e8-23417

FR Doc E8-23417[Federal Register: October 3, 2008 (Volume 73, Number 193)]

[Rules and Regulations]

[Page 57512-57515]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr03oc08-5]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 143

RIN 3038-AC13

Adjustment of Civil Monetary Penalties for Inflation

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (Commission) is

amending its rule which governs the maximum amount of civil monetary

penalties, to adjust for inflation. This rule sets forth the maximum,

inflation-adjusted dollar amount for civil monetary penalties (CMPs)

assessable for violations of the Commodity Exchange Act (Act) and

Commission rules and orders thereunder. The rule, as amended,

implements the Federal Civil Penalties Inflation Adjustment Act of

1990, as amended by the Debt Collection Improvement Act of 1996. The

rules also reflect the higher penalties enacted this year by Congress

for violations of the Act prohibiting manipulation and attempted

manipulation.

DATES: Effective Date: October 23, 2008.

FOR FURTHER INFORMATION CONTACT: Thuy Dinh, Esq., Office of General

Counsel, at (202) 418-5128 or [email protected]; or Richard Foelber, Esq.,

Division of Enforcement, at (202) 418-5347 or [email protected],

Commodity Futures Trading Commission, 1155 21st Street, NW.,

Washington, DC 20581. This document also is available at http://

www.regulations.gov.

SUPPLEMENTARY INFORMATION:

I. Background

The Federal Civil Penalties Inflation Adjustment Act of 1990

(FCPIAA), as amended by the Debt Collection Improvement Act of 1996

(DCIA),\1\ requires the head of each Federal agency to adjust by

regulation, at least once every four years, the maximum amount of CMPs

provided by law within the jurisdiction of that agency by the cost of

living adjustment defined in the FCPIAA, as amended.\2\ Because the

purposes of the inflation adjustments include maintaining the deterrent

effect of CMPs and promoting compliance with the law, the Commission

monitors the impact of inflation on its CMP maximums and adjusts them

as needed to implement the requirements and purposes of the FCPIAA.\3\

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\1\ The FCPIAA, Pub. L. 101-410 (1990), and the relevant

amendments to the FCPIAA contained in the DCIA, Public Law 104-134

(1996), are codified at 28 U.S.C. 2461 note.

\2\ The DCIA also requires that the range of minimum and maximum

CMPs be adjusted, if applicable. This is not applicable to the

Commission because, for the relevant CMPs within the Commission's

jurisdiction, the Act provides only for maximum amounts that can be

assessed for each violation of the Act or the rules and orders

thereunder; the Act does not set forth any minimum penalties.

Therefore, the remainder of this release will refer only to CMP

maximums.

\3\ Specifically, the FCPIAA states:

The purpose of [the FCPIAA] is to establish a mechanism that

shall--

(1) Allow for regular adjustment for inflation of civil monetary

penalties;

(2) Maintain the deterrent effect of civil monetary penalties

and promote compliance with the law; and

(3) Improve the collection by the Federal Government of civil

monetary penalties.

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Congress this year enacted the CFTC Reauthorization Act of 2008 at

Title XIII of the Food, Conservation, and Energy Act of 2008, P.L. 110-

246, 122 Stat. 1651 (eff. May 22, 2008)(Farm Bill). Section 13103(a)-

(c) amends sections 6(c), 6b and 6c of the Act, in each case increasing

the maximum civil monetary penalty that may be imposed ``in any case of

manipulation or attempted manipulation'' in violation of section 6(c),

6(d), or 9(a)(2) to ``the greater of $1,000,000 or triple the monetary

gain'' to the violator.\4\

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\4\ Section 13103(a) of the Farm Bill states:

(a) ENFORCEMENT POWERS OF THE COMMISSION.--Section 6(c) of the

Commodity Exchange Act (7 U.S.C. 9, 15) is amended in clause (3) of

the 10th sentence--

(1) by inserting ``(A)'' after ``assess such person''; and

(2) by inserting after ``each such violation'' the following:

``, or (B) in any case of manipulation or attempted manipulation

in violation of this subsection, subsection (d) of this section, or

section 9(a)(2), a civil penalty of not more than the greater of

$1,000,000 or triple the monetary gain to the person for each such

violation,''.

Section 13103(b) of the Farm Bill states:

(b) NONENFORCEMENT OF RULES OF GOVERNMENT OR OTHER VIOLATIONS.--

Section 6b of such Act (7 U.S.C. 13a) is amended--

(1) In the first sentence, by inserting before the period at the

end the following: ``, or, in any case of manipulation or attempted

manipulation in violation of section 6(c), 6(d), or 9(a)(2), a civil

penalty of not more than $1,000,000 for each such violation''; and

(2) In the second sentence, by inserting before the period at

the end the following: ``, except that if the failure or refusal to

obey or comply with the order involved any offense under section

9(a)(2), the registered entity, director, officer, agent, or

employee shall be guilty of a felony and, on conviction, shall be

subject to penalties under section 9(a)(2)''.

Section 13103(c) of the Farm Bill states:

(c) ACTION TO ENJOIN OR RESTRAIN VIOLATIONS.--Section 6c(d) of

such Act (7 U.S.C. 13a-1(d)) is amended by striking all that

precedes paragraph (2) and inserting the following:

``(d) CIVIL PENALTIES.--

``(1) IN GENERAL.--In any action brought under this section, the

Commission may seek and the court shall have jurisdiction to impose,

on a proper showing, on any person found in the action to have

committed any violation--

``(A) a civil penalty in the amount of not more than the greater

of $100,000 or triple the monetary gain to the person for each

violation; or

``(B) in any case of manipulation or attempted manipulation in

violation of section 6(c), 6(d), or 9(a)(2), a civil penalty in the

amount of not more than the greater of $1,000,000 or triple the

monetary gain to the person for each violation.''

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II. Relevant Commission CMPs

The inflation adjustment requirement applies to:

[A]ny penalty, fine or other sanction that--

(A) Is for a specific monetary amount as provided by Federal law;

or

(ii) Has a maximum amount provided for by Federal law; and

(B) Is assessed or enforced by an agency pursuant to Federal law;

and

(C) Is assessed or enforced pursuant to an administrative

proceeding or a civil action in the Federal courts[.] 28 U.S.C. 2661

note. The Act provides for CMPs that meet the above definition, and are

therefore subject to the inflation adjustment, in three instances:

Sections 6(c), 6b, and 6c of the Act.\5\

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\5\ 7 U.S.C. 9, 13a and 13a-1.

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[[Page 57513]]

Penalties may be assessed in a Commission administrative proceeding

pursuant to Section 6(c) of the Act, 7 U.S.C. 9, against ``any person''

found by the Commission to have:

(1) Engaged in the manipulation of the price of any commodity, in

interstate commerce, or for future delivery;

(2) Willfully made a false or misleading statement or omitted a

material fact in an application or report filed with the Commission; or

(3) Violated any provision of the Act or the Commission's rules,

regulations or orders thereunder.

Penalties may be assessed in a Commission administrative proceeding

pursuant to Section 6b of the Act, 7 U.S.C. 13a, against: (1) Any

registered entity that the Commission finds is not enforcing or has not

enforced its rules, or (2) any registered entity, or any director,

officer, agent, or employee of any registered entity, that is violating

or has violated any of the provisions of the Act or the Commission's

rules, regulations or orders thereunder.

Penalties may be assessed pursuant to Section 6c of the Act, 7

U.S.C. 13a-l, against ``any person'' found by ``the proper district

court of the United States'' to have committed any violation of any

provision of the Act or any rule, regulation or order thereunder.

III. Relevant Cost-of-Living Adjustment

The formula for determining the cost-of-living adjustment, first

defined by the FCPIAA, and amended by the DCIA, consists of a four-step

process.

The first step entails determining the inflation adjustment factor.

This is done by calculating the percentage increase by which the

Consumer Price Index for the month of June of the calendar year

preceding the adjustment exceeds the Consumer Price Index for the month

of June of the calendar year in which the amount of such civil monetary

penalty was last set or adjusted pursuant to law.\6\ Accordingly, the

inflation adjustment factor for the present adjustment equals the

Consumer Price Index for all-urban consumers published by the

Department of Labor for June 2007 (i.e., June of the year preceding

this year), divided by that index for June 2004.\7\

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\6\ The Consumer Price Index means the Consumer Price Index for

all urban consumers (CPI-U) published by the Department of Labor.

Interested parties may find the relevant Consumer Price Index over

the Internet. To access this information, go to the Consumer Price

Index Home Page at: http:// www.bls.gov/data/. Under the Prices and

Living Conditions Section, select Most Requested Statistics for

CPI--All Urban Consumers (Current Series). Then check the box for

CPI for U.S. All Items, 1967=100-CUUR0000AA0, and click the Retrieve

Data button.

\7\ The Consumer Price Index for all-urban consumers published

by the Department of Labor for June 2007 was 624.129, and for June

2004 was 568.2. Therefore, the relevant inflation adjustment factor

equals 624.129 divided by 568.2. The result is a 9.8 percent

increase in the CPI between June 2003 and June 2007. Accordingly,

our inflation adjustment factor is 9.8 percent, or 0.0984 for

computational purposes.

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Once the inflation adjustment factor is determined, it is then

multiplied by the current maximum CMP set forth in Rule 143.8 to

calculate the raw inflation increase.\8\ This raw inflation increase is

then rounded according to the guidelines set forth by the FCPIAA.\9\

Finally, once the inflation increase has been rounded pursuant to the

FCPIAA, it is added to the current CMP maximum to obtain the new CMP

maximum penalty.\10\ As a result, the maximum, inflation-adjusted CMP

for each violation of the Act or Commission rules or orders thereunder

assessed against any person pursuant to Sections 6(c) and 6c of the Act

will be $140,000 or triple the monetary gain to such person for each

violation, and $675,000 for each such violation when assessed pursuant

to Section 6b of the Act.

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\8\ The current CMP maximum listed in Rule 143.8, as amended in

2004, for purposes of Sections 6(c) and 6c of the Act is $130,000.

The current CMP maximum for purposes of Section 6b of the Act is

$625,000.

Accordingly, the calculations for the raw inflation increase are

the following:

Sections 6(c) and 6c: (0.0984 x $130,000) = $12,792

Section 6b: (0.0984 x $625,000) = $61,500

\9\ The FCPIAA, as amended by the DCIA, provides in relevant

part that any increase ``shall be rounded to the nearest--

(5) multiple of $10,000 in the case of penalties greater than

$100,000 but less than or equal to $200,000; and

(6) multiple of $25,000 in the case of penalties greater than

$200,000.''

Accordingly, the raw inflation increase for purposes of Sections

6(c) and 6c of the Act ($12,792) is rounded to $10,000, while the

raw inflation increase for purposes of Section 6b ($61,500) is

rounded to $50,000.

\10\ For purposes of Sections 6(c) and 6c of the Act, the

rounded inflation increase ($10,000) is added to the current CMP

maximum ($130,000), totaling $140,000. For purposes of Section 6b of

the Act, the rounded inflation increase ($50,000) is added to the

current CMP maximum ($575,000), totaling $625,000.

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The FCPIAA provides that ``any increase under [FCPIAA] in a civil

monetary penalty shall apply only to violations which occur after the

date the increase takes effect.'' \11\ Thus, the new CMP maximum may be

applied only to violations of the Act that occur after the effective

date of this amendment, October 23, 2004. The new statutory maximum for

manipulation and attempted manipulation shall apply to violations that

occur after the effective date of the Farm Bill, i.e., May 22, 2008.

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\11\ See also Landgraf v. USI Film Products, 511 U.S. 244 (1994)

(holding that there is a presumption against retroactivity in

changes to damage remedies or civil penalties in the absence of

clear statutory language to the contrary).

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IV. Related Matters

A. Notice Requirement

This amendment to Rule 143.8 will implement a statutory change

regarding agency procedure or practice within the meaning of 5 U.S.C.

553(b)(3)(A) and therefore does not require notice.\12\ The Commission

also believes that opportunity for public comment is unnecessary under

5 U.S.C. 553(b)(3)(B). This amendment does not effect any substantive

change in Commission rules, nor alter any obligation that a party has

under Commission rules, regulations or orders. No party must change its

manner of doing business, either with the public or the Commission, to

comply with the rule amendment. This change is undertaken pursuant to a

statutory requirement that all agencies make such adjustments and is

intended to prevent inflation from eroding the deterrent effect of

CMPs. The change also recognizes amendments to the Act contained in the

Farm Bill.

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\12\ U.S.C. 553(b) generally requires notice of proposed

rulemaking to be published in the Federal Register. That provision

states, however, that ``[e]xcept when notice or hearing is required

by statute, [notice is not required]--

(A) [for] interpretive rules, general statements of policy, or

rules of agency organization, procedure, or practice; or

(B) when the agency for good cause finds (and incorporates the

finding and a brief statement of reasons therefor in the rules

issued) that notice and public procedure thereon are impracticable,

unnecessary, or contrary to the public interest.''

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While higher maximum CMPs may expose persons to potentially higher

financial liability, in nominal terms, for violations of the Act or

Commission rules or orders thereunder, the rule amendment does not

require that the maximum penalty be imposed on any party, nor does it

alter any substantive due process rights that a party has in an

administrative proceeding or a court of law that protect against

imposition of excessive penalties. Further, as previously noted, the

rule amendment applies only to violations of the Act or Commission

rules or orders that occur after the effective date of this amendment.

B. Regulatory Flexibility Act

The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires that

agencies consider the impact of their rules on small businesses. The

amended rule potentially will affect those persons who are found by the

Commission or the Federal courts to have violated the

[[Page 57514]]

Act or Commission rules or orders. Some of these affected parties could

be small businesses. Nevertheless, the Acting Chairman, on behalf of

the Commission, certifies that this rule will not have a significant

economic impact on a substantial number of small entities. While the

Commission recognizes that certain persons assessed a CMP for violating

Act or Commission rules or orders may be small businesses, the rule

does not mandate the imposition of the maximum CMP set forth in the

rule on any party. As is currently the case, the imposition of the

maximum CMP will occur only where the administrative law judge, the

Commission or a Federal court finds that the gravity of the offense

warrants a CMP in that amount.\13\

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\13\ Section 6(e) of the Act, 7 U.S.C. 9a(1), directs the

Commission to ``consider the appropriateness of [a] penalty to the

gravity violation'' when assessing a CMP pursuant to Section 6(c) of

the Act. In addition, the Commission's penalty guidelines state that

the Commission, when assessing any CMP, will consider the gravity of

the offense in question. In assessing the gravity of an offense, the

Community may consider such factors as whether the violations

resulted in harm to the victims, whether the violations involved

core provisions of the Act, and whether the violator acted

intentionally or willfully, as well as other factors. See CFTC

Policy Statement Relating to the Commission's Authority to Impose

Civil Money Penalties and Futures Self-Regulatory Organizations'

Authority to Impose Sanction; Penalty Guidelines, [1994-1996

Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 26,265 (CFTC November

1994).

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The rule should not increase in real terms the economic burden of

the maximum CMPs set forth in the Act. Instead, the rule implements a

statutory requirement that agencies adjust for inflation existing CMPs

so that the real economic value of such penalties, and therefore the

Congressionally-intended deterrent effect of such CMPs, is not reduced

over time by inflation. Nor does the rule impose any new, affirmative

duty on any party or change any existing requirements, and thus no

party who is currently complying with the Act and Commission

regulations will incur any expense in order to comply with the amended

rule. Therefore, the Commission believes that this final rule will not

have a significant economic impact on a substantial number of small

entities.\14\

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\14\ Any agency that regulates the activities of small entities

must establish a policy or program to reduce and, when appropriate,

to waive civil penalties for violations of statutory or regulatory

requirements by small entities. An agency is not required to reduce

or waive civil penalties, however, if: (1) An entity has been the

subject of multiple enforcement actions; (2) an entity's violations

involve willful or criminal conduct; or (3) the violations involve

serious health, safety or environmental threats. See Small Business

Regulatory Enforcement Fairness Act of 1996 (``SBREFA''), Public Law

104-121, Sec. 223, 110 Stat. 862 (March 29, 1996). The Commission

takes these provisions of SBREFA into account when it considers

whether to seek or impose a civil monetary penalty in a particular

case involving a small entity.

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C. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3507(d), which

imposes certain requirements on Federal agencies, including the

Commission, connection with their conducting or sponsoring any

collection of information as defined by the PRA, does not apply to this

rule. The Commission believes this rule amendment does not contain

information collection requirements that require the approval of the

Office of Management and Budget.

List of Subjects in 17 CFR Part 143

Civil monetary penalty, Claims.

0

In consideration of the foregoing and pursuant to authority contained

in Sections 6(c), 6b and 6c of the Act, 7 U.S.C. 9, 13a, and 13a-1(d),

and 28 U.S.C. 2461 note as amended by Pub. L. 104-134, the Commission

hereby amends part 143 of chapter I of title 17 of the Code of Federal

Regulations as follows:

PART 143--COLLECTION OF CLAIMS OWED THE UNITED STATES ARISING FROM

ACTIVITIES UNDER THE COMMISSION'S JURISDICTION

0

1. The authority citation for part 143 reads as follows:

Authority: 7 U.S.C. 9 and 15, 9a, 12a(5), 13a, 13a-1(d) and

13(a); 31 U.S.C. 3701-3719; 28 U.S.C. 2461 note.

0

2. Section 143.8 is amended by revising paragraph (a) to read as

follows:

Sec. 143.8 Inflation-adjusted civil monetary penalties.

(a) Unless otherwise amended by an act of Congress, the inflation-

adjusted maximum civil monetary penalty for each violation of the

Commodity Exchange Act or the rules or orders promulgated thereunder

that may be assessed or enforced by the Commission under the Commodity

Exchange Act pursuant to an administrative proceeding or a civil action

in Federal court will be:

(1) Except as provided in paragraph (v) hereof, for each violation

for which a civil monetary penalty is assessed against any person

(other than a registered entity) pursuant to Section 6(c) of the

Commodity Exchange Act, 7 U.S.C. 9:

(i) For violations committed between November 27, 1996 and October

22, 2000, not more than the greater of $110,000 or triple the monetary

gain to such person for each such violation;

(ii) For violations committed between October 23, 2000 and October

22, 2004, not more than the greater of $120,000 or triple the monetary

gain to such person for each such violation;

(iii) For violations committed between October 23, 2004 and October

22, 2008, not more than the greater of $130,000 or triple the monetary

gain to such person for each such violation; and

(iv) For violations committed on or after October 23, 2008, not

more than the greater of $140,000 or triple the monetary gain to such

person for each such violation; provided that--

(v) In any case of manipulation or attempted manipulation in

violation of Section 6(c), 6(d), or 9(a)(2) of the Act committed on or

after May 22, 2008, not more than the greater of $1,000,000 or triple

the monetary gain to such person for each such violation; and

(2) Except as provided in paragraph (v) hereof, for each violation

for which a civil monetary penalty is assessed against any registered

entity or other person pursuant to Section 6c of the Commodity Exchange

Act, 7 U.S.C. 13a-l:

(i) For violations committed between November 27, 1996 and October

22, 2000, not more than the greater of $110,000 or triple the monetary

gain to such person for each such violation;

(ii) For violations committed between October 23, 2000 and October

22, 2004, not more than the greater of $120,000 or triple the monetary

gain to such person for each such violation;

(iii) For violations committed between October 23, 2004 and October

22, 2008, not more than the greater of $130,000 or triple the monetary

gain to such person for each such violation; and

(iv) For violations committed on or after October 23, 2008, not

more than the greater of $140,000 or triple the monetary gain to such

person for each such violation; provided that--

(v) In any case of manipulation or attempted manipulation in

violation of Section 6(c), 6(d), or 9(a)(2) of the Act committed on or

after May 22, 2008, not more than the greater of $1,000,000 or triple

the monetary gain to such person for each such violation;

(3) For each violation for which a civil monetary penalty is

assessed against any registered entity or any director, officer, agent,

or employee of any registered entity pursuant to Section 6b of the

Commodity Exchange Act, 7 U.S.C. 13a:

(i) For violations committed between November 27, 1996 and October

22, 2000, not more than $550,000 for each such violation;

[[Page 57515]]

(ii) For violations committed between October 23, 2000 and October

22, 2004, not more than $575,000 for each such violation;

(iii) For violations committed between October 23, 2004 and October

22, 2008, not more than $625,000 for each such violation; and

(iv) For violations committed on or after October 23, 2008, not

more than the greater of $675,000 or triple the monetary gain to such

person for each such violation, provided that--

(v) In any case of manipulation or attempted manipulation in

violation of Section 6(c), 6(d), or 9(a)(2) of the Act committed on or

after May 22, 2008, not more than the greater of $1,000,000 or triple

the monetary gain each such violation.

* * * * *

Issued in Washington, DC, on September 30, 2008 by the

Commission.

David A. Stawick,

Secretary of the Commission.

[FR Doc. E8-23417 Filed 10-2-08; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: October 3, 2008