UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
In the Matter of
†††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††† CFTC DOCKET NO. 98-3
NEW YORK CURRENCY ††††††††††††††††††††††††††††††††††††††††††††††††††† ORDER
Respondent New York Currency Research Corporation petitions us to reconsider our opinion and order of February 6, 1998, in this administrative enforcement action and stay the sanctions imposed therein. Our decision imposed a cease and desist order and a $110,000 civil monetary penalty. On March 4, 1998, the Division of Enforcement ("Division") filed an opposition to respondentís motion for reconsideration and a stay. On March 5, 1998, we issued a temporary stay of the sanctions pending our decision on respondentís motion for reconsideration.
For the reasons set forth below, we grant respondentís motion for reconsideration, vacate our finding that respondent violated Regulations 4.23 and 4.33, 17 C.F.R. ßß 4.23 and 4.33 (1997), and otherwise reaffirm the findings made and the sanctions imposed in our previous order. In addition, the temporary stay of sanctions entered on March 5, 1998, is lifted, and the sanctions imposed in the Commissionís order of February 6, 1998, shall take effect 15 days from todayís date. Finally, respondentís request for a further stay pending review by the United States Court of Appeals is denied.
Commission Regulation 10.106 requires that a petition for reconsideration "must be confined to new questions raised by the opinion or order and concerning which the petitioner had no opportunity to argue before the Commission." 17 C.F.R. ß 10.106 (1997). Generally, motions for reconsideration serve a very narrow purpose and must be supported by a showing of extraordinary circumstances justifying relief from judgment. See Bally Export Corp. v. Balicar, Ltd., 804 F. 2d 398, 400 (7th Cir. 1986). The purpose of a motion for reconsideration is to correct errors of law or fact or to present newly discovered evidence. See Harsco Corp. v. Zlotnicki, 799 F.2d 906, 909 (3d Cir. 1985).
Respondentís arguments are not of the type that normally justify reconsideration. Respondent essentially claims that the expedited schedule created in this case did not allow it to raise various arguments to the Commission. Given that this proceeding was focused on a single, straightforward legal issue, we find that respondent had more than sufficient opportunity to raise any relevant arguments. The parties each filed post hearing and reply briefs before the Administrative Law Judge ("ALJ"). Respondent was not prohibited from raising any of its arguments at that time. Its current arguments mainly consist of points that either could have been or were raised before the ALJ. In reaching our decision on the merits of this case, we reviewed the record in its entirety, considered all arguments raised below, and found against respondent. Moreover, we have also reconsidered and here address respondentís present arguments.
First, respondent argues that the administrative complaint in this matter was not properly served on respondent. Respondent did not raise this issue at the hearing, has provided no reason why it failed to do so, and has demonstrated no prejudice resulting from any alleged failure of service. By appearing at the administrative hearing and failing to contest personal jurisdiction, respondent waived its right to do so. Cf. Continental Bank v. Meyer, 10 F. 3d 1293 (7th Cir. 1993) (holding that defendant waived defense of lack of personal jurisdiction by participating in the litigation of the merits of the case). Moreover, respondent was properly served by certified mail in accordance with the procedures set forth in the complaint which provide that service shall be made "personally or by registered or certified mail, pursuant to Section 10.22 of the Commissionís Regulations, 17 C.F.R. ß 10.22." We find no defect in the manner of service of the complaint.
Respondent also contends that the Commission is without authority to make what it calls an "informal agency demand" for documents. (Resp. Mot. at 5). Commission Regulation 1.31(a)(2), 17 C.F.R. ß 1.31(a)(2) (1997), provides that copies of books or records will be provided "to a Commission representative upon the representativeís request." Any reasonable procedure, including a letter demand, used to request documents is acceptable. Accordingly, we do not find any error in the manner in which the Division made its request for documents.
Respondent also claims that the language pertaining to Commission investigations contained in Commission Regulation 11.2(a), 17 C.F.R. ß11.2(a) (1997), prohibited the Commission from requesting documents from respondent. Regulation 11.2(a) delegates to the Director of the Division of Enforcement and certain other Commission staff the authority to conduct investigations of, inter alia, "persons required by law to register with the Commission . . . ." Respondent seems to argue that because, in its view, it was not required to be registered, the Divisionís demand for documents was not authorized. Respondentís reliance on this language is misplaced. Section 4n(3)(A) of the Commodity Exchange Act ("CEA"), 7 U.S.C. ß 6(n)(3)(A) (1994), and Commission Regulation 1.31(a)(2) independently authorize the Commission to make a request for records kept by a Commodity Trading Advisor ("CTA") or Commodity Pool Operator ("CPO"). No ongoing Commission investigation is necessary to authorize Commission representatives (in this case, Division employees) to demand production of respondentís records.
Next, respondent claims that an entity not functioning as a CPO or CTA does not have the records contemplated by Regulations 4.23 and 4.33. Both Regulations, however, require a registered CTA or CPO such as respondent to maintain books and records beyond those concerning its activities requiring registration. Regulation 4.23(b)(3) requires a CPO to maintain books and records of "all other transactions in all other activities in which the pool operator engages." Regulation 4.33(b)(3) requires a CTA to maintain books and records "of all other transactions in all other business dealings in trading commodity interests and of all cash market transactions in which the commodity trading advisor and each principal thereof engages." Respondent admits that it was conducting foreign currency activities (Hearing Transcript at 136), and thus even assuming arguendo that it was not operating as a CTA or CPO, it still had records required to be kept by Regulations 4.23 and 4.33 and produced under Regulation 1.31.
Respondent also argues that the record production provision of the CEA is void for vagueness. This argument is essentially a restatement of its position that CEA Section 4(n)(3)(A) and Regulations 4.23, 4.33, and 1.31 apply only to an entity operating as a CTA or CPO. We already have addressed this issue in detail in our February 6, 1998 opinion and order, and we will not revisit it here. The purpose of the void for vagueness doctrine is to ensure that individuals are given notice of statutory requirements that apply to their conduct and to establish minimum legislative guidelines to prevent arbitrary enforcement of these requirements. Kolender v. Lawson, 461 U.S. 352, 357-358 (1983), see also, Grayned v. City of Rockford, 408 U.S. 104, 108-109 (1977). In order to demonstrate that a civil statute is void for vagueness, the statute must be "so vague and indefinite as really to be no rule or standard at all." Boutilier v. INS, 387 U.S. 118, 123 (1967). See also, Association of Intern. Auto Mfrs., Inc. v. Abrams, 84 F.3d 602, 614 (2nd Cir. 1996). Respondent has clearly failed to make the type of showing required to meet this standard.
In a similar argument, respondent places significance on the fact that our opinion and order references Regulations 4.13 and 4.14, 17 C.F.R. ßß 4.13 and 4.14 (1997), which do not create specific record production duties. These Regulations provide certain exemptions from registration. Specifically, Regulations 4.13(d) and 4.14(c) provide that, if a person is exempt from registration, but chooses nonetheless to register, then that person must comply with the Part 4 Regulations (including bookkeeping) as if that person were not exempt from registration. We discussed Regulations 4.13(d) and 4.14(c) in order to further explicate that it is a registrantís status that creates its recordkeeping obligations, and not the specific nature of its activities.
Respondent also argues that the sanctions imposed by the Commission are not warranted because respondent inflicted no injury on customers or the market and did not benefit from the violation. However, injury to customers and benefit to respondent are criteria more applicable to a choice of sanctions for trade practice violations or for fraud than to a refusal to comply with the Commissionís record production requirements. The Commissionís ability to inspect the operations and activities of Commission registrants goes to the heart of the Commissionís ability to enforce the CEA. Respondent intentionally disregarded its regulatory obligations under the CEA. The effectiveness of the record production requirements would be undercut if registrants could selectively comply with them. We find the sanction imposed to be appropriate given the nature and gravity of the violation.
Citing JCC, Inc. v. Commodity Futures Trading Commission, 63 F.3d 1557 (11th Cir. 1995), respondent also argues that the fact that it is no longer doing business should be considered a mitigating factor. However, respondent has mischaracterized the holding of JCC. It was not the United States Court of Appeals in that case, but the Commissionís ALJ, who decided not to impose a monetary penalty on one of the five respondents charged in the case because of the respondentís defunct status. This aspect of the ALJís decision was not appealed to the Commission or to the Court of Appeals and is not controlling authority here. Furthermore, the record production provisions that Respondent has violated mandate that books and records that are required to be maintained shall be kept for a period of five years. 17 C.F.R. ß 1.31(a)(2) (1997). Thus, the potential for future violations continues, irrespective of whether the respondent is conducting any business.
Finally, respondent claims that the Commissionís reasoning in its opinion and order was flawed because the Commission based respondentís record production violations on, inter alia, Commission Regulations 4.23 and 4.33. Because the Commission did not find that respondent had failed to "keep" books and records--only that it had failed to produce books and records--respondent argues that there could be no violation of Regulations 4.23 and 4.33. Although these two recordkeeping provisions do not independently create record production obligations, they must be read together with the production obligations of Regulation 1.31. These two Regulations provide that the delineated books and records must be maintained "in accordance with Rule 1.31." Moreover, Regulation 1.31 provides that "[a]ll books and records required to be kept by the Act or by these Regulations" shall be provided on request to the Commission. In order to determine the type of books and records to be produced pursuant to Regulation 1.31, one must refer to Regulations 4.23 and 4.33.
As a matter of clarification, however, we distinguish between the purposes of Regulation 1.31, which sets out the manner in which documents must be maintained and produced, and Regulations 4.23 and 4.33, which define the type of records to be kept by CPOs and CTAs. Since the graveman of the violation is respondentís failure to produce documents, we conclude that respondent has violated only Section 4(n)(3)(A) of the CEA and Regulation 1.31(a)(2). Accordingly, we vacate the liability determination based on Regulations 4.23 and 4.33. However, because the sanctions imposed in our February 6, 1998 opinion and order were based on respondentís conduct relating to its failure to comply with the Commissionís record production requirements, we leave undisturbed our previous assessment of a $110,000 civil monetary fine and a cease and desist order.
Upon review of the partiesí submissions on the motion for reconsideration and stay, we vacate the finding that respondent violated Regulations 4.23 and 4.33 and reaffirm our earlier determination that respondent violated CEA Section 4n(3)(A) and Regulation 1.31. In addition, we reaffirm our assessment of a $110,000 civil monetary penalty and a cease and desist order for these violations, and the sanctions shall take effect 15 days from the date of this order.
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: March 31, 1998