Release: ��������������� #4319-99
For Release: �������� October 1, 1999

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS ISSUES DECISION IN COMMODITY TREND SERVICE, INC. V. COMMODITY FUTURES TRADING COMMISSION, NO. 97 C 2362

On September 28, 1999, the United States District Court for the Northern District of Illinois issued a decision on the plaintiff's motion for summary judgment in Commodity Trend Service, Inc. v. Commodity Futures Trading Commission, No. 97 C 2362. While the court held that the registration requirement of the Commodity Exchange Act (CEAct) is unconstitutional as applied to Commodity Trend Service's (CTS) dissemination of impersonal commodity trading advice, the court rejected CTS's theory that the statutory definition of "commodity trading advisor" was unconstitutional. The court further stated, "The Constitution also does not forbid the CFTC from applying the anti-fraud provisions [of the Commodity Exchange Act] to CTS because the Supreme Court has consistently upheld the constitutionality of anti-fraud measures to prevent fraudulent speech." The court held that section 4o of the CEAct and Commission rule 4.41, which prohibit fraud by commodity trading advisors, "apply to CTS even though its activities are limited to giving impersonal investment advice. CTS falls within the purview of these provisions and there is no constitutional reason to preclude such regulation." As a result, the court stated that it would enforce the Commission's subpoena compelling the principals of CTS to testify concerning possible violations of these provisions.

Although the court struck down registration as applied to CTS, the decision strongly supports the constitutionality of the Commission's enforcement program against fraud by commodity trading advisors. The court clearly recognized that the Commission's anti-fraud authority extends to all types of commodity trading advisors, including advisors that provide impersonal trading advice through media such as facsimile services and Internet web sites. The court similarly recognized that the Commission's anti-fraud authority is not subject to the concerns that have been raised with respect to the constitutionality of registration requirements.