § 10.106 (1998).