UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
CURTIS DEARING, Complainant,
FIRST AMERICAN DISCOUNT CORP., ET AL., Respondents.
CFTC Docket No. 98-R042
Curtis Dearing, an introducing broker, appealed from the March 25, 1998 order of the Administrative Law Judge ("ALJ") dismissing his reparations complaint against First American Discount Corp. and two of its principals for failure to state a claim. Dearing essentially argues that the ALJ erred in dismissing the entire complaint.
Dearing's reparations complaint alleged that respondents failed to use the excess equity in his proprietary account to cover his customers' margin calls. As a separate matter, Dearing claimed that respondents unlawfully liquidated his proprietary account, which was not undermargined, through unauthorized trading. Respondents denied all the allegations of the complaint, moved for dismissal for failure to state a claim, and counterclaimed for debit balances in Dearing's customer accounts. In addition, respondents filed motions to debar complainant's counsel pursuant to 17 C.F.R. § 12.9(b) and to sanction complainant's counsel. However, respondents failed properly to serve counsel for complainant. On March 25, 1998, before complainant had an opportunity to respond to the counterclaim, the ALJ ordered the complaint dismissed for failure to state a claim, citing Commission Regulations 1.20 and 1.22, 17 C.F.R. §§ 1.20 and 1.22, which prohibit a futures commission merchant from using funds from an introducing broker's proprietary account to finance the margins calls of customers.
Based upon our review of the record, we find that the ALJ's order of dismissal did not address the second of Dearing's claims-namely, that respondents unlawfully liquidated his proprietary account--and did not dispose of respondents' counterclaim for damages. Accordingly, we vacate the March 25, 1998 order of dismissal and remand to the ALJ for a decision on all the claims and issues raised in this action. Complainant will be permitted to file an answer to respondents' counterclaim within 30 days of the date of this order.
IT IS SO ORDERED.
By the Commission (Chairperson BORN and Commissioners TULL, HOLUM, SPEARS and NEWSOME.
Jean A. Webb
Secretary of the Commission
Commodity Futures Trading Commission
Dated: January 14, 1999