UNITED STATES OF AMERICA

Before the

COMMODITY FUTURES TRADING COMMISSION

JOHN C. EMMETT, Complainant

v.

COMMONWEALTH FINANCIAL GROUP, INC. AND ALLAN S. ADER, Respondents

CFTC DOCKET NO. 95-R135

 

OPINION AND ORDER

This case is before the Commission on appeal from a June 1997 initial decision of a Judgment Officer ("JO") in the Commission’s reparations forum. The JO found that Commonwealth Financial Group, Inc. ("Commonwealth") and Allan S. Ader ("Ader") fraudulently induced John C. Emmett ("Emmett" or "complainant") to open an options trading account in violation of Section 4c(b) of the Commodity Exchange Act ("CEA" or the "Act") and Commission Regulation 33.10, 17 C.F.R. § 33.10. Emmett’s reparation complaint alleged that Commonwealth, Ader and another Commonwealth employee misrepresented the risks of trading options on futures, failed fully to disclose Commonwealth’s commission and fee structure, and churned his account. Emmett claimed damages of $18,169 based on the total losses in his account and elected to have his complaint decided under the Commission’s summary decisional process. By notice dated October 23, 1995, the Commission’s Office of Proceedings informed all parties of the rules and procedures governing summary decisional proceedings.

Respondents timely filed an answer in which they denied the allegations of Emmett’s complaint and raised affirmative defenses of estoppel and ratification. Respondents subsequently served Emmett with a notice to produce documents and respond to written interrogatories. Emmett failed to respond to these discovery requests, and respondents did not move for an order compelling discovery under Rule 12.30(b)(3), 17 C.F.R. § 12.30(b).

On September 30, 1996, the JO issued an Order to Parties and Notice of Oral Hearing, describing the procedures to be followed during the telephonic hearing, ordering that only Emmett and respondent Ader would be permitted to testify and ordering that no evidentiary submissions not previously filed would be considered. The scheduled telephonic hearing was postponed, and on May 16, 1997, the JO issued an order cancelling the oral hearing on the ground that the record was sufficient to resolve the issues in this case. The parties did not request an oral hearing, and the Initial Decision and Reparation Award to complainant of $18,169 plus interest was issued on June 30, 1997.

Respondents’ appeal is limited to contentions that the JO denied them due process by failing to hold a telephonic hearing and by limiting further submission of evidence.

DISCUSSION

Where the complainant in a reparations proceeding elects a summary decisional

proceeding, that proceeding is governed by Subpart D of the Commission’s Part 12 Rules, 17

C.F.R. § 12.200 et seq. Pursuant to Rule 12.208(b), an oral hearing may be ordered at the discretion of the judgment officer or on the motion of either party when necessary and appropriate for the resolution of factual issues. Where a hearing is ordered, the judgment officer may regulate the course and sequence of testimony and may limit the issues. See Rule 12.209, 17 C.F.R. § 12.209. In the instant case, the determination that the factual issues could be resolved on the basis of documentary evidence in the record was committed to the sound discretion of the judgment officer, and there is no basis in the record to find that the JO abused his discretion. Moreover, the JO’s October 1995 notice of summary proceedings fully informed the parties of the rules and procedures applicable to summary decisional proceedings. Despite this notice, respondents failed to request an oral hearing when the scheduled hearing was cancelled and thus waived any right to an oral hearing they may have had. See Grindell v. Commonwealth Financial Group, Inc., Alan S. Ader, Charles P. Hoffecker and Michael James Rendina, Jr., CFTC Docket No. 96-R86 (CFTC February 27, 1998).

Respondents’ second due process challenge—that the JO unfairly restricted the submission of additional evidence—is similarly unavailing. Respondents failed to submit documentary evidence as permitted by Commission Rule 12.208. Even if the JO had determined to conduct an oral hearing, respondents would not have been entitled to introduce additional witnesses or documentary evidence. Rule 12.209 permits a judgment officer to limit the issues to be addressed in an oral hearing, and in the instant case the JO made clear that the purpose of the oral hearing he initially proposed to hold would be limited to resolving a credibility conflict between Ader and Emmett. In these circumstances, his decision to restrict the submission of additional evidence was consistent with the Commission’s Part 12 Rules and with due process.

Accordingly, the Initial Decision is affirmed.

IT IS SO ORDERED.

By the Commission (Chairperson BORN and Commissioners HOLUM and SPEARS).

Commissioneer TULL, concurring.

________________________________

Jean A. Webb

Secretary of the Commission

Commodity Futures Trading Commission

Dated: April 24, 1998

 

John C. Emmett v. Commonwealth Financial Group, CFTC Docket No. 95-R135

Concurring Opinion of Commissioner John E. Tull, Jr.:

I concur with the majority in affirming the Initial Decision. As the majority points out, respondents failed to request an oral hearing when the scheduled oral hearing was canceled, and furthermore, respondents are not entitled to a hearing under Rule 12.108(b), 17 C.F.R. § 12.208(b) (1997). I agree with this analysis and result, but would like to take this opportunity to reiterate my concurring opinion in Grindell v. Commonwealth Financial Group, Inc., CFTC Docket No. 96-R86 (CFTC February 27, 1998).

Every person should have the right to be heard and should be entitled to a hearing if one is requested. Since the current reparations rules do not provide respondents with such a right, I believe it is time for the Commission to reexamine the Commission Rules relating to the reparation proceedings.

John E. Tull, Jr.

April 22, 1998