# Petition — Bell v. International Trading, Ltd.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1978
- **Citation:** 435 U.S. 941

## Text

IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, i977

No. ¢¢-1098
Harvey L. Bewu
Securities CommissionER
For tHe State oF Fee Petitioner

vs.

INTERNATIONAL Trapine, Ltp.,
A Division oF GNB, Inc.,
J. R. Rose anp Artuur Paumer..... Respondents

PETITION FOR. A WRIT OF CERTIORARI
TO THE SUPREME COURT OF THE
STATE OF ARKANSAS

Harvey L. Bew

Securities Commissioner

By: Rocer W. Gites

1428 Donacuey Buitpinc
Seventn & Main Streets
Lrrtie Rock, ARKANSAS 72201
Attorney for Petitioner

Reg. No. 77-11226 ; 55 Copies

-~ Sunreme Court, U. a”)
| FILED

|

Table of Contents

Page
Be EE sie be 6c cceeenscdancisesconiacaceconccceceseeseess ii
| PS TT Peete TT TT TTTTTT LTT EILELE ETE 2
DE ca sends aPedotbeadstadwdntevedsépcdodsvevescadusissetes 2
LL SESE E rere Tere eee Tee eT TT ETT T TELL TTEe 2
| Pee eee ee 2
I Gy a 6 6 ee aT 8 ER et A he BIS Ge e's 5
ED CUE Foe GEA ics decsewssscnenceseseccncwcepenes 7
DR ted eed CeGd WERSERNESUS ESCO 60460 KKK eCRKO RCE STEs 16
APPENDICES
A. Opinion of Arkansas Supreme Court..................--.555: 17
B. Order Entered by Chancellor,
Pulaski County, Arkansas, Chancery Court...................... 31

C. Order of Arkansas Supreme Court Denying Rehearing ......... 34

ii
List of Authorities *
STATUTES
FOU OS occnnnnnccccccusekdesetbadvedccacessctccccvsnomene 2
Ark. Stat. Ann. § 67-1247(1) (Repl. 1966) .... 2.2... 0.66 scene eee nee 3
Ark. Stat. Ann. § 67-1247(L) (Repl. 1966) .... 06.0.6... cece eee 5
Ark. Stat. Ann. § 57-1235 (Repl. 1966) .............. 6c cece eee eee 3
Ark. Stat. Ann. § 67-1254 (Repl. 1966) ..... 0.0.6... cece eee eee nee 4
Ark. Stat. Ann. § 67-1255 (Supp. 1977) ...........- 25 cece eee eee ees 14
Ark. Stat. Ann. § 41-2203 (Crim. Code 1976) ................00005. 14

JUDICIAL DECISIONS

Berman v. Orimex Trading, Inc.,
291 F. Supp. 701 (S.D.N.Y. 1968) ........... 6.6 c cece eens 8

Clayton Brokerage Co. vy. Mouer,
520 S.W. 2d 802 (Tex. Civ. App. 1975),
rev'd on other grounds, 531 S.W. 2d
OOS (Tem. Gap. Ch. 1978)... cc ccc ccc cece ccc c ccc cececcccesess 11

Commercial Iron & Metal Company v.
Bache & Company, et al.,

GO BH. BE FO GE Ge. GOED oda ccc sccccccsccnccccccccess 9
Gould v. Barnes Brokerage Company, Inc.,

345 F. Supp. 294 (N.D. Tex. 1972) ..........cccccceceeceecess 8
Hamilton v. Kentucky Distilleres and

Warehouse Company, 251 U.S. 145 (1919). ........... severance 12
Hirk v. Agni-Research Council, Inc., et al.,

CCH Sec. L. Rep. par. 94, 738 (N.D. Ill. 1974) .............4.. 9
International Trading, Lid., et al. v. Bell,

262 Ark. 244, 556 S.W. 2d 420 (1977) ... 2... 666 eee eee 8

~ J. C. Booth v. Peavey Compary Commodities

» Services, 430 F. 2d 132 (8th Cir. 1970)... 2... 666 eee eee 8

iii
Johnson v. Espey, et al., ‘
ee es I SE LW awed aceevenencedsvses ne 8
Mahue v. Reynolds & Company,
oa ra sccwesceveededsenectenes 8
Marshall v. Lamson Brothers &@ Company, et al.,
on otc dewnbascecesn canis ccwnes 8

McCurrin v. Kohlweger & Company, et al,
340 F. Supp. 1338 (E.D. La. 1972),
ee We Se I Wok cc Secscscrcgcncccwncvsess ~

Milnarik v. M. S. Commodities, Inc.,
320 F. Supp. 1149 (N.D. Ill. 1970),
aff'd 457 F. 2d 274 (7th Cir. 1972),

CS MT OO og ccc ccwcccccvcccedsesebecess 9
Northern States Power Company v. Minnesota,

BE 13
Schwartz v. Bache @ Company, Inc.,

re SE icivescecesetesevecesencerees 9

Securities and Exchange Commission v.

Continental Commodities Corp.,

i ch esas bade sdanesennbeeen' 8
Sinva, Inc. v. Merrill Lynch, Pierce,

Fenner & Smith, Inc.,

Dano cgnnadectdverccodsscesces 8

Wasnowie v. Chicago Board of Trade,
352 F. Supp. 1066 (M.D. Pa. 1972),
aff'd without opimon, 491 F. 2d 752
i .c6o. ict Ci ihs piehebcdveseneenesedetecessenen 9

LEGAL WRITINGS

Johnson, The Commodity Futures Trading
Commission Act: Preemption as Public Policy,
TIT TT Tee 12

Long. The Naked Commodity Option Contract
As A Security, 15 Wm. & Mary L. Rev. (1974) ............0.0.. 10

IN THE
SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1977

No.

Harvey L. Be.
Securities ComMIssIONER
For tHe STATE OF ARKANSAS ................ Petitioner

vs.
INTERNATIONAL TRADING, LTD.,

A Division oF GNB, Inc., :
J. R. Rose anv Artuur Paimer........... Respondents

PETITION FOR A WRIT OF CERTIORARI
TO THE SUPREME COURT OF THE
STATE OF ARKANSAS

The Petitioner, Harvey L. Beli, Arkansas Securities Com-
missioner, respectfully prays that a Writ of Certiorari be issued
to review the judgment and opinion of the Supreme Court of the
State of Arkansas entered in this proceeding on October 3,
1977.

OPINION BELOW

The opinion of the Supreme Court of the State of Arkansas
is found in Volume 262 of the Arkansas Reports at page 244 and
is also found in Volume 556 Southwestern Reporter, 2d edition
at page 420. A copy of that opinion, along with a copy of that
court’s decree, appears in Appendix A hereto. No opinion was
rendered by the Chancery Court of Pulaski County, Arkansas,
the Court of original jurisdiction but the Order entered by that
Court is attached as Appendix B hereto.

JURISDICTION

The Judgment of the Supreme Court of the State of Arkansas
was entered on October 3, 1977. A timely petition for rehearing
in banc was denied on November 7, 1977, Appendix C hereto,
and this Petition for Certiorari was filed within 90 days of that
date. This Court’s jurisdiction is invoked under 28 U.S.C. §
1257 (3).

QUESTION PRESENTED
Whether the Commodity Futures Trading Commission
Act of 1974 (CFTCA) preempted the State of Arkansas from en-
forcing the anti-fraud portion of its Securities Act against the
seller of a London commodity option.
STATUTORY PROVISIONS INVOLVED

United States Code Title 7:

§ 2 Regulation of Trading and Exchange Activities.

*“ . . provided, that the Commission shall have exclusive
jurisdiction with respect to accounts, agreements
(iucluding any transaction which is of the character of or is
commonly known in the trade as, an “option’”’, “privilege”,
“indemnity”, “bid”, “offer”, “put”, “call”, “advance
guaranty”, or “decline guaranty”, and transactions in-
volving contracts of sale of a commodity for future delivery,
traded or executed on a contract market designated pur-
suant to Section 5 of this Act or any other board of trade,
exchange or market, in transactions subject to regulation
by the Commission pursuant to Section 217 of thé Com-
modity Futures Trading Commission Act of 1974: And
provided further, that, except as hereinabove provided,
nothing contained in this section shall (i) supersede or
limit the jurisdiction at any time conferred on the
Securities and Exchange Commission or other regulatory
authorities under the laws of the United States or of any
state, or (ii) restrict the Securities and Exchange Com-
mission and such other authorities from carrying out their
duties and responsibilities in accordance with such laws.
Nothing in this section shall supersede or limit the jurisdic-
tion conferred on courts of the United States or any state . .

”

Ark. Stat. Ann. § 67-1247(1) (Repl. 1966). Definitions of terms us-
ed.

“Security” means any note; . . . evidence of indebtedness;
certificate of interest or participation in any profit sharing
agreement; . . . investment contract; ... .

Ark. Stat. Ann. § 67-1235 (Repl. 1966). Unlawful acts in connection
with offer, sale or purchase of securities.

It is unlawful for any person, in connection with the offer,
sale or purchase of any security, directly or indirectly

(1) to employ any device, scheme or artifice to defraud

(2) to make any untrue statement of a material fact or to
omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under
which they are made, no misleading, or

(3) to engage in any act, practice or course of business
which operates or would operate as a fraud or deceit upon
any person.

Ark. Stat. Ann. § 67-1254 (Repl. 1966). Enforcement of Act by In-
junction or Mandamus.

Whenever it appears to the Commissioner, upon sufficient
grounds or evidence satisfactory to the Commissioner, that
any person has engaged or is about to engage in any act or
practice constituting a violation of any provision of this Act
[The Arkansas Securities Act of 1959, as amended, Ark.
Stat. Ann. § 67-1235 et seq. (Repl. 1966)] or any rule or
order hereunder, he may summarily order the person to
cease and desist from such act or practice, which order
shall be effective for not more than 20 days during which
time the Commissioner may apply to the Chancery Court
of Pulaski County to enjoin the act or practice and to en-
force compliance with this Act or any rule or order
hereunder; however, the Commissioner may, without issu-
ing a cease and desist order, apply directly to the Chancery
Court of Pulaski County for the aforesaid relief. Upon a
proper showing a permanent or temporary injunction,

_ restraining order, or writ of mandamus shall be granted
and a receiver or conservator may be appointed for the
defendant or the defendant’s assets. The Court may not
require the Commissioner to post bond.

STATEMENT OF THE CASE

The original action in this case was filed on November 10,
1976 by the Petitioner, the Arkansas Securities Commissioner,
seeking preliminary and permanent injunctions to restrain the
Respondents from, among other things, violating Section 1 of
the Arkansas Securities Act of 1959, as amended, the anti-fraud
provision of the Arkansas Securities Act.

The Petition for Injunction filed by the Commissioner
alleged that commencing in the spring of 1975, the Respondents
sold London commodity options (options, traded on the Lon-
don Commodity Options Exchange, to buy or seli commodity
futures contracts) by various fraudulent means. The London
commodity options were alleged to be investment contracts,
evidences of indebtedness or participations in profit sharing
agreements and hence securities as defined by Section 13(1) of
the Arkansas Securities Act [Ark. Stat. Ann. § 67-1247 (Repl.
1966)]. An ex parte order was entered on November 16, 1976
setting a hearing for December 14, 1976 to consider the
Petitioner’s request for a preliminary injunction.

On December 6, 1976, the Respondents filed a Demurrer
to the Petition for Injunction, based on two grounds. The first
was that it appeared on the face of the Petition that the
Chancery Court of Pulaski County, Arkansas had no jurisdic-
tion of the subject matter of the action. This assertion was
predicated on the Commodity Futures Trading Commission

Act of 1974 which established a new Federal regulatory agency,
the Commodity Futures Trading Commission and conferred ex-
clusive jurisdiction on the CFTC vis-a-vis the states and the
Securities and Exchange Commission with respect to regulation
of commodity options and commodity trading advisors. The se-
cond ground of the Demurrer was that the Petitioner lacked the
legal capacity to bring the action.

Petitioner filed a Motion to Overrule the Demurrer on
December 9, 1976. A hearing was held on December 14, 1976 at
which the Petitioner presented testimony of three witnesses who
had purchased commodity options from the Respondents. The
Respondents maintained that their Demurrer should be
sustained on the pleadings and presented no testimony in their
behalf.

The first witness called by the Petitioner indicated that he
had purchased a cocoa option from the Respondents for $3,-
000.00. The witness testified that it had been requested of him
to sign a Power of Attorney so that the Respondents could trade
his account in his name, but the witness refused. The witness
testified that at some later date he contacted the Respondents
seeking information concerning the cocoa market and how well
his cocoa option was doing. He was informed that his cocoa op-
tion had been sold by the Respondents and that a sugar option
had been purchased with the profit. The witness stated that he
accepted a check in the amount of $574.00 represercing the
difference in the sale price of his cocoa option and the purchase
price of the new sugar option but that he refused to invest
further with the Respondents. Some months later th: sugar op-
tior was abandoned by the Respondents and the wit ess lost all
but $574.00 of his investment.

ee a . — - »

The second witness called by the Petitioner testified sub-
stantially as the first witness except that after initially refusing

to sign the Power of Attorney this witness relented. He too lost
all but $574.00 of his investment.

The third witness called by the Petitioner testified that he
purchased an option from the Respondents based upon their
“guarantee” that he would double his money. The option so
purchased was later abandoned by the Respondents with this
witness losing his entire investment.

At the conclusion of the evidence presented to the
Chancellor, the Chancellor overruled the Demurrer and enjoin-
ed the Respondents from selling London commodity options by
fraudulent or misleading means. The Chancellor did not,
however, make a specific finding from the bench that the
Respondents had engaged in fraudulent conduct.

The Respondents appealed to the Arkansas Supreme
Court which reversed and dismissed the Petitioner’s Complaint
holding that the Petitioner had no standing to file suit and that
the Chancery Court cf Pulaski County, Arkansas, had no
jurisdiction to entertain such suit because of the preemption of
the entire commodities field by the enactment of the Commodi-
ty Futures Trading Commission Act of 1974,

REASON FOR GRANTING WRIT

THE ENACTMENT OF THE COMMODITY
FUTURES TRADING COMMISSION ACT OF 1974 HAS
CREATED CONTROVERSY CONCERNING THE
“EXTENT TO WHICH STATES CAN ACT IN LIGHT OF
THE ‘“‘EXCLUSIVE jURISDICTION”’’ OVER

COMMODITIES TRANSACTIONS GRANTED TO THE
COMMODITY FUTURES TRADING COMMISSION.

Prior to the effective date of the CFTCA, state securities
regulators, the Securities and Exchange Commission and
private litigants all sought to effect a measure of protection
and/or recovery for investors defrauded through the offer, sale
or purchase of commodities, commodity futures contracts or
commodity options by asking courts to fashion remedies based
on applicable securities acts. Such requests met with varying
success.

The federal courts which entertained such suits based their
decisions on an analysis of Securities and Exchange Commission v.
W. J. Howey & Company, et al., 328 U.S. 293 (1946). While the
offer and sale of a commodities contract for future delivery stan-
ding alone was generally held not to involve the offer and sale of
a “‘security”, Sinva, Inc. v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 253 F. Supp. 359 (S.D.N.Y. 1966), when that offer and sale
was coupled with or made part of a managed or discretionary
account, a claim cognizable under the securities acts was
recognized by courts sitting in the Second Circuit, Johnson v.
Espey, et al., 341 F. Supp. 764 (S.D.N.Y. 1972), Berman v. Orimex
Trading, Inc., 291 F. Supp. 701 (S.D.N.Y. 1968), Mahue v.
Reynolds & Company, 282 F. Supp. 423 (S.D.N.Y. 1967); courts
sitting in the Fifth Circuit, Securities and Exchange Commission v.
Continental Commodities Corp., 497 F. 2d 516 (Sth Cir. 1974),
McCurrin v. Kohlweger @ Company, et al., 340 F. Supp. 1338 (E.D.
La. 1972) aff. 477 F. 2d 113 (5th Cir. 1973), Gould v. Barnes
Brokerage Company, Inc., 345 F. Supp. 294 (N.D. Tex. 1972);
courts sitting in the Eighth Circuit, 7. C. Booth v. Peavey Company
Commodities Services, 430 F. 2d 132 (8th Cir. 1970), Marshall v.
Lamson Brothers @ Co., et al., 368 F. Supp. 486 (S.D. Ia. 1974),

a ee ee oe 7

Schwartz v. Bache &@ Company, Inc., 340 F. Supp. 995 (S.D. la.
1972); and the Tenth Circuit Court of Appeals, Commercial Iron
& Metal Company v. Bache & Company et al., 478 F. 2d 39 (10th
Cir. 1973). Such claims were however rejected by courts sitting
in the Seventh Circuit, Milnarik v. M.S. Commodities, Inc., 320 F.
Supp. 1149 (N.D. Ill. 1970), aff'd, 457 F. 2d 274 (7th Cir. 1972)
and Hirk v. Agri-Research Council, Inc., et al., CCH, Sec. L Rep.
par. 94, 738 (N.D. Ill. 1974) and further rejected by the District
Court for the middle district of Pennsylvania, Wasnowic v.
Chicago Board of Trade, 352 F. Supp. 1066 (M.D. Pa. 1972), aff'd
without opinion, 491 F. 2d 752 (3rd Cir. 1973). The difference in
opinion turned on the respective courts’ interpretation of the
common enterprise requirement necessary for a finding of an in-
vestment contract as defined in Howey, supra. The Seventh Cir-
cuit stated that there had to be a “‘pooling”’ of investor funds
while the remaining Courts considering the problem stated that
there need be only a common enterprise between the investor
and promoter and not among investors similarly situated.

The Petitioner in the suit below alleged fraudulent dis-
cretionary transactions in respondents’ customers’ commodity
options accounts and in addition alleged certain material mis-
representations and omissions in connection with the initial
offer and sale of the commodity options themselves. A com-
modity option is a contract right, purchased from the option
seller for a fee called the “premium,” to buy from, or sell to, the
option seller, the underlying commodity futures contract at a
fixed price called the “striking price,” at any time during the life
of the option. The striking price is usually the market price of
the underlying commodity futures contract on the day that the
option contract is sold. The option period is usually fixed, rang-
ing from one month to a year or 18 months. An option to sell the
underlying commodity futures contract is known as a “‘put.” An

10

option to buy the underlying commodity futures contract is
known as a “‘call.’’ It is also possible for the option purchaser to
buy both a put and a call on the same commodity at the same
time. Such a purchase is known as a “‘straddle,’’ or, more com-
monly, as a “double option.” Long, The Naked Commodity Option
Contract As A Security, 15 Wm. & Mary L. Rev. 211, 212-14
(1974).

The purchaser of a call theoretically makes his profit when
the :narket for the underlying commodity futures rises. If this
occurs, he exercises his option, purchasing the underlying com-
modity futures contract from the option seller at the striking
price and reselling it in the open market. His profit is the
difference between the striking price and his selling price, less
the premium he paid for the option. The purchaser of a put will
profit similarly if the market falls sufficiently from the striking
price for his profit on the futures contract to exceed the
premium. /d. at 213. The purchaser of a double option will
profit whether the market rises or falls, provided that the
difference between the rise or fall and the stfiking price exceeds
the premium he paid to the option seller.

Commodity option contracts in various forms have been
present for a number of years. Before 1934, contracts on
domestic commodities, such as wheat and cotton, were traded
extensively on the major American exchanges. In that year,
however, the Commodity Exchange Authority (CEA) banned
trading in options on domestic commodities because of the
abuses which had developed in the commodity option market.
Trading in international, or “world” commodities, including
silver, silver coins, platinum, cocoa, plywood, copper, coffee,
and world sugar, was not affected, since such items were not
subject to CEA jurisdiction. Long, op. cit. supra, pp. 213-14.

~ er ee ee

A distinction must be noted between ‘‘naked’’ commodity
options which have no underlying futures contract and the Lon-
don commodity options which were sold by respondents. The
naked commodity option is an option issued by the seller for
which there is no underlying futures contract. By the great
weight of judicial authority, such options are securities. See:
Long, op. cit. supra, p. 217.

In contrast to the naked option, the “London option” is an
option on an underlying futures contract traded on the London
commodity exchanges. The options are issued, or ‘‘written,”’ by
the same exchanges. “World” commodities such as sugar,
cocoa, coffee, rubber, silver and copper are traded on the Lon-
don exchanges. Such options too have been held to be securities.
Clayton Brokerage Co. v. Mouer, 520 S.W. 2d 802, 804 (Tex. Civ.
App. 1975), rev'd on other grounds, 531 S.W. 2d 805 (Tex. Sup. Ct.
1975).

While the issue of whether such London commodity op-
tions were securities within the meaning of the Arkansas
Securities Act was pivotal in determining Petitioner’s initial
standing to bring suit, that question was left undecided by the
Arkansas Supreme Court, /nternational Trading, Lid. et al. v. Bell,
556 S.W. 2d 420, 422 (1977) (Appendix ‘‘A”’ at page 22), and is
therefore not pertinent here. For purposes of this Petition,
Petitioner, like the Arkansas Supreme Court, assumes that such
options are investment contracts. The question then presented
concerns the Arkansas Court’s analysis of 7 U.S.C.A. § 2 (Supp.
1977) which according to that Court . . . “seems . . . to express a
clear intention to vest exclusive jurisdiction of the regulation of
commodity options in the Commodity Futures Trading Com-
mission and to supersede the jurisdiction of all state and federal
agencies.” International Trading, Lid. v. Bell, supra, at 556 S.W. 2d

page 423 (Appendix “A” at page 26).

12

Petitioner does not here challenge the ability of Congress to
preempt the field of commodities regulation under the
Commerce clause of the United States Constitution. See, e.g.,
Hamilton v. Kentucky Distilleries and Warehouse Company, 251 U.S.
145 (1919). Petitioner does however question the construction
placed on that preemption by the Supreme Court of Arkansas
and the CFTC.

The Court’s attention is directed to the Report of the
Senate Agriculture and Forestry Committee on H.J.R. Res. 335:

The Committee wishes to make clear that the preemption
of the regulation of commodity futures trading by the
Commodity Futures Commission Act of 1974 does not pre-
vent the States from enforcing their criminal anti-fraud
statutes. The Committee realizes that many fraudulent
schemes are devised to prey on the unsuspecting and un-
sophisticated investor. In many cases, these schemes pur-
port to deal in commodities trading. The States are en-
couraged to continue to utilize their criminal anti-fraud
statutes to discourage such schemes. (S. Rep. No. 74-73,
94th Cong., ist Sess. [1975]).

The above section of the Senate report has been interpreted
to permit State Courts to continue to adjudicate state criminal
fraud cases. Johnson, The Commodity Futures Trading Commission
Act: Preemption as Public Policy, 29 Van. L. Rev. 1, 33 (Jan. 1976).
Such interpretation is consistent with the position of the CFTC
expressed on page 19 of their brief, amicus curiae, filed with the
Arkansas Supreme Court in the instant case and is further con-
sistent with the position of the Arkansas Court as expressed on
556 S.W. 2d page 425 (Appendix “A” at page 29). Petitioner
has been unable to find justification for the distinction drawn by

13

the CFTC which would allow enforcement of some state anti-
fraud statutes yet preempt others. If in fact ‘‘all state and federal
agencies” have been preempted, logic would seem to indicate
that no state statute nor any federal statute, save the CFTCA,
could be enforced against persons effecting fraudulent transac-
tions in commodities. A ludicrous extension of that position
would be to preempt any local law enforcement agency from

taking action against thieves who were stealing raw com-
modities.

It is apparent from reading law review articles and CFTC
memorandums that it is state securities regulators and the SEC
that the commodities industry and the CFTC wish preempted.
All other federal, state and local agencies are allowed by the
CFTC to enforce their statutes.

It is the position of the Petitioner that if general anti-fraud
statutes can be enforced against fraudulent commodities
brokers then specific anti-fraud statutes prohibiting fraud in
connection with the offer and sale of investment contracts
should also be enforced.

Congress in enacting the CFTCA did not enact legislation
preempting selected agencies. If Congress declares that a par-
ticular agency has exclusive jurisdiction, then there is no room
for other agencies to regulate in that field. As stated by the
Eighth Circuit Court of Appeals in Northern States Power Company
v. Minnesota, 447 F. 2d 1143 (8th Cir. 1971):

‘“‘Where Congress has unequivocally aid expressly
declared that the authority conferred by it is exclusive,
then there is no doubt but that states cannot exert con-
comitant or supplementary regulatory authority over the
identical activity.’’ Northern States, supra, at 1146.

14

The question then presented is whether the Arkansas
Securities Commissioner by filing suit to enjoin fraudulent sales
of investment contracts in the form of London Commodity Op-
tions is “regulating” the offer and sale of those options within
the meaning of Northern States Power Company, supra., or whether
he is simply enforcing an anti-fraud statute compatible with the
Senate report cited above.

The Arkansas Securities Commissioner is not seeking to
license persons or otherwise regulate London Commodity Op-
tions but rather he, as the representative of the State of Arkan-
sas, is seeking to prohibit through injunction certain fraudulent
conduct.

Petitioner submits it was not the intent of Congress to
preempt the State of Arkansas from enforcing Arkansas’
securities fraud laws by passage of the CFTCA. The State of
Arkansas seeks to enforce a securities fraud law — not to
regulate commodities. Congress never intended to deny the
State of Arkansas and its courts the right to protect Arkansas
citizens from perpetrators of fraud and deceit. Such malefactors

should and must be enjoined from engaging in fraudulent '

businesses entirely.

The Court’s attention is directed to Section 21 of the
Arkansas Securities Act [Ark. Stat. Ann. § 671255 (Supp.
1977)| which provides criminal sanctions for persons who
willfully violate that Act.

It is inconsistent to hold that the State of Arkansas, pur-
suant to Ark. Stat. Ann. § 41-2203 (Crim. Code 1976), a general
“theft by deception” statute, can prosecute persons engaging in
fraudulent commoditics operations, /nternational Trading, Lid. v.

15

Bell, supra at 556 S.W. 2d page 425 (Appendix “A” at page 29),
but cannot so prosecute under Ark. Stat. Ann. § 67-1235 (Repl.
1966), the Securities Act “anti-fraud” section, due to the “‘clear
intention [of Congress] to vest exclusive jurisdiction of com-
modity options in the Commodity Futures Trading Commis-
sion and to supersede the jurisdiction of all state and federal
agencies.’’ /nternational Trading, Lid. v. Bell, supra, at 556 S.W.
2d page 423 (Appendix “A” at page 26). Either the State of
Arkansas has been preempted or it has not.

Petitioner believes the more reasoned approach to this in-
consistency is to recognize the grant of exclusive jurisdiction to
“regulate” commodities in the CFTC but to allow the enforce-
ment of anti-fraud statutes by the states whether those statutes
are grounded in the general common law or contained in other
specialized statutes such as the Securities Acts. Certainly, if
state anti-fraud enforcement and federal regulation become in-
consistent, federal preemption would apply. The Petitioner is
not seeking to interfere with the federal regulatory scheme over
the commodities industry but only is seeking to protect the
Arkansas investors from fraud. Surely Congress could not have
meant to deny him that ability.

16
CONCLUSION

For the reasons hereinabove stated, Petitioner respectfully
submits that his Petition for a Writ of Certiorari should be
granted.

Respectfully submitted,

Harvey L. Bev

Securities Commissioner

By: Rocer W. Gites

1428 Donacuey BuipiInc
Seventn & Main Streets
Littte Rock, ARKANSAS 72201
Attorney for Petitioner

17

APPENDIX “A”
REVERSALS CHANCERY DISTRICTS

STATE OF ARKANSAS,
SCT.
In the Supreme Court

BE IT REMEMBERED, That a term of the Supreme Court
of the State of Arkansas, begun and held at the Court House, in
the City of Little Rock, on the 3rd day, being the first Monday
of October, A.D. 1977, amongst others, were the following
proceedings, to-wit: On the 3rd day of October, A.D. 1977, a
day of said term:

International Trading Ltd.,
a division of GNB, Inc. et al
Appellant

No. 77-96 vs.

Harvey L. Bell, Securities Commissioner
| Appellee

Appeal from Pulaski Chancery Court
Second District

THIS CAUSE came on to be heard upon the transcript of
the record of the Chancery Court of Pulaski County, Second
District, and was argued by solicitors; on consideration whereof
it is the opinion of the Court that there is error in the
proceedings and decree of said Chancery Court in this cause as
set out in the opinion herein delivered October 3, 1977.

18

IT IS THEREFORE ORDERED AND DECREED by
the Court that the decree of said Chancery Court in this cause
rendered be, and the same is hereby reversed, annulled and set
aside with costs; and that this cause be dismissed.

IT IS FURTHER ORDERED AND DECREED, That
said appellants recover of said appellee all their costs in this
Court in this cause expended, and have execution thereof.

IN TESTIMONY, That the above is a true copy of the
decree of said Supreme Court rendered in th case therein
stated, I, Jimmy H. Hawkins, Clerk of said Supreme Court,
hereunto set my hand and affix the Seal of said Supreme Court,

at my office in the City of Little Rock, this 7th day of November,
A.D. 1977.

JIMMY H. HAWKINS
Clerk

By Dona L. Williams
D.C.

19

SUPREME COURT OF ARKANSAS

INTERNATIONAL TRADING LTD.,
A Division of GNB, Inc.:

GNB, Inc., J. R. ROSE and Arthur PALMER
v. Harvey L. BELL, Securities
Commissioner for the State of

Arkansas

77-9

Opinion delivered October 3, 1977
(In Banc)

Appeal from Pulaski Chancery Court, Second Division,

John T. Jernigan, Chancellor; reversed and dismissed.

Joun A. Focteman, Justice. The chancery court enjoin-
ed appellants from directly or indirectly employing any
device, scheme or artifice to defraud; making any untrue
statement of a material fact or omitting to state a material
fact necessary in order to make the statements made, in light
of the circumstances under which they are made, not mis-
leading, or, engaging in any act, practice, or course of
business which operates or would operate as a fraud or deceit
upon any person. In doing so, the court overruled appellants
demurrer. Appellants elected to stand on that demurrer,
which alleged that it appeared on the face of the complaint
that the court had no jurisdiction of the subject matter and
that appellee did not have the legal capacity to sue in this ac-

20

tion. Since we find that the chancery court erred in overruling
this demurrer, we must reverse the decree.

The complaint was filed by the Securities Commissioner
for the State of Arkansas under the Arkansas Securities Act,
as amended [Ark. Stat. Ann. § 67-1235 et seq]. Init, he alleg-
ed that Internaticnal Trading, Ltd., a division of GNB, Inc.,
CNB, Inc., J. R. Rose and Arthur Palmer were engaging in
acts and practices and a course of conduct which constitute
violations of various sections of the act in offering and selling
a type of commodity option contracts known as ‘London
commodity options.’’ He alleged that these acts and practices
constituted a device, scheme or artifice to defraud and would
operate as a fraud or deceit upon the purchasers of options
and that appellants made misrepresentations of material
facts or omitted to state material facts necessary to make the
statements made not misleading in the light of the cir-
cumstances under which they were made. The acts and con-
duct specified were:

(a) engaging in an organized statewide, high-pressure,
“boiler room” like sales campaign, conducted primarily
by repeated, unsolicited, ‘“‘cold-canvass” long distance
telephone calls to persons who were inexperienced and
unsophisticated as to London commodity options tran-
sactions, in which calls false and deceptive statements
were made about profit expectations and the advisabili-
ty of immediate purchase of such options to take advan-
tage of purported favorable market prices for the op-
tions;

(b) hiring and directing sales persons without ex-
perience or knowledge of the risks and trading
mechanics involved in such options and providing these
salesmen with glowing, but deceptive and misleading
“canned” sales speeches to be read to potential
customers over the telephone, instructing these sa

sons to conceal material facts, avoid unfavorable ex-

21

planations, provide only minimal information, and tell
these prospects anything to make a sale;

(c) representing and making it appear that the op-
tions being offered and sold would be purchased in the
London market in the names of such customers, with
the company acting as the purchaser’s agent, when in
fact the options were purchased in the name of the com-
pany for its own account at prices substantially less than
the customers paid the company;

(d) representing, without any reasonable basis, profits
or returns which would double or triple the purchase
price in a short period of time, but failing to disclose that
many customers had actually lost their investments;

(e) concealing and misrepresenting the true nature of
the purchase price, including all fees and markups,
which customers pay to the company for the purchase of
London commodity options; concealing the fact that the
company marks up the price of each option purchased
in the London markets between 40 and 150 percent;

(f) representing to purchasers and prospective
purchasers that the company’s salespersons are well
trained and have several years’ experience in the com-
modity option field, when, in fact, most of them have
had substantially less than one year’s experience and
the company provides no meaningful training to such
salespersons, who are not specialists in the fieid of com-
modity options;

(g) failing to state that International Trading, Ltd., a
division of GNB, Inc., and GNB, Inc. are foreign cor-
porations not authorized to do business in Arkansas;

(h) failing to disclose the risk of loss to potential in-
vestors;

22

(i) failing to disclose that the investors were purchas-
ing a commodity option rather than a true contract for
future delivery of commodities;

(j) failing to disclose the actual closing date for trans-
actions traded on the London Board of Options Ex-
change;

©
(k) using high pressure telephonic sales techniques
emphasizing the likelihood of profits and not con-
sidering the investment needs of the customer;

(1) excessively marking up the price of the London
commodity options sold to Arkansas investors;

(Il) receiving compensation directly and indirectly for
advising potential investors as to the value of these
securities and employing a device, scheme or artifice to
defraud and engaging in acts, practices or course of
business which operated or would operate as a fraud or
deceit upon purchasers in violation of Ark. Stat. Ann. §
67-1236 (a) (Repl. 1966) by omitting to state the
material facts necessary in order to make the statements
made, in light of the circumstances under which they
were made, not misleading.

The court heard appellee’s evidence on the allegations of
fraud, but appellants, having elected to stand upon their
demurrer, offered no evidence. Even so, the chancellor declin-
ed to make a finding that appellants had been guilty of fraud.
The language of the decree stating the acts enjoined is couch-
ed entirely in words of § 1 of the Arkansas Securities Act
[Ark. Stat. Ann. § 67-1235 (Repl. 1966)] declaring those
acts, in connection with the offer, sale or purchase of
securities to.be unlawful.

For the purposes of this opinion we assume, but do not
decide, that a London commodity option is a security, as

23

alleged in appellee’s complaint and defined by Ark. Stat.
Ann. § 67-1247 (1). If it is, it would be subject to regulation
under the Arkansas Securities Act, except for the preemption
of the field by the United States Congress through the Com-
modity Futures Trading Commission Act, an amendment to
the Commodity Exchange Act. 7 USCA § | et seq.

In order to understand the question presented, it is
necessary that certain terms, not generally familiar, be defin-
ed, as we understand them.

A commodity futures contract is a contract by which a
seller agrees to deliver a definite quantity of a commodity ina
specified future month, and the purchaser agrees to accept
and pay for the commodity when it is delivered. The terms of .
the contract, except for the price, are fixed by the organized
exchange through which the trading is done. Campbell,
Trading in Futures Under the Commodity Exchange Act, 26
(seorge Washington Law Review 215, 216-218. The price is
determined by open bidding by traders on the floor of the
commodity exchange. See Clayton Brokerage Co. of St. Louis v.
Mouer, 520 S.W. 2d 802 (Tex. Civ. App., 1975); § 7 USCA §§
6, Gb, 6c, Supp. 1977.

A commodity option is a contract right, purchased from
the option selier for a fee called the “premium,” to buy from,
or sell to, the option seller, the t aderlying commodity futures
contract at a fixed price called the “striking price,” at any
time during the life of the option. The striking price is usually
the market price of the underlying commodity futures con-
tract on the day that the option contract is sold. The option
period is usually fixed, ranging from one month to a year or
18 months. An option to sell the underlying commodity
futures contract is known as a “put.” An option to buy the
underlying commodity futures contract is known as a “cali.”
It is also possible for the option purchaser to buy both a put
and a call on the same commodity at the same time. Such a
purchase is known as a “straddle,” or, more commonly, as a

24

“double option.” Long, The Naked Commodity Option Con-
tract as a Security, 15 Wm. & Mary L. Rev. 211, 212-14
(1974).

The purchaser of a call theoretically makes his profit
when the market for the underlying commodity futures rises.
If this occurs, he exercises his option, purchasing the underly-
ing commodity futures contract from the option seller at the
striking price and reselling it in the open market. His profit is
the difference between the striking price and his selling price,
less the premium he paid for the option. The purchaser of a
put will profit similarly if the market falls sufficiently from the
striking price for his profit on the futures contract to exceed
the premium. Id. at 213. The purchaser of a double option
will profit whether the market rises or falls, provided that the
difference between the rise or fall and the striking price ex-
ceeds the premium he paid to the option seller. A commodity
option is considered a more conservative investment than a
commodity futures contract because the risk of loss is limited
to the premium paid and is not a concomitant of price fluc-
tuations in the commodity which may lead to additional
margin calls. Note, Federal Legislation for Commodity Op-

tion Trading: A Proposal, 47 So. Cal. L. Rev. 1418, 1424-25
(1974).

Commodity option contracts in various forms have been
present in the financial market place for a number of years.
Before 1934, contracts on domestic commodities, such as
wheat and cotton, were traded extensively on the major
American exchanges. In that year, however, the Commodity
Exchange Authority (CEA) banned trading in options on
domestic commodities because of the abuses which had
developed in the commodity option market. Trading in inter-
national, or “world” commodities, including silver, silver
coins, platinum, cocoa, plywood, copper, , and world
sugar, was not affected, since such items were not subject to
CEA jurisdiction. Long, cit. supra, pp. 213-14.

25

A London option is a right, for a price, to purchase or
sell a commodity futures contract for a specified term at a
specified price. Thus it is simply an extention of a commodity
futures contract and is t - the apace nasng ary poem
: exchanges as the underlying futures ract.
smodiaion traded on the lone exchange include sugar,
cocoa, coffee, rubber, silver and copper. See Clayton Brokerage
Co. of St. Louis, Inc. v. Mouer, supra, appeal dismissed as
mooted by reason of preemption by Commodity Futures
‘Trading Commission Act of 1974, 531 S.W. 2d 805. For other
discussions defining these terms and the commodity trading
business, see British American Commodity Operations .v.
, 552 F. 2d 482 (2 Cir., 1977). For a discussion of the
Lo option market and the sale of London options in the
United States, see Long, Commodity Options — Revisited,
25 Drake L. Rev. 75, 111-128 (1975).

The language which we find to be a clear manifestation
of the intention of Congress to exclude states from this field is
found in provisos added to the Commodity Exchange Act by
the Commodity Future Trading Act as set out in 7 USCA § 2

(Supp. 1977). They are:

*** Provided, That the Commission shall have exclusive
jurisdiction with respect to accounts, agreements
{including any transaction which is of the character of,
or is commonly known to the trade as, an ‘option’,
“privilege”, “indemnity”, “bid”, “offer”, “ : call A

lesiad ted pursuant to section 7 of this title or any other
board of trade, exchange, or market, and transactions

subject to by the Commission to
section 15a of this title: And provided further, except
as hereinabove provided, contained in this sec-
tion shall (i) supersede or limit the tion at any
time conferred on the Securities and Commis-

sion or other regulatory authorities under the laws of the

26

United States or of any State, or (ii) restrict the
Securities and Exchange Commission and such other
authorities from carrying out their duties and respon-
sibilities in accordance with such laws. Nothing in this
section shall supersede or limit the jurisdiction con-
ferred on courts of the United States or any State. ***

The language seems to us to express a clear intention to
vest exclusive jurisdiction of the regulation of commodity op-
tions in the Commodity Futures Trading Commission and to
supersede the jurisdiction of all state and federal agencies.
Our conclusion is fortified by another section of the act, now

appearing as 7 USCA 6c (b) (Supp. 1977), where Congress
said:

No person shall offer to enter into, enter into, or
confirm the execution of, any transaction subject to the
provisions of subsection (a) of this section involving any
commodity regulated under this chapter, but not
specifically set forth in section 2 of this title, prior to the
enactment of the Commodity Futures Trading Commis-
sion Act of 1974, which is of the character of, or is com-
monly known to the trade as, an “option”, “privilege”,
“indemnity”, “bid”, “offer”, “put”, “call”, “advance
guaranty”, or ‘“‘decline guaranty”, contrary to any rule,
regulation, or order of the Commission prohibiting any
such transaction or allowing any such transaction under
such terms and conditions as the Commission shall
prescribe within one year after the effective date of the
Commodity Futures Trading Commission Act of 1974
unless the Commission determines and notifies the
Senate Committee on Agriculture and Forestry and the
House Committee on Agriculture that it is unable to
prescribe such terms and conditions within such period
of time: Provided, That any such order, rule, or regula-
tion may be made only after notice and opportunity for
hearing: And provided further, That the Commission may
set different terms and conditions for different markets.

27

This view is further strengthened by the report of the
Congressional Conference Committee on the House and
Senate versions of the bill for the act in question. That com-

mittee said:

The clarifying amendments make clear that (a) the
Commission’s jurisdiction over futures contract markets
or other exchanges is exclusive and includes the regulation of .
. . commodity options; |and] (b) the Commission's jurisdiction,
where applicable, supersedes State as well as Federal agencies . .

Under the exclusive grant of jurisdiction to the Commis-
sion, the authority fn the Commodity Exchange Act
(and the eg ov pe ays by the eee

reempt the field insofar as futures regula -
carmel’ .. . In view of the broad grant of authority to the Com-
mission to regulate the futures trading industry, the Conferees do
not contemplate that there will be a need for any supplementary
regulation by the States. {Emphasis ours.|

See Senate Miscellaneous Reports on Public Bills, IX, Sen.
Rep. 1178-1239, 93d Coneress, 2d Session, pp. 35-36; see
also, Securities and Exchange Commission v. American Commodity
Exchange, Inc., 546 F. 2d 1361 {10 Cir., 1976) for other

legislative history.

The vesting of exclusive jurisdiction rd a “_ om :arrpuing
that Congress intended no regulation in this held except un-
der the authority of the act. See Rice v. Santa Fe Elevator Co.,
331 U.S. 218, 67 S. Ct. 1146, 91 L. Ed. 1447 (1947); Johnson,
Commodity Futures Trading Act: Preemption as Public
Policy, 29 Vanderbilt L. Rev. 1, 2, 20.

Where the act conferred jurisdiction on the commission,
at least one other court has held that it ed the field of
regulation insofar as the states are |. State v. Monex
International, Limited, 527 S.W. 2d 804 (Tex. Civ. App., 1975),

28

applied to London commodity options in Clayton Brokerage Co.
of St. Louis v. Moeur, 531 S.W. 2d 805 (Tex. Sp Ct., 1975). It
has also been held that the act stripped the Securities Ex-
change Commission of authority previously vested in it.
Securities Exchange Commission v. Univest, Inc., 405 FS 1057 (DC,
Ill., 1975), 410 FS 1029, remanded 556 F. 2d 584 (7 Cir.,
1977). There is at least tacit recognition of the preemption in
some cases in which it has beeh held that pending actions or
actions taken before the newly created commission could act

were not affected. See, e.g., State v. Spannus Coin Wholesaler
Inc., 250 N. W. 2d 587 (1976). ;

___ Appellee makes some very appealing arguments in seek-
ing to sustain his position that there is no preemption. First,
he seizes upon the clause stating that “except as hereinabove
provided, nothing contained in this section shall (i) supersede
or limit the jurisdiction at any time conferred on . . . other
regulatory authorities under the laws . . . of any State or (ii)
restrict . . . such other authorities from carrying out their
duties and responsibilities in accordance with such laws,”
and the statement that “[n]othing in this act shall be deemed
to supersede or limit the jurisdiction conferred on courts of . .
_ any state.” The argument that the exception relates only to
regulation of commodities, not securities, 1s unavailing here
because of the clear language of the act bringing commodity
options within the purview of the act. The exception, then,
eliminates the subject matter of this action from the jurisdic-
tion of the regulatory laws of a state. Perhaps the Commodity
Futures Trading Commission cannot regulate London ex-
changes, but it does have jurisdiction over accounts,
agreements (including options) and transactions on contract
markets or any other board of trade, exchange or market.

Appellee also argues that because the Arkansas
sry yr Act ? _ in conflict with the federal act, he should
not be prevented from enforcing the state regulatory scheme.
Where, however, as here, Congress has made it clear that
authority conferred by it is exclusive in a given area the states

29

cannot exercise concomitant or supplementary regulatory
authority over the identical activity. Northern States Power Co. v.
State, 447 F. 2d 1143 (8 Cir., 1971); Rice v. Santa Fe Elevator
Corp., supra, 331 U.S. 218; Campbell v. Hussey, 368 U.S. 297,
82 S. Ct. 327, 7 L. Ed. 2d 299 (1961).

Appellee, consistent with his argument that
Congressional intent to preempt is not manifest, invokes a
test he finds in Northern States Power Co. v. State, supra, i.e.: (1)
what is the intent of Congress as expressed in the legislative
history of the act (2) how pervasive is the federal regulatory
scheme (3) does the nature of the subject require exclusive
regulation and (4) is state law an obstacle to federal enforce-
ment. An affirmative answer to all these questions is not re-
= as a basis for finding an implied federal ——.

court in that case stated these tests only as factors to be
considered. Although we would be compelled to answer the
fourth question in the negative, if we consider only the terms
of the Arkansas Securities Act as presently written, the poten-
tial for obstacles is just as important as their existence. See
Rice v. Santa Fe Elevator Corp., supra. Commodity Futures
Trading Commission regulations could change this answer.
As to the other questions, our answers are in the affirmative.
We have already mentioned the legislative history and the
broad scope of the Commodity Futures Trading Commission
Act. There was at least a Cungresiionel finding that the
nature of the subject matter demanded exclusive federal
regulations and we cannot say that this finding was un-
founded. See Johnson, The Commodity Futures Trading
Commission Act: Preemption as a Public Policy, 29 Vander-
bilt Law Review 1. Even if we apply appellee's tests, we find a
strong implication that federal preempticn was intended.

We do not agree with appellee that preemption will pre-
vent the state from protecting its citizens from fraud. There is
no reason why the state cannot prosecute an offender under
such provisions as § 41-2203 (Crim. Code, 1976). There is no
bar of actions by persons defrauded to recover money ob-

30

tained from them by fraud. Such actions could not constitute
any realistic threat of interference withthe federal regulatory
scheme and the act certainly does not afford protection of

fraudulent conduct. See Farmer v. United Brotherhood of

Carpenters of America, 430 U.S. 290, 97 S. Ct. 1056, 51 L. Ed.
2d 338 (1977).

Finally, appellee’s invocation of the Tenth Amendment
is unavailing where the Congress had the power to act and, in
acting, manifestly intends to preempt the field. In such a
case, the supremacy clause (Art. V1, § 2) clearly has a bear-
ing. See Rice v. Santa Fe Elevator Corp., supra, 331 U.S. 218;
Northern States Power Co. v. State, supra, 447 F. 2d 1143. We do
not understand appellee to argue that Congress has no power
to regulate trading in London commodity options in the
United States. It seems rather obvious to us that
does have the power under the commerce clause of the United
States Constitution. This case does not involve the exercise of
power which impairs the integrity of the states on their ability
to function effectively, as was the case in National League of
Cities v. Usery, 426 U.S. 833, 96 S. Ct. 2465, 49 L. Ed. 2d 245
(1976) upon which appellant relies. The case involved an
attempt by Congress to prescribe minimum wages to be paid
to state employees by the states, acting in their sovereign
capacity. Clearly, there is no such invasion of the sovereignty
of the states involved here. Here the exercise of congressional
authority was directed to private citizens, not to the states as

states, or to functions essential to their separate and indepen-
dent existence.

We find that the chancery court had no jurisdiction to
act in this proceeding under the provisions of the Arkansas
Securities Act, and that the appellee had no standing to bring
this action so the decree of the chancery court is reversed and
the cause is-dismissed.

Hlickasan, J., dissents.

31

APPENDIX “B”

IN THE CHANCERY COURT OF
PULASKI COUNTY, ARKANSAS

R
HARVEY L. BELL, SECURITIES COMMISSIONE
FOR THE STATE OF ARKANSAS PETITIONER

VS. No. 76-5009

INTERNATIONAL TRADING, LTD.,

A DIVISION OF GNB, INC.:

GNB, INC.: J. R. ROSE AND

ARTHUR PALMER RESPONDENTS

ORDER

On this day comes to be heard the Demurrer filed in behalf
of Respondents and the Petition for Injunction filed by
Petitioner and Respondents appearing through their Attorney,
Joel Bellows, and Petitioner appearing through his Attorneys,
Ted Goodloe and James T. Pitts, and this cause being sub-
mitted to the Court for final adjudication by consent of the par-
ties, and from the facts and matters presented and tried on the
merits, the Court being well and sufficiently advised finds:

(1) That the Demurrer filed in behalf of Respondents
herein should be overruled. That this Court has jurisdiction
over the persons and the subject matter of this action and that
the Petitioner has standing to bring this suit.

(2) That London Commodity Options offered and sold by
Respondents in this State are investment contracts and are

32

hence securities as defined by Section 13(1) of the Arkansas
Securities Act [Ark. Stat. Ann. § 67-1247(1) (Repl. 1966).]

(3) That Respondents, in connection with the offer and
sale in this State of investment contracts styled London Com-
modity Options should be enjoined from directly or indirectly
employing any device, scheme or artifice to defraud; making
any untrue statement of a material fact or omitting to state a
material fact necessary in order to make the statements made,
in light of the circumstances under which they are made, not
misleading; or, engaging in any act, practice, or course of
business which operates or would operate as a fraud or deceit
upon any person.

IT IS THEREFORE ORDERED that Respondents’
Demurrer be and the same is hereby ordered overruled and that
the Respondents in connection with the offer and sale in this
State of investment contracts styled London Commodity Op-
tions be and the same are hereby ordered enjoined from directly
or indirectly employing any device, scheme or artifice to
defraud; making any untrue statement of a material fact or
omitting to state a material fact necessary in order to make the
statements made, in light of the circumstances under which
they are made, not misleading; or, engaging in any act, prac-
tice, or course of business which operates or would operate as a
fraud or deceit upon any person.

/s/ John T. Jernigan
CHANCELLOR

DATE: Dec. 15, 1976

APPROVED AS TO FORM:

33

/s/ Joel Bellows
JOEL BELLOWS
100 N. LaSalle Street, Suite 1100
Chicago, Illinois 60602
Attorney for Respondents

/s/ Ted Goodloe
TED GOODLOE

/s/ James T. Pitts
JAMES T. PITTS
Arkansas Securities Department
1428 Donaghey Building
Little Rock, Arkansas 72201
Attorneys for Petitioner

34

APPENDIX “C”

STATE OF ARKANSAS, r
SCT.
In the Supreme Court J
BE IT REMEMBERED, Thai at a term of the Supreme
Court of the State of Arkansas, begun and held at the Court
Room in the City of Little Rock, on the 3rd day, being the first
Monday of October, A.D. 1977, amongst others were the
following proceedings, to-wit:

On the 7th day of November, A.D. 1977, a day of said term

International Trading Ltd.,
a division of GNB, Inc. et al Appellant

No. 77-96 vs.
Harvey L. Bell, Securities Commissioner Appellee

Appeal from Pulaski Chancery Court
Second Division

Petition for rehearing is denied.

IN TESTIMONY, That the above is a true copy of the Per
Curiam of said Supreme Court, rendered in the case therein
stated, I, JIMMY H. HAWKINS, Clerk of said Supreme Court,
hereunto set my hand and affix the Seal of said Supreme Court,

at my office in the City of Little Rock, this 7th day of November,
A.D. 1977. °

JIMMY H. HAWKINS
Clerk

By Melissa Milhollen
D.C.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_0433%3A1. Public record. Not legal advice.