UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
In the Matter of
CFTC DOCKET NO. SD-97-3
OPINION AND ORDER
Eric Zuccarelli appeals from the Initial Decision of the Administrative Law Judge ("ALJ") summarily revoking his registration as a floor broker pursuant to the statutory disqualification provisions of Sections 8a(3)(M) and 8a(4) of the Commodity Exchange Act, 7 U.S.C. §§ 12a(3)(M) and 12a(4) (1994) ("Act"). On appeal, Zuccarelli asserts that the ALJ improperly evaluated evidence which he contends proved his rehabilitation. He also argues that he was denied the right to respond to a motion for summary disposition and that he should have received a hearing. The Division of Enforcement responds that Zuccarelli failed to present sufficient proof of rehabilitation to merit a hearing. It contends further that the ALJ correctly followed the procedures and standards governing summary disposition under Commission Rule 3.60, 17 C.F.R. § 3.60 (1998). Upon consideration of the parties' arguments and review of the record, we vacate the Initial Decision and remand the case for further proceedings consistent with this opinion.
Zuccarelli is a registered floor broker under Sections 4e and 4f of the Act, 7 U.S.C. §§ 6e and 6f (1994). In February 1987, he was granted trading privileges on the Commodity Exchange, Inc. ("COMEX"), a division of the New York Mercantile Exchange ("NYMEX"). Since that time, he has been the subject of four disciplinary proceedings involving improper trading practices. On March 5, 1997, the Commission served Zuccarelli with a notice of intent to revoke, suspend, or condition his registration ("Notice") based upon two of these proceedings. In re Zuccarelli, SD CFTC Docket No. 97-3, 1997 WL 97163 (CFTC Mar. 5, 1997).
The Notice asserted that, pursuant to charges filed against Zuccarelli on November 30, 1988, by the COMEX Committee on Business Conduct ("CBC"), the COMEX Supervisory Committee ("CSC") found him guilty of noncompetitive trading, improper cross trading, wash trading, prearranged trading and failing to record information properly on customer order tickets. Id. at *1. The CSC imposed a $30,000 fine and a two-week trading suspension and issued a cease and desist order. Id. The COMEX Board of Governors Appeal Panel later affirmed the CSC's decision, Record on Appeal, Tab M, Ex. C, as did the Commission, Zuccarelli v. Commodity Exch., Inc., CFTC Docket No. 91-E-4, 1993 WL 32433 (CFTC Feb 5, 1993).
The other proceeding referred to in the Notice arose out of CBC charges lodged against Zuccarelli on June 6, 1994. The 1994 complaint alleged that, over a period of several months in 1993, Zuccarelli participated in six improper trading sequences that involved trading in a prearranged, noncompetitive manner, inserting a fictitious price into the exchange's price change register for the purpose of electing another broker's order, accommodating another broker in that broker's indirect bucketing of customer orders and failing to record trades in the exact order of their execution. The case resulted in a settlement whereby Zuccarelli neither admitted nor denied the charges, agreed to pay a $50,000 fine ($25,000 of which was suspended conditioned upon no further rule violations), was suspended from trading for four weeks and was issued another cease and desist order. Zuccarelli, 1997 WL 97163 at *1.
On September 22, 1997, Zuccarelli filed a response to the Notice pursuant to Commission Rule 3.60(a)(3).1 In his response, he did not challenge the factual accuracy of the Notice. Rather, he alleged that he had been a "model citizen" on the COMEX during the "1,000 plus days" since the June 6, 1994 charges were filed and argued that his continued registration would not pose a risk to the public. Record on Appeal, Tab K at 1. He also stated that he had "made a clean breast of it emotionally by `getting everything off his chest'" through his testimony before the Division of Enforcement in which he "fully confess[ed] to his prior activities."2 Id. at 2. Attached to the response was a letter from his employer, Jeremy Lubcher, in which Lubcher offered to supervise Zuccarelli's trading activities if an agreement approved by Lubcher's attorney could be arranged.3
Shortly thereafter, in accordance with Commission Rule 3.60(b)(2)(ii), Zuccarelli submitted a summary of the evidence that he intended to offer in his defense ("Summary"),4 which was comprised of his own proposed testimony, as well as that of Lubcher and eight other witnesses willing to appear on his behalf at a hearing. Attached to the Summary were letters from the witnesses attesting to Zuccarelli's good character and trouble-free trading record since the conduct complained of in 1994.
On October 30, 1997, the Division of Enforcement filed a motion for summary disposition accompanied by supporting documents in which it argued that Zuccarelli's proffered evidence was insufficient as a matter of law to show that he posed no danger to the public. It consequently urged the ALJ to forego a hearing on the matter and to revoke Zuccarelli's registration summarily. On November 5, 1997, the Division of Enforcement filed a motion to stay the proceedings pending a ruling on the motion for summary disposition. The ALJ granted the motion to stay the proceedings on November 10, 1997, see Record on Appeal, Tab O, and later issued an Initial Decision granting the motion for summary disposition, see In re Zuccarelli, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,221 (ALJ Jan. 2, 1998). Zuccarelli appeals from this decision.
II. Statutory Disqualification Under Sections 8a(3) and 8(a)(4)
The registration of floor brokers is governed by Section 8a of the Act, 7 U.S.C. § 12a (1994). Section 8a(4) provides the Commission with the authority, in accordance with the procedure described in Section 6(c) of the Act, 7 U.S.C. § 9 (1994), to suspend, restrict, or revoke such registration for certain reasons listed in Section 8a(3). Section 8a(3)(M) is a catch-all provision, which encompasses "other good cause." 7 U.S.C. § 12a(3)(M) (1994). It comes into play when conduct attributable to a registrant demonstrates the "person's potential disregard of or inability to comply with the requirements of the Act or the rules, regulations or order[s] thereunder, . . . or [his or her] lack of honesty or financial responsibility." 17 C.F.R. Part 3, App. A (1998). See, e.g., In re Clark, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,032 at 44,927 & n.23 (CFTC Apr. 22, 1997) ("other good cause" found on the basis of two instances of exchange disciplinary action involving charges of noncompetitive trading and customer fraud), appeal docketed, No. 97-4228 (2d Cir. Aug. 8, 1997); In re Anderson, [1986-1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 23,085 at 32,208 (CFTC May 30, 1986) (two separate findings of violations of the Act constituted "other good cause").
Once "other good cause" is established under Section 8a(3)(M), the burden shifts to the registrant to show, by a preponderance of the evidence, that his continued registration will "not pose a substantial risk to the public." 17 C.F.R. § 3.60(b)(2)(i), (e)(2) (1998); Anderson, ¶ 23,085 at 32,208. This showing may include (1) evidence of mitigating circumstances surrounding the disqualifying event; (2) evidence that the registrant has been rehabilitated since the event; and (3) if the registrant is an associated person, a floor broker or a floor trader, evidence that his "registration on a conditioned or restricted basis would be subject to supervisory controls likely both to detect future wrongdoing . . . and protect the public from any harm arising from the . . . future wrongdoing, including proposed conditions or restrictions." 17 C.F.R. § 3.60(b)(2)(ii)(A), (B), (C) (1998); In re Akar, [1986-1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 22,927 at 31,708 (CFTC Feb. 24, 1986). Zuccarelli offered no mitigating circumstances in his defense. His fitness for registration depended, therefore, upon a showing of rehabilitation and sufficient supervisory controls.
III. Initial Decision
With respect to rehabilitation, Zuccarelli proffered three categories of evidence for the ALJ's consideration: (1) his own testimony expressing remorse for his conduct and claiming to be a "changed man," along with his confessions to the CBC and the Division of Enforcement;5 (2) the testimonials of his fellow traders and business associates;6 and (3) his "1,000 plus days" of being a "model citizen" on the COMEX and the testimony of NYMEX compliance officials verifying his clean record and cooperation.7 As to supervisory controls, Zuccarelli offered the willingness of his employer to sign a sponsorship agreement and his clearing firm's offer to do the same if authorized by the Commission.8
Citing Commission precedent, the ALJ found that none of the foregoing evidence was sufficiently probative to warrant continued registration. Zuccarelli, ¶ 27,221 at 45,902-04. In reaching this conclusion, the ALJ found that Zuccarelli's expressions of contrition and his self-serving claim to be a "changed man" were entitled to little, if any, weight. Id. at 45,903 & n.52 (citing In re Vercillo, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,071 at 45,115 (CFTC May 30, 1997) ("expressions of contrition following detection deserve significant weight only if the wrongful nature of the conduct was unclear at the time of the violations"), aff'd, 147 F.3d 548 (7th Cir. 1998); In re Horn, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,836 at 36,940 (CFTC Apr. 18, 1990) (same)). The ALJ observed, moreover, that in his testimony to the CBC, Zuccarelli "admitted to saying whatever it will take to preserve his right to trade." Id. at 45,903 n.52.9
In rejecting the character assessments offered by Zuccarelli's colleagues, the ALJ relied on Commission precedent which he characterized as requiring that the "character testimony of a witness shall not be accorded significant weight unless the witness qualifies as an expert." Id. at 45,903 (citing Vercillo, ¶ 27,071 at 45,115). The ALJ observed that, "[a]lthough each of Zuccarelli's proffered witnesses has significant experience in the futures industry, nothing in their generically-favorable opinions suggests `that these individuals have developed particular expertise in evaluating the risk a registrant subject to a statutory disqualification may pose to customers.'" Id. (quoting Horn, ¶ 24,836 at 36,938).
The ALJ found the period of time subsequent to Zuccarelli's offenses that passed without incident to be similarly lacking in probative value, stating: "[t]o merit substantial weight, the passage of time since the last disqualifying act must be accompanied by `persuasive evidence of an affirmative "change in direction" during that time.'" Id. at 45,903-04 (quoting In re Castellano, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,920 at 44,457 (CFTC Dec. 10, 1996), aff'd, 139 F.3d 901 (7th Cir. 1998) (Table)). In the ALJ's view, the fact that certain witnesses were willing to sponsor Zuccarelli's trading activity if a suitable arrangement could be made did not help because, under Commission precedent, supervision cannot serve as a substitute for evidence of mitigation and rehabilitation. Id. at 45,904 (citing Horn, ¶ 24,836 at 36,942 n.23).
The ALJ found further that Zuccarelli's Rule 3.60(b)(2)(ii) submission, comprised as it was of the foregoing evidence, was so deficient that there was no significant likelihood that he could meet his burden of proof if a hearing were held. Id. at 45,898 n.30. Moreover, according to the ALJ, there were no genuine issues of material fact to be resolved and no requirement that further facts be developed. Id. at 45,904. The ALJ therefore granted the Division of Enforcement's motion for summary disposition and ordered that Zuccarelli's registration be revoked. Id.
IV. Standard of Review
The Commission reviews an ALJ's initial decisions, including a grant of summary disposition and imposition of sanctions, as a de novo matter. See In re Staryk, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,206 at 45,807 (CFTC Dec. 18, 1997) (comparing the Commission's summary disposition rule to the summary judgment provisions of Fed. R. Civ. P. 56 and observing that grants of summary judgment are reviewed de novo); In re Grossfeld, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,921 at 44,467 (CFTC Dec. 10, 1996) (holding that, henceforth, the Commission will review sanctions de novo), aff'd, 137 F.3d 1300 (11th Cir. 1998). As explained in Commission Rule 10.104(b), this means that,
[o]n review, the Commission may affirm, reverse, modify, set aside or remand for further proceedings, in whole or in part, the initial decision by the Administrative Law Judge and make any findings or conclusions which in its judgment are proper based on the record in the proceeding.
17 C.F.R. § 10.104(b) (1998).
On appeal, Zuccarelli raises a number of arguments relating to the merits of the ALJ's analysis of the evidence that he proffered in his Summary. He also contends that the ALJ committed procedural error by denying him an opportunity to respond to the Division of Enforcement's motion for summary disposition and by deciding the case without conducting a hearing. The Division of Enforcement responds that the ALJ's procedural and substantive rulings were correct in all respects and that the Initial Decision should be affirmed. We address Zuccarelli's specification of procedural error first.
A. Summary Disposition
In granting the Division of Enforcement's motion for summary disposition, the ALJ relied on the Commission's decision in In re LeClaire, [1994-1996 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,282 (CFTC Dec. 12, 1994). See Zuccarelli, ¶ 27,221 at 45,898 n. 30. In LeClaire, the Commission clarified the evidentiary burdens of the parties with respect to motions for summary disposition filed in the context of statutory disqualification cases. In particular, the Commission explained that, in cases where the existence of a statutory ground for disqualification has been established, to avoid summary disposition the respondent
has the initial burden of alleging facts sufficient to warrant an oral hearing. To fulfill this burden, respondent's submission under Rule 3.60(b)(2)(ii) must be sufficiently specific and detailed to permit the Division [of Enforcement] to assess and the presiding officer to determine whether there is a significant likelihood respondent will prevail on the merits if his allegations are proven. In particular, respondent should clearly describe both the facts he believes are material to his claim of mitigation and rehabilitation and how the testimony he intends to offer and documents he submits will establish these facts.
LeClaire, ¶ 26,282 at 42,429 (footnote omitted). If the Division of Enforcement replies to the respondent's Rule 3.60(b)(2)(ii) submission with a motion for summary disposition, the motion must
include a level of specificity and detail at least comparable to that reflected in respondent's initial submission. At the very least, it should contain a statement of facts as to which the Division [of Enforcement] contends there is no genuine issue and appropriate supporting documents or a brief addressing all material elements of respondent's claims of mitigation and rehabilitation.
Id. (footnotes omitted). The goal of the motion is to establish that "(1) there is no genuine issue as to any material fact; (2) there is no necessity that further facts be developed on the record; and (3) [the Division of Enforcement] is entitled to a decision as a matter of law." Id. The Commission instructed in LeClaire that, when it is evident that the facts underlying the respondent's Rule 3.60(b)(2)(ii) submission, even if accepted as true, are inadequate to demonstrate a sufficient level of mitigation and/or rehabilitation,10 the motion for summary disposition should be granted in order to obviate "the empty ritual of an oral hearing." Id.
In LeClaire, the Commission recognized that there may be circumstances in which a response to a motion for summary disposition is warranted, such as when the motion raises issues that the respondent could not have anticipated when filing his Rule 3.60(b)(2)(ii) submission. Id. at 42,430 n.11. The Commission observed, however, that Rule 3.60 "neither authorizes nor compels" a respondent to submit a response to a motion for summary disposition. Id. at 42,430. The Commission held, therefore, that an ALJ may not consider a respondent's failure to file a response to a motion for summary disposition as a basis for granting the motion, unless the ALJ first ordered such a response. Id.
On appeal, in reliance on LeClaire, the Division of Enforcement argues that Zuccarelli was not wrongfully denied the opportunity to respond to the motion for summary disposition because (1) nothing in Rule 3.60 authorizes such a response; and (2) a respondent in a statutory disqualification proceeding should be permitted to respond to a motion for summary disposition only when the motion raises issues that the registrant could not have anticipated when filing his Rule 3.60(b)(2)(ii) submission. The Division of Enforcement also points out that Zuccarelli never sought leave to file a response to the motion.
Although the Division of Enforcement's position might reasonably be derived from the Commission's language in LeClaire, the narrow issue before the Commission in that case was whether the ALJ properly considered the respondent's failure to file a response as a factor in granting the Division of Enforcement's motion for summary disposition. The Commission has never held that a respondent is prohibited from filing a response to a motion for summary disposition absent leave of the ALJ. Indeed, just as nothing in Rule 3.60 specifically authorizes or compels a response, nothing in it restricts an adverse party from responding. The Rule is silent on the matter.
We believe that simple fairness dictates that an adverse party should have an opportunity to respond to a motion for summary disposition and to proffer affidavits supporting his or her assertions that there are material facts as to which a genuine issue exists. The Commission has generally recognized the importance of such an opportunity with respect to adjudicatory proceedings before it, see Commission Rule 10.91, 17 C.F.R. § 10.91 (1998), and we believe such an opportunity should also be available in statutory disqualification proceedings.11 Because of the ALJ's issuance of the stay of proceedings, Zuccarelli was denied such an opportunity. We remand the proceeding to the ALJ in order to allow Zuccarelli an opportunity to oppose the summary disposition motion.12
B. Weight To Be Given Rehabilitation Evidence
Zuccarelli also argues that, regardless of whether he should have been permitted to respond to the motion for summary disposition, the information that he has already submitted in support of his Rule 3.60(b)(2)(ii) pleading was sufficient to meet his burden of proof. He asserts that the ALJ erred in evaluating this evidence by failing to accord it sufficient weight and by failing to address the reasonable inferences to be drawn in his favor therefrom. Zuccarelli contends specifically that the ALJ should have placed more emphasis on the favorable opinions of his character witnesses, the passage of time with no further wrongdoing, his cooperation with the CBC and the Division of Enforcement, and the sponsorship offers of Lubcher and Klein. Zuccarelli asserts additionally that the ALJ should have considered the fact that, during the pendency of this action, he and the Division of Enforcement engaged in settlement negotiations. Finally, Zuccarelli claims that the ALJ failed to appreciate a requirement that statutory disqualification decisions be determined on a case-by-case basis.
In light of the remand of this proceeding to permit Zuccarelli an opportunity to oppose the summary disposition motion and to expand on the facts to be considered, we do not now rule on these issues. However, it may be helpful to the parties and the ALJ to clarify the Commission's position on the weight to be accorded opinion evidence relating to rehabilitation.
In several cases decided after the Initial Decision in the present case was issued, the United States Court of Appeals for the Seventh Circuit questioned the emphasis that the Commission has placed on the value of expert opinion testimony in establishing rehabilitation. See LaCrosse v. CFTC, 137 F.3d 925, 934 n.5 (7th Cir. 1998); Cox v. CFTC, 138 F.3d 268, 275 (7th Cir. 1998); Ryan v. CFTC, 145 F.3d 910, 921 (7th Cir. 1998); and Vercillo, 147 F.3d at 556. The Commission has subsequently clarified the role of expert witness testimony in proving rehabilitation. See In re Ashman, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,336 at 46,549-51 & n.55 (CFTC Apr. 22, 1998). Because the lack of proposed expert testimony was a factor in Zuccarelli's failure to demonstrate the need for a hearing in the present case and because the law has evolved since that time, we find it appropriate to address in some detail the expert witness aspect of the analysis.
Our discussion of the expert witness issue begins with the overarching principle that, to prove rehabilitation, the respondent must demonstrate that he has changed since the time of his violation. In re Walter, [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,215 at 35,013 (CFTC Apr. 14, 1988); In re Tipton, [1977-1980 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 20,673 at 22,752 (CFTC Sept. 22, 1978). "In particular, `we look for evidence that should the respondent be allowed continued access to the markets regulated by the Commission, he will not repeat the type of conduct that threatens the integrity of those markets.'" Ashman, ¶ 27,336 at 46,548 (citations omitted).
In Walter, the Commission found that a statutorily disqualified registrant, Roger B. Walter, had produced evidence sufficient to overcome the presumption that his continued registration would pose a substantial risk to the public.13 Walter, ¶ 24,215 at 35,013. In resolving the issue of rehabilitation, the Commission considered a number of factors. These included, inter alia, favorable testimony from Walter's employer and a customer, both of whom knew of his past misconduct,14 but based upon their personal experience with him, vouched for his honesty, integrity and competence. Id. at 35,008, 35,015. In addition, the officer who supervised Walter throughout Walter's two-year period of probation testified that, out of the 200 to 250 probationers he had supervised, Walter was one of the best and that it was "a special thing for him to testify on behalf of a felon he had supervised." Id. at 35,008 (internal quotation marks omitted). He added that, in his opinion, Walter did not present a negative risk to the community. Id. In evaluating the evidence in Walter's favor, the Commission characterized the probation officer's testimony as "a uniquely important factor." Id. at 35,015. The Commission observed that, "[a]s a probation officer," he had the sort of "experience and expertise that buttresse[d] the reliability of his opinion concerning Walter's risk to customers." Id.
In statutory disqualification cases decided after Walter, the Commission, citing Walter in support, began assessing the value of the opinions offered by a respondent's character witnesses, in part, according to whether the witness was qualified to testify as an "expert" on the issue of rehabilitation. See, e.g., Horn, ¶ 24,836 at 36,941; In re Fetchenhier, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,055 at 45,015 (CFTC May 8, 1997). The Commission indicated that the character testimony of friends, community members, employers and other business colleagues should be assigned only limited weight if the witness lacked the type of expertise to bolster an opinion that the respondent's registration would not pose a substantial risk to the public. See, e.g., Fetchenhier, ¶ 27,055 at 45,015; In re Schneider, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,959 at 44,657 (CFTC Feb. 13, 1997).
In the Seventh Circuit cases referenced above, the court expressed a concern that, aside from considering a person's experience as a parole officer, the Commission had not established sufficient criteria for determining how a witness may qualify as a rehabilitation expert. See Vercillo, 147 F.3d at 556 (summarizing cases). The court held that, without such guidelines, the Commission may not reject the testimony of a character witness on the sole ground that he is not an expert on rehabilitation. Id. The court affirmed several alternative reasons that the Commission gave for discounting the opinions of character witnesses, however, such as a failure to appreciate the public interest at stake or a lack of first-hand knowledge of the respondent's trading practices. Id. at 557; Ryan, 145 F.3d at 921-22.
We have since clarified the criteria for determining expert witness status in the context of assessing rehabilitation. See Ashman, ¶ 27,336 at 46,549 & n.55. In Ashman, the Commission found that two of the respondent's witnesses, Joseph H. Jacobs, a professional counselor and college criminal justice instructor who had studied recidivism,15 and Mark R. McClung, M.D., a forensic psychiatrist,16 qualified as experts in the field of rehabilitation, id., as did two witnesses who testified on behalf of the Division of Enforcement, id. at 46,550.17 The Commission noted that these witnesses qualified as experts because they had "formal training and professional experience to support a claim of `scientific, technical, or other specialized knowledge'" as to whether the respondent posed a future threat to the markets. Id. at 46,549 n.55 (quoting Fed. R. Evid. 702).18
Although we have stressed in the past that the opinion testimony of an expert witness is entitled to greater weight than that of a lay witness, the focus of our analysis has been and will continue to be on the basis for witness's opinion.19 Lay testimony may establish rehabilitation and is considered along with all other evidence.
However, both expert and lay testimony should be carefully analyzed in determining the weight it is to be accorded. In evaluating the validity of an expert's opinion, we have considered the person's professional credentials and experience, the methodology employed in arriving at the opinion and the extent and quality of the witness's personal assessment of the respondent. See id. at 46,549-51. With respect to the opinion of a lay witness, we are guided by Federal Rule of Evidence 701, which provides:
If the witness is not testifying as an expert, the witness' testimony in the form of opinions or inferences is limited to those opinions or inferences which are (a) rationally based on the perception of the witness and (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue.
Fed. R. Evid. 701. The advisory committee notes to Rule 701 explain that subsection (a) relates to whether the witness's opinion is based on first-hand knowledge or observation. Subsection (b) focuses on whether the witness's testimony is helpful in resolving the relevant issues. Fed. R. Evid. 701 advisory committee notes (1972).
When assessing rehabilitation, the ultimate issue that must be decided is whether the evidence shows, by the requisite standard of proof, that the respondent has changed since the time of the violation such that his continued registration will not pose a substantial risk to the public. A wide variety of factors within the knowledge of a layperson may be probative in this regard. A layperson's view of the matter is not helpful, however, unless it is accompanied by a description of the factual bases for the opinion. For example, when a fellow trader espouses a belief that the respondent is honest or has mended his ways, we may consider whether the trader understands the nature of the respondent's prior misconduct and whether he or she has observed a difference in the respondent's pre-violation and post-violation trading practices. Cf. Castellano, ¶ 26,920 at 44,457 (respondent's contention that he had become a vigilant enforcer of trading rules and had tried to prevent or expose violations on 15 occasions not credited in light of an absence of corroboration by the eight witnesses who were in a position to observe such behavior); Akar, ¶ 22,927 at 31,709 (evidence to support a conclusion that the respondent has changed the direction of his activities might include the "severance of past ties, or a showing of subsequent correct behavior in the face of temptation to make false or misleading statements").
With respect to the present case, the ALJ properly assigned little weight to the opinions offered by Zuccarelli's character witnesses based on the evidence submitted to date. Neither the summary of their proposed testimony nor the letters that they submitted provided the sort of detailed, personal observations or recollections of concrete events from which one could reasonably conclude that Zuccarelli has undergone a change in direction since the time of his misconduct. Nor did any of the witnesses articulate the level of scrutiny, if any, that they applied to Zuccarelli's post-violation business conduct to support a belief that he no longer breaks the rules. Instead, their testimony consists of conclusory statements to the effect that Zuccarelli is honest and a credit to his profession.20 These broad statements, unsupported by underlying facts, are of little assistance in resolving the issue of whether Zuccarelli has changed. If Zuccarelli chooses on remand to file an opposition to the summary disposition motion, greater detail concerning the bases for the opinions of his lay witnesses might entitle them to greater evidentiary weight.
In light of our decision that Zuccarelli should be given an opportunity to respond to the Division of Enforcement's motion for summary disposition, the Initial Decision is vacated, and the case is remanded for further proceedings. Zuccarelli shall be given 20 days from the date of service of this order to file his response. The ALJ shall then determine whether a hearing should be conducted or whether summary disposition should be granted.
IT IS SO ORDERED.
By the Commission (Chairperson BORN and Commissioners HOLUM, SPEARS, AND NEWSOME).
Jean A. Webb
Secretary of the Commission
Commodity Futures Trading Commission
Dated: April 15, 1999
1 Commission Rule 3.60(a)(3) provides that registrants who wish to oppose a statutory disqualification notice must file a response challenging the allegations set forth in the notice or "show cause why, notwithstanding the accuracy of those allegations, registration should nevertheless . . . not be conditioned, suspended, revoked or restricted." 17 C.F.R. § 3.60(a)(3) (1998).
2 Zuccarelli testified before the CBC on February 20, 1996, and before the Division of Enforcement on July 17, 1996. On both occasions he admitted to committing the wrongful conduct alleged in the Notice and also to engaging in many other instances of illegal trading. See Record on Appeal, Tab M, Exs. G and H.
3 Under Commission Rule 3.60(b)(2)(i), a floor broker who wishes to remain registered in the face of a statutory disqualification proceeding and who has an employer must "submit a letter signed by his employer . . . whereby the employer . . . agrees to sign a Supplemental Sponsor Certification Statement and supervise compliance with any conditions or restrictions that may be imposed on the . . . registrant as a result of . . . [the] proceeding." 17 C.F.R. § 3.60(b)(2)(i) (1998).
4 Commission Rule 3.60(b)(2)(ii) provides that, when a registrant intends to show that his continued registration would not pose a substantial risk to the public despite the existence of disqualifying factors, he must submit, within 15 days of filing the initial response, a summary of "the testimony of each witness whom the . . . registrant intends to have testify in support of facts material to his showing, and copies of all documents which the . . . registrant intends to introduce to support facts material to his showing." 17 C.F.R. § 3.60(b)(2)(ii) (1998).
5 Zuccarelli's proffer as to his own testimony stated:
Basically, Eric will testify that during the 1,000 plus days since the last item of wrongdoing set forth in the Notice, he has conducted himself honestly and in a trustworthy fashion at all times and has complied with all rules of the exchange and the Commodity Futures Trading Commission ("CFTC"). Eric will testify that he freely tells anyone about his violations which he committed as a young floor broker; that he was wrong, and that he is a "changed man."
Record on Appeal, Tab L, Summary at 1.
6 According to the Summary, the testimony of these witnesses would be as follows: John H. Hanemann, President of the Commodity Floor Brokers & Trading Association, would attest that, on the basis of standing next to Zuccarelli in the trading ring for three and one-half years, he believes that Zuccarelli "is honest, has integrity, and is a credit and a plus to the floor brokerage business in the copper ring." Record on Appeal, Tab L, Summary at 2. Kevin Ketelsen and Gregory Greves, both Vice Presidents of Zuccarelli's former clearing firm, would testify that, based upon their six years of dealings with Zuccarelli, they believe him to be "an honest man who lives up to his commitments." Id. at 3. Kenneth T. Fagan, a long-term friend and business associate, would testify that Zuccarelli is "honest, a reliable businessman, a wonderful father and family man, and . . . a competent floor broker and trader." Id. Samuel H. Gaer would explain that, in light of four years of standing next to Zuccarelli in the copper pit, he considers Zuccarelli to be "honest, trustworthy and an exemplary floor broker who is a real credit to the Comex." Id. at 4. In addition, Gaer would testify that he is aware of Zuccarelli's past misdeeds, but believes that Zuccarelli now "has the highest ethics and always puts his customers' orders before his own concerns." Id. The letters submitted by these proposed witnesses convey essentially the same information. See Letters attached to Summary.
7 A letter signed by Thomas F. LaSala and Nancy M. Minett, Vice President and Associate Counsel, respectively, with the Compliance Department of NYMEX, verified that one of them would appear at a hearing to testify that Zuccarelli has not had a trade practice problem since his wrongful conduct in 1993 (the subject of the 1994 complaint) and that he cooperated with them fully by testifying against a coconspirator, Stephen Briggs. Record on Appeal, Tab L, LaSala and Minett Letter.
8 The latter offer was submitted by David E. Klein, the President of Zuccarelli's clearing firm. According to the Summary, Klein would also testify at a hearing that Zuccarelli "is totally rehabilitated and is an honest, trustworthy person . . . is contrite and has walked the `straight and narrow.'" Record on Appeal, Tab L, Summary at 2.
9 In the testimony to which the ALJ referred, Zuccarelli answered as follows:
Q Simply put, Mr. Zuccarelli, you have a pattern of consistently lying to Compliance and the exchange in order to help yourself; isn't that a fact?
Q You lie whenever and however it is necessary to help yourself.
A The same question?
Q Same answer?
Q In this case, you lied to Compliance during the investigation of your trades; didn't you?
Q Then you lied to the Business Conduct Committee when you made your written submission to them to try to avoid a complaint against you?
Q In your prior cases you lied, as well, before the complaints came out, both during the investigatory stage and other times; is that correct?
Record on Appeal, Tab M, Ex. G at 435-36.
10 In statutory disqualification cases governed by Section 8a(2) of the Act, 7 U.S.C. § 12a(2) (1994), the respondent's showing must rise to the level of clear and convincing evidence. In cases brought pursuant to Sections 8a(3) and 8a(4) of the Act, the preponderance of the evidence standard applies. 17 C.F.R. § 3.60(e)(1), (2) (1998).
11 We emphasize that this does not alter the respondent's initial burden under Rule 3.60 (b)(2)(ii), discussed in LeClaire, of alleging with specificity the facts material to the issues of mitigation and rehabilitation and of explaining how any proposed testimony or documentary evidence will establish those facts. LeClaire, ¶ 26,282 at 42,429.
12 If, after considering such response, the ALJ determines that there still is no genuine issue as to any material fact, that there is no necessity that further facts be developed in the record, and that the Division of Enforcement is entitled to judgment as a matter of law, the ALJ shall grant the motion for summary disposition. On the other hand, if the response leads to "'any significant doubt that the parties' dispute can be reliably resolved without a hearing, summary disposition is simply not appropriate.'" LeClaire, ¶ 26,282 at 42,430 n.11 (quoting Levi-Zeligman v. Merrill Lynch Futures, Inc., [1994-1996 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,236 at 42,031 (CFTC Sept. 15, 1994)).
13 Unlike the evidence in the present case, the proof in Walter included mitigating circumstances as well as indicia of rehabilitation. Walter, ¶ 24,215 at 35,014-15.
14 Walter pleaded guilty to possessing counterfeit obligations of the United States after he delivered a package of counterfeit money in exchange for a payment of $200. As a result of his conviction, he served two years' probation and was fined $2,000. Walter, ¶ 24,215 at 35,008.
15 Jacobs was a Catholic priest from 1957 to 1967. For the next 22 years, he was employed by the Illinois Department of Corrections, where he served as a parole officer, supervised other parole officers and counseled parolees. Thereafter, he continued his counseling practice. Ashman, ¶ 27,336 at 46,540 n.10.
16 McClung had testified previously in criminal cases, offering opinions on such issues as fitness to stand trial, insanity pleas, sentencing, dangerousness, probation and treatment recommendations. His past experience also included providing fitness evaluations for law enforcement and public safety officers and in proceedings before the Illinois Attorney Registration and Disciplinary Commission. Ashman, ¶ 27,336 at 46,541 n.18.
17 The Division of Enforcement's witnesses were Dr. Elin Waring, an Assistant Professor at the Rutgers University School of Criminal Justice, who had participated in conducting two published studies concerning white collar recidivism, and Eric Ostrov, a board-certified forensic psychologist. Ashman, ¶ 27,336 at 46,542-43 & n.29.
18 Rule 702 provides: "If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise." Fed. R. Evid. 702.
19 As we pointed out in Ashman, an expert's view may be entitled to greater deference in some circumstances, but may prove to be of little or no value in others. See Ashman, ¶ 27,336 at 46,549 n.55 (observing that "the weight to be accorded to [an expert's] testimony will depend on what the expert says and what basis the expert has for saying it, and not solely on his or her credentials."). On the other hand, there may be situations in which the opinion of a lay witness may significantly aid the decisionmaker, depending on the particular facts of the case.
20 For instance, one of Zuccarelli's colleagues, Samuel H. Gaer stated that, although he had some "reservations" about Zuccarelli prior to working with him, he now believes that Zuccarelli is one of the most respected floor brokers in the COMEX copper pit "[b]ecause of the way he now handles the orders." Record on Appeal, Tab L, Gaer Letter. This statement implies that there is something different about the way Zuccarelli currently executes orders, as opposed to his past practice, which may be probative of a newfound respect for the trading rules. What that something consists of, however, is not evident from Gaer's letter. Gaer proffered additionally that Zuccarelli "is recognized as someone who puts honesty and his customers' orders at the forefront of his trading." Id. Again, the personal observations of events upon which Gaer bases this opinion are missing. Likewise, Zuccarelli contends in his brief on appeal that, since the time of his last disciplinary proceeding, he has faced and resisted "thousands" of temptations to break the rules, but there is nothing concrete in the record to substantiate even a single instance of such resistance.