# Appendix — Sundheimer v. Commodity Futures Trading Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385010_0143%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1983 - **Citation:** 460 U.S. 1022 ## Text A.1 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT . = os Cal. No. 581—August Term, 1981 (Argued December 10, 1981 Decided September 3, 1982) Docket No. 81-4186 call STEPHEN M. SUNDHEIMER, Petitioner, _V— COMMODITY FUTURES TRADING COMMISSION, Respondent. Before: Moore, TIMBERS and VAN GRAAFEILAND, Circuit Judges. -i- Petition for review of an order of the Commodity Futures Trading Commission, which revoked petitioner’s registration as a floor broker pursuant to §§ 8a(2)(B) & 8(a)(3) of the Commodity Exchange Act, as amended, 7 4677 A.2 U.S.C. §§ 12a(2)(B) & 12(a)(3), held that petitioner had violated § 4c(a)(A), 7 U.S.C. §§ 6c(A), imposed a $100,000 penalty, ordered him to cease and desist from further violations of § 4c(a)(A), and prohibited him from trading on or subject to the rules of any contract market for a period of 24 months. Petition for review denied and order affirmed. noe JOHN M. Burns III, New York, N.Y. (Burns & Fox, New York, N.Y., on the Brief), for Petitioner. GLYNN L. Mays, Assistant General Counsel, Commodity Futures Trading Commis- sion, Washington, D.C., (Dennis A. Dut- terer, General Counsel, Pat G. Nicolette, Deputy General Counsel, Gregory C. Glynn, Associate General Counsel, and Vivian C. Kresslein, Clerk, Washington, D.C., on the Brief), for Respondent. te VAN GRAAFEILAND, Circuit Judge: Stephen M. Sundheimer (petitioner) asks this Court to review a final order of the Commodity Futures Trading Commission which revoked petitioner’s registration as a floor broker and imposed other sanctions as provided in §§ 6(b) and (c) of the Commodity Exchange Act, as amended, 7 U.S.C. §§ 9 & 13b. We affirm. 4678 A.3 In 1974, petitioner, a vice-president of Pressner Trading Corporation, agreed that Pressner would take the other side of certain prearranged contracts in crude oil futures so that an oil company could obtain illegal tax benefits by claiming fraudulent losses. Some time later, the Justice Department commenced an investigation into the use of the crude oil futures market for tax evasion purposes. Petitioner was implicated and thereafter cooperated with the federal authorities. On October 27, 1978, in the United States District Court for the Southern District of New York, petitioner pled guilty to a charge that he violated 26 U.S.C. § 7206(2) by knowingly aiding, assisting, and advising in the preparation of false and fraudulent income tax re- turns. On January 9, 1979, petitioner was sentenced to a year in prison and fined $5,000. The sentence of impris- onment was suspended on condition that petitioner devote the year to an approved community activity, which he did. On January 16, 1979, the Commission’s Division of Enforcement filed a complaint alleging that petitioner’s felony conviction made him unfit for registration with the Commission. See Commodity Exchange Act §§ 8a(2)(B) & (3), 7 U.S.C. §§ 12a(2)(B) & (3). The complaint also alleged that petitioner had violated or aided and abetted violations of section 9(b) of the Commodity Exchange Act, 7 U.S.C. § 13(b), which forbids market price manip- ulations, and section 4c(a)(A), 7 U.S.C. § 6c(a)(A), which forbids conduct “of the character of” accommodation trades. The Division of Enforcement moved for summary disposition, contending correctly that, because of peti- tioner’s felony plea, he was collaterally estopped from denying his participation in the prearranged trades. The 4679 A.4 Administrative Law Judge, to whom the matter was referred, held that, because petitioner’s manipulation of prices did not end prior to April 21, 1975, when the Commission assumed jurisdiction over crude oil future contracts, the provisions of the Act were applicable to him. The Administrative Law Judge also held that a prima facie case of unfitness under section 8a(2)(B) had been made out and that both sections 9(b) and 4c(a)(A) had been violated. He granted in part the motion for summary disposition but ordered a hearing so that peti- tioner could introduce evidence of mitigating circum- stances and rehabilitation. Following the hearing, the Administrative Law Judge held that the evidence of mitigation was insubstantial and the claim of rehabilitation was premature. He suspended petitioner’s registration as a floor broker for six months, enjoined him from further violations of the Act, sus- pended his trading privileges for twenty-four months, and fined him $200,000. On appeal, the Commission reversed the Administrative Law Judge’s holding of a section 9(b) violation because petitioner’s guilty plea did not encom- pass all the elements of market manipulation under the Commodity Exchange Act. The Commission held, how- ever, that the transactions covered by the plea were “tantamount to” accommodation trades and violated section 4c(a)(A). The Commission concluded that peti- tioner’s registration should be revoked rather than sus- pended, reduced the monetary penalty to $100,000, and approved the remaining sanctions. Petitioner’s principal contentions in this Court are that the Commission erred in finding a violation of section 4c(a)(A) and that the sanctions, as imposed, were im- proper. 4680 A.5 The Section 4c(a)(A) Violation The Commission’s summary disposition of the charges against petitioner were based upon his guilty plea. The information to which petitioner pled guilty alleged that he, “together with other persons, fixed, rigged and fraudulently prearranged trades and manipulated the movement of prices on the Crude Oil Market of the New York Cotton Exchange for the purpose of creating prede- termined losses for an oil company for the fiscal year ending Octover 31, 1974 and for the fiscal year ending October 31, 1975, and predetermined gains for the oil company in the following fiscal years.” We find no merit in petitioner’s claim that he did not thus admit to engag- ing in any transactions after April 21, 1975, when, pur- suant to the Commodity Futures Trading Commission Act of 1974, Pub. L. No. 93-463, 88 Stat. 1389, the newly-created Commission obtained jurisdiction over the crude oil futures market. The transactions charged and admitted went well beyond April, 1975, and summary disposition on the issue of liability therefore was proper. The Commission’s holding that the transactions in question violated section 4c(a)(A) because they were “tan- tamount to” accommodation trades invoived an impre- cise, and therefore objectionable, choice of language. Section 4c(a)(A) forbids transactions which are “of the character of” accommodation trades, and it is quite apparent that the Commission equated the terms “tanta- mount to” and “of the character of”. However, the Commission would be well advised to adhere to the language of the statutes they are enforcing. Petitioner contends, in any event, that the transactions were not of the character of accommodation trades, because, he says, an accommodation trade must be a fictitious transaction, not a real one. The Commission 4681 defines “accommodation trading” as “[w]ash trading en- tered into by a trader, usually to assist another with illegal trades” and defines “wash trading” in turn as “[e]ntering into, Or purporting to enter into, transactions to give the appearance that purchases or sales. . . have been made, usually not resulting in a change in the traders’ market position.” Committee on Agriculture, Nutrition and Forestry, 95th Cong. 2d Sess., Futures Trading Act of 1978, Glossary of Terms Used in Commodity Futures Trading (Comm. Print 1979). “The essential and identify- ing characteristic of a ‘wash sale’ seems to be the intent not to make genuine, bona fide trading transactions in stocks or commodities.” Commodity Futures Trading Commission v. Savage, 611 F.2d 270, 284 (9th Cir. 1979) (quoting /n re Jean Goldwurm, 7 Agric. Dec. 265, 274 (1948), with emphasis added). It is this intent, the absence of good-faith, arms-length trading, and the undisclosed prearrangement for losses and gains, that demonstrates the “accommodation” nature of the transactions in the instant case. There is no unconstitutional ambiguity in identifying an accommodation trade in these terms. As a practical matter, see Cargill, Inc. v. Hardin, 452 F.2d 1154, 1163 (8th Cir. 1971), cert. denied, 406 U.S. 932 (1972), Press- ner’s prearranged transactions in the oil company’s stock were accommodations for the oil company, criminally unlawful ones at that. That real sales rather than ficti- tious Ones were contemplated does not change the artifi- cial character of the arrangement. Prior administrative use of the term “accommodation trade” was consistent with this practical, everyday meaning. See, e.g., In re Julian M. Marks, 22 Agric. Dec. 761 (1963); In re Irwin M. Eisen, 22 Agric. Dec. 758, 759 (1963); In re Julian M. Marks, 20 Agric. Dec. 457, 458, 459 (1961). 4682 A.7 The Sanctions Although the sanctions imposed by the Commission were severe, apparently more severe than had been im- posed in other cases, they were within statutory limits and constituted a proper exercise of the agency’s discretion. Haltmier v. Commodity Futures Trading Commission, 554 F.2d 556, 563-64 (2d Cir. 1977); see Butz v. Glover Livestock Commission Co., 411 U.S. 182, 187 (1973). The only aspect of the Commission’s holding that causes us concern is the arguably short shrift which the Commis- sion gave petitioner’s proof of rehabilitation. It is established practice for the Commission to receive evidence of mitigating circumstances and rehabilitation. See, e.g., In re Tipton [1977-1980 Transfer Binder] Comm. Fut. L. Rep. (CCH) 4 20,673, at 22,750 (1978). During a three-day hearing, sixteen witnesses testified on petitioner’s behalf. In rejecting petitioner’s claim of reha- bilitation, the Commission said “that rehabilitation in a case like this requires a much greater passage of time before any such evidence can persuade us that rehabilita- tion has in fact occurred.” Petitioner contends that the Commission thus made the passage of time the deter- minative factor in the rejection, without giving due con- sideration to the evidence of rehabilitation. If petitioner were correct in his construction of the Commission’s language, we would be concerned that the Commission had abused its discretion. Time is, however, a relevant factor. The Commission may well be right if it believes that rehabilitation ordinarily does not occur over- night. On the other hand, if the Commission arbitrarily requires that a fixed period of time elapse before evidence of rehabilitation even will be considered, it actually is imposing a sentence in the guise of determining fitness for registration. 4683 A.8 Although, once again, the Commission’s choice of language leaves something to be desired, we are not persuaded that the Commission has any unpublished rule regarding the minimum passage of time. The Commission Stated that it gave serious consideration to the evidence of rehabilitation, and we have no reason to disbelieve it. Petitioner may reapply, of course, for registration. Silver- man v. Commodity Futures Trading Commission, 562 F.2d 432, 439 (7th Cir. 1977). Should the Executive Director reject petitioner’s application without giving him a further hearing on the question of rehabilitation, see 17 C.F.R. § 3.20(e)(f), or should the Commission fail to give petitioner a fair hearing accompanied by proper consider- ation of all the evidence, petitioner’s claim of prejudice may then be viewed in a different light. On the present record, we cannot say that the sanctions imposed consti- tuted an abuse of discretion. Finding petitioner’s remaining claims of error to be without merit, we deny the petition for review and affirm the Commission’s order. 4684 700—9-9-82 © USCA—6287 RECORD PRESS, INC., 187 Chambers St., N.¥. 10007 (212) 243-5775 UNITED STATES COURT OF APPEALS A.9 SECOND CIRCUIT . ; At a stated term of the United States Court of Appeals, in and for the Second Circuit, held at the United States Courthouse, in the City of New York, on the 2lst day of October , one thousand nine hundred and eighty-two. STEPHEN M. SUNDHEIMER, Petitioner, -Vv- No. 81-4186 COMMODITY FUTURES TRADING COMMISSION, Respondent. A petition for reheering containing a suggestion that the action be reheard in banc having been filed herein by counsel for the petitioner, Stephen Sundheiner, Upon consideration by the panel that heard the appeal, it is ORDERED that said petition for rehearing is DENIED. It is further noted that the suggestion for rehearing in tans has been transmitted to the judges of the court in regular active service and t> any other judge on the panel that heard the appeal and that no such judge hes requested that a vote be taken thereon. A. Daniel Fusarco, Clerk by: rar my 4, wy ‘ - L, . x Wraiete X. Cinoaee Chief Deputy Clerk To be argued by Jouw M. Bvans, ITI uted ‘uit Court af Kiweals’ 1Pe.8 ’ ‘Fou tks Becexs Oncur Ca) da Sreruzxy M. Suxpusiuen, Petitioner, —against— Commopity Furunes Trapivo Commission, Respondent. ON PETITION FOR REVIEW FROM THE COMMODITY FUTURES TRADING COMMISSION MEMORANDUM ON BEHALF OF PETITIONER Buans & Fox i Attorneys for Petitioner 360 Lexington Avenue New York, New York 10017 (212) 687-6290 A.1l TABLE OF CONTENTS TABLE OF AUTHORITIES. ccciscwcecevccesececdeccebecccceoscouge (iii) PRELIMINARY BTATEMENT s occedecbodcesacccrdccndccrcedesdscsoecscvese ISSUES PRESENTED FOR REVIEW sb ei0.0 die wuieteisee de seacciccesedcaveene STATEMENT, ccidedceed ebevwecdebersvdoedsesbeccdecscceeeccivecebers A. The Underlying FACES vias decvoadeecccccevos Ceevheekews B. The Proceedings DOLOW se cbc chabedecddcecseetio disennhains ARGUMENT .ccoccicodccebvbesedeccepeseocvececeon,bacetdrecesénosasceenun I. THE CFTC DENIED MR. SUNDHEIMER DUE PROCESS OF LAW AND FAILED TO OBSERVE PROCEDURES REQUIRED BY STATUTE IN IMPOSING THE §4c(a) SANCTIONS......... A. The CFTC Improperly Denied Mr.Sundheimer Oonice o B. The CFTC Misinterpreted and Misconstrued the Slight Evidence..... Oo Ce eecccesececeecere (i) The Mere Fact of Mr. Sundheimer's @a Does Nt Establish the Commission of Any Act Prohibited by the Act or That ay Act Occurre fter April 21, ED IDs 060 Cases Ghible ceesmatweabineovososcenée (ii) nee Sundheimer's Plea Statement Does Stablish Any Act Pro ed By The Act or That Any Act Occurred After April 21, LD [Dac hE bb nme edese CMe chee eve C. The CFTC Improperly Sustained Summary isposition and Thereby Wrongfull rived His Seatate ache to Mr. Sundheimer of earin eeeeeeeeeeeeeeeeeeeeee . II. THE CFTC EXCEEDED ITS STATUTORY JURISDICTION AND AUTHORITY RY IMPOSING SANCTIONS GROUNDED IN THE TANTAMOUNT HOLDING. ....cccccececs cecscees 6 A. Mr. Sundheimer's Acts Do Not Constitute Accommo at on Tra ng e*reeeeweeeveeeeeeeeaeveeeee ee B. The CFTC May Not Impose Sanctions for Behavior Which is Not Prohibited by the Act.... III, AS APPLIED TO MR, SUNDHEIMER, THE PROHISI7TION OF “ACCOMMODATION TRADES" IS UNCONSTITUTIONALLY WAGE is .s 41, 42. 43, 44 42 34 21 34 44 44 12 34 25 46 42 32 A.14 ze CFTC v. Goldex Ini.'1 Ltd., [1977-80 Transfer Binder) Comm. Fut. L. Rep. (CCH) 420,839 (N.D. Tll. LO TONS ae Care wre e Weeks ees 7 CFTC v. Morgan, Herris & Scott, Ltd., 484 F.Supp. 669 {S.D.N.Y. BOITO) coc covdurdesideiacineeect 7, 27 CFTC v. Savage, 62) F.2d 270 (9th Cir. 1979)...... ree In re Chin Thloo* Har Wong, 224 F.Supp. 155 (S.D.N.Y. OO TPA hin b&w cwblee wea we was bce oe eee ae 31 Citizens to Prese=ve Overton Park v. Volpe, 401 U.S. 402 CUD FAD ie nd atin wis. bree Dee cha wle ule Bale 47 In re Clancy, 2 Comm. Fut. L. Rep. (CCH) 421,126 SA WOO)2 cde ald Vic Ok Sblewit eeldielas ecslan cuewee 46 Coca-Cola, Inc. v. Atchinson, T. & S.F. Ry. Co., 608 F.2d 213 (5th Cir. 1979)........... 32 Corning Glass Works v. Brennan, 417 U.S. 188 CRED ak eto ob ew Mile eee ele bh peeiedlsetewrecos 7 Cramp v. Board of Public Instruction, 368 U.S. 278 CROW) tb ate as ata w Ore wee wine Wb ce 6 be ale bate 34, 35 De Cavalcante v. Commissioner of Internal Revenue ,:620 F.2d 23 (3d Cir. PUR ds din'd ood op br Oks wale ek cceeaebe “eee eeeee 18 Division of Enforcement v. Rodin {1975-1977 Transfer Binder) Com. Fut. L. Rep. (CCH) ¥20,114 OR A ike Wibieie AOS 6 0 bhie eb othe b 36 Doehler Metal Furniture Co., Inc. v. United States, 149 F.2d 130 (24 Cir. 5 DGB uidebia bees 6 0.66 CMA obo wale mimes cc'e's we eaeie 22 Doe v. United States Civil Service Comm'n, 483 F.Supp. 539 (S.D.N.¥. 1980).....seeeeseue 21, 23 Dolgow v. Anderson, 438 F.2d 825 (2d Cir. WE kd AG hs Ae Mae ne ila on ie kaa ewicabosee ocak 22, 23 Irwin M. Eisen, 22 Agric. Dec. 758 (1963).....e+6.++45 28 Emich Motors Corp. v. General Motors Corp., 340 U.S. 558 CTR a wide le saad 524 F.2d 1317 (2a Cir. LOPEP veh oidieale waste eeeeeeneaee 20, 22 te Hiller v. SEC, 429 F.2d 356 (20 Cir 1970) ....seere, 44 A.16 Pace In re Hunt, (1977-80 Transfer Binder) Comm, Fut. L. Rep. (CCH) 420,803 BOTT) viceotéeveucnes 46 IDCW v. NLRB, 487 F.2d 1143 (D.C. Cir. $i. anc, 1973), cert. denied, 418 U.S, LPO rrr er url ery) a CPLR Co 32 Independent Bankers Ass'n of Ga, v. Board of Governors of the Fed. Reserve Sys., 516 F.2d 1206 (D.C. Cir. LDS) cree vevvvevevesve 19, 20 International Bhd. of Teamsters v,. Daniel, 439 U.S. §51 CAGTUP ebemeedocesoebeseecceccséce 31, 32 , International Union v. NLRB, 459 F.2d 1329 (b.c, Cir. RUPE Cbs ss nebddeesdseescbhvcebdeuse 42 rhe Vs neh 420 firm 1270 r. som enie 400 U.S. 846 (19 Ke alll SSNS TT Sil ar eh Ce 18 Kelly v. Illinois Bell Tel, Co., 328 7.26 146 (Feh Che. 1963) .ccccccccvscccccccccsseses 28 Kent v. Hardin, 425 F.2d 1346 (Sth Cir, L970) .ccceceee 44 Hugh P. King, (1975-77 Transfer Binder) Comn,. Fut. L. Rep. (CCH) 420,211 CROTO? 69 coo cebveeee see 46 Kovac v. Immigration and Naturalization Ger., 407 Po8G 102 (Sth Cle. LHD) ccccccccecscccvccccces Ba In re LaMantia, 2 Comm. Fut. L. Rep. (CCH) 421,048 Sh paa ae Wed bee tbe bObbre Ode es Ceceeesees 36 Litchfield Sec. Corp. v. United States, 325 F.2d 667 (2d Cir. LPO 21.000 CU Pe Oule Obie bey 2 oe 0300:0 00 27 Local 777 v, NLRB, 603 F.2d 862 (D.C, Cir, og) RO oe oS OU YT PPE eee er 41, 42 MeNollis v. First Fed Gav. and Loan, 364 F.2d 251 (24 Cir, 1966) cort. denied, 385 U.S, 970 (2966) .\00 80 seer seep eee eeeeee, eee 18 Julian M. Marks, 22 Agric. Dec. 761 (1963) wecsseereee 28 Mathews v. Eldridge, 424 U.G. B19 (LO7Tb) ceccceceecceee Dd Moyor Vv. Nebraska, 262 U.G., 390 (LOD) ceeererevenes oe 10 at'l Ass'n of Gov't Enployees v. Campbell, $93 F.2d 1023 (D.C, Cir. SOTO cee cbdoves eee 20 22, 24 A.17 National Realty & Construction Co., Inc. Vv. OSHRC, 489 F.2d 1257 (D.C, Cis. LS» | WAR MT Ae CUYD RR UEREEEEEEEE ET Nebbia Vv. New York, 291 U.S. 502 (1994) wccvccccccccces NLRB v. Johnson, 322 F.2d 216 (6th Cir. 1963), Gert, denied, 376 U.S. OSL (LOG4) wecerevevenees L964) wccnsnver NLRB v. Tannsco, 139 F.2d 396 (6th Cir, In re Nordlicht, 2 Comm, Fut. L. Rep. (CCH) 421,027 T2DOG) cobedeveovedoedesereccccececocessecee Northern O11 Co. v. Socony Mobil O11 Co., 368 r,2d 384 (2d Cir. BOSS cc dedevconcoevsendceeecceven Paccar, Ine. Vv. National Highway Traffic Safety Administration, 573 F.2d 632 (9th Cir.), ger ‘ denied, 439 U.S. 862 CR UPO) 0 o'es cocvcevase Patagonia Corp. v. Board of Governors of the Fed, Reserve Sys., 517 F.2d 803 (9th Cir. | rer) eee? ira TREE ee Phoenix Sav. and Loan, Ine. v. (4th Cir. SPOT ovevvceckecbeccocece Aetna Casualty and Surety Co., 361 F.2d 245 Piper v. United States, 392 F.2d 46, (Sth Cir. BEE) 006 bc caslbcecest cas Ovece Poller v. Columbia Broadcasting Sys., 368 U.S. 464 ELDER) 000.000 0k bed Oba) 60d 0b oud ovecencets Precious Metals Assoc., Inc. v. CFTC, 620 F.2d 900 (lat cir. Beaeiadsevebbedebweccececenuue Quinn v. Syracuse tiodel Neighborhood Corp.» 613 F.2d 438 (24 Cir. BEGG) o awwhesccaecceeens¢vme In re Rafferty, CITC Docket No. 79-15 (July 15, 1981)... ne oe ee Ramsouer v Midland Valley R Co., 135 F.2d 10h (8th Cir, 1943), Randolph v. Collectramatic, Ine., $90 F.2d 844 (LOth Che, 1979). In re Richardson Sweurities, Ine,, {1977-80 Transfer Sincer) Comm. Put, L. Rep., (CCl) 420,81 (1979) ., 44 20, 23 1S, 20, 45 13 13 43 46 A.18 Robertson v. Seidman & Seidman, 609 r,.2d 583 (24 Cie. LO7D) veocvcceccccerencccececceses Rodale Press, Inc. v. FTC, 407 F.2d 1252 (D.C, Cir. LOGO ccacevdorwocdodeeccosecesececce In re Romoff, 31 Agric Dec, 158 (LOTZ) cece eesvececcns Sartain v. SEC, 601 F.2d 1366 (9th Cir, 1979) ...cc0ees Sartor v. Arkansas Natural Gas Corp. 321 U.S. 620 C2948) wocccdeedentocvestnavebeeoupeesseees Eugene E. Schaefer, Jr., [1975+1977 Transfer Binder) Comm, Fut. L. Rep. (CCH) 420,191 CLOTS) Fever cdo ees nde vevewEbeeewebe veka ‘SEC v. Chenery Corp., 318 U.S. 80 (1LOAS).cceeenccevves src Vv. Sloan, 436 U.S. 103 (2OTE) civeoverereanvontebeaces Semaan v. Mumford, 335 F.2d 704 (D.C, Cir, SDEE) povvcnvccrcdovesodeasccavesessesosdsee nae In re Siegel T.ading Co., Ine., {1977-80 Transfer Binder) Comm, Fut, L. Rep. (CCH) 420,452 (2977) wccncesccesccevsceoses Steadman v. SEC, 603 F.2d 1126 (Sth Cir. 1979), aff'd, U.S. —..' 67 L.Ed.2d 6 Traylor v. Black, Sivalls & Bryson, Inc., 189 F.2d 213 (8th Cir. LOA) vat daaes secdbeee est ceceees Trotz v. Commissioner, 361 F.2d BLY o cailncddbe Avie cocina deewins ves 927 (LOth Cir. BOGE) oc 00.0 vc odem etled derewleeesc bw Oe opieee es United States v. American Packing Corp., 113 F.Supp 223 (D.N.J. 208 SD vce ds deewhcoee eee vacpene United States v. Cardiff, 344 U.S. 174 (L952)... cece United States v. Cheramie DoeTruc #5, Inc., $38 F.2d 696 (Sth Cir. 1976)...006. United States v. Diebold, Inc., ‘eeeeweereeeeeeeeeae 369 U.S. 654 C1068) 0a onc bewe Dean feed enmedobecetebubode United States v, Fabric Garment Co., 966 F.2d $30 (2d Cir. 1966). .ccccces Unitod States v. Guszone, 273 F.2d 121 (2d Cir. BODPR cae: 0b Wa burbesie ses eeeeeteeneae Pave 20, 23 12 45 44, 21 33 31, 45, 10, 15, 35 19, 20, 15, 15. 45 16 A.19 United States v. J.B. Williams Co., Inc., 498 F.2d 414 (2d Cir, BB741):.60 2 oe his bh eC onCe Cte United States v. La Mantia, [1977-80 Transfer Binder] .Comm. Fut. L. Rep. (CCH) 420,667 (N.D. baee 1978) occdecedoccccserccocccees United States v. Levinson, 369 F.Supp. 575 (E.D. Mich. LOTD) cecdoccecsoesvecceoseredesevesecees United States v. Pent-R. Books, Inc., 538 F.2d 519 (2d Cir. 1976), cert. denied, 430 0.83 906 C19 cctbovevevctidecvdseresscceves United States v. Robel, 389 U.S. 258 (LOB7)..ceueeneee Wessinger v. Southern Ry. Co., Inc., 438 F.Supp. 1256 (0.8.66 LOTT) codeacecdeVeocvrsdebrevsecoes West Coast Hotel v. Parrish, 300 U.S. 379 (1937)...... Wheatley v. Adler, 407 F.2d 307 (D.C. Cir. 1968)...... Wiscope, S.A. Vv. CFTC, 604 F.2d 764 (24 Cis. 1979) oes Page 21, 22, 24 34 15, 16 20, 24 10 21, 22, 23, 24 10 32 14. 25 A.20 TABLE OF AUTHORITIES UNITED STATES CONSTITUTION: FIFTH AMENDMENT. cccccesereceeereesereeeerereresene ADMINISTRATIVE PROCEDURE ACT [5 U.S.C.A. §§ 551-559, 701-706) SOC. SSliccccccccvcvsseesvevssssseseesereesseenss SOC. TOZ..cccceeeccvsesesvsvesesessessssseesseres SEC. Tb cccccccsvvescssccssevesesssveevssesseess Sec. 706(2) (Cheese cevccveveveveesssevvsssseseeees COMMODITY EXCHANGE ACT Cc. 545, §5, Laws of 1936 {7 U.S.C.A. §6c (1964) J) eve vevcccsevvvvvesssesvese Sec. 3 (7 U.S.C.A. CS) ccc cece ccescseeeeseeerene Sec. 4b (A) 17 U.S.C.A. SED(A) ) peeve vvcceeveveces Sec. 4c(a) {7 U.S.C.A. G60 (a) ) orc cccccvcvecerese Sec. 6 (b) {7 U.S.C.A. SO) wc ccccevcvvsecesescsevee Sec. 8a {7 U.S.C.A. G12d) wc creer reverveveveseee Sec. 9 (b) {7 U.S.C.A. GLIA (dD) )aweeweeceevevvveveee OTHUCR AUTHORITIES "GLOSSARY OF TERPS USCD IN COMMODITIES FUTUPES TRADING" S. ROP. NO. 93-113, 93D CONG., 2D SESS. APPEiDIX IX, RE- PRINTOD I: (1974) U.S. CODE CONG. & RD. hens BR tee i ek oo oe wae eed 0 6.065.600 eevee enee 19, 25, 6, 36 A.21 "GLOSSARY OF TERMS USED IN COMMODITIES FUTURES TRADING" 95TH CONG. 2D SESS., COMMITTEE PRINT, FUTURES TRADING ACT OF 1978, JANUARY 1979, p-L4l, ET SEQ. seeeeeeeveneevees 1B MOORE'S FEDERAL PRACTICE, 40.418 AT 2707=$B. wc ccc vesreeeeeeresesseesesesseeeesseresesereee REMARKS OF SENATOR POPE, 80 CONG. REC. 6162 AND 8088 (1936) cv cceveseseeenseeeneseseeseseeres SEC: SPECIAL STUDY OF SECURITY MARKETS, REPORTED IN 3 SECURITIES REGULATION (PRENTICE HALL, 1979) YUBALEZ. ceccvvsesecevvvesvevevese 15 27 A.22 MEMORANDUM ON BEHALF OF PETITIONER PRELIMINARY STATEMENT This is a petition for review of a decision and order (the “Order,” JA.8 et seg.,* reported at 2 Comm, Fut. L. Rep. (CCH) 21,245 (1981)) issued by the full Commodity Futures Trading Commission (the "CFTC") on September 16, 1981, as amplified by the CFTC's further order (the "Further Order," JA.22 et seq.) dated October 16, 1981. This Court has jurisdiction for this review because petitioner Stephen M. Sundheimer ("HMr. Sundheimer") was @Going business in this Circuit. Section 6(b) ("§6(b)") of the Commodity Exchange Act, as amended (the “Act"), {7 U.S.C.A. §9). ISSUES PRESENTED FOR REVIEW The following substantial issues are presented for review: (1) Whether a Federal Agency, on review of a decision by an Administrative Judge, may change the theory of the case and summarily impose harsh sanctions without giving the sanctioned party any prior notice that he is charged with the offense for which sanctions are imposed? (2) Under a statute mandating a federal agency to hold an adjudicatory hearing prior to imposing sanctions: (A) Whether a generul plea of guilty to a Single-count criminal information, containing many cloments, any one of which would be sufficient to convict, * Relorances to the Joint Appendix shall be in the form “JA. herein. A.23 establishes all elements charged in the information for collateral estoppel purposes sufficient to suppert summary | judgment? | (B) Whether a party's pleading statement which is subject to a reasonable interpretation not admitting a statutory violation, establishes the commission of such viola- tion sufficient to support summary judgment? (C) Whether expert testimony is required to establish an alleged violation of a statute prohibiting acts “commonly known to the trade as" an “accommodation trade"? (3) Whether a Federal Agency may impose harsh sanctions for an act not in violation of its statute or rule on the grounds that the act was "tantamount to" such a violation? (4) Whether the term “accommodation trade", as prohibited by §4c(a) of the Act includes non-fictitious transactions? (5) Whether the term “accommodation trade", as prohibited by §4c(a) of the Act and as applied to Petitioner, is void for vagueness under the United States Constitution? (6) Whether a Federal Agency required to consider substantial evidence of mitigation and rehabilitation from a conviction for aiding or counselling an income tax violation behaves aibitrarily and capriciously in rejecting the evidence under a harsh new rule, announced with no pricr notice and after the hearing, that rehabilitation cannot possibly occur in seven years? (7) Whether a Federal Agency may impose harsh sanctions without supporting them by adeauate findings as to the need for such sanctions? (8) Whether a Federal Agency may impose harsh sanctions which do not bear a reasonable relation to the purposes of its enabling statute? (9) Whether a Federal Agency may impose harsh sanctions in a discriminatory manner? STATEMENT A. The Underlying Facts. Mr. Sundheimer, a commodities trader and floor broker for twenty years (JA.537), was, and now is, vice president of Pressner Trading Corporation ("Pressner") (JA.530). Having earned an enviable reputation for integrity and efficiency in his industry, he marshalled impressive support at the CFTC pro- ceedings below from leaders of the commodities industry who have serious vested interests in maintaining the integrity of the commodities market (See Point IV, infra). In the fall of 1974 Mr. Sundheimer was in an office at Pressner when another Pressner officer, Jules Nordlicht ("Mx. Nordlicht"), discussed with Messrs. Turkish and Pearlmutter, who wore not otherwise related to Pressner or Mr. Sundheimer, a proposed transaction in crude oil futures. Crude oil futures were not then sulject to federal reaulation.* Mr Surdheimer was not a member of the exchange upor which crude «il futures * Crude oil Futures became subject to rewvlation under the Act after April 21, 16975 when the Commodity Futures Trading Con- Mission Acr of 1974 expanded the definition of ‘commodity" in the Act tu include all commodities (see JA.57. m 14; JA.15-16). A. 25 were traded (JA.530). Mr. Nordlicht and the two others agreed that Pressner, as a customer, would accept one side of a certain prearranged crude oil futures trade to provide a tax benefit to one of Mr. Turkish's customers. The trade was to be executed by others, in the form of tax straddles, prior to the end of October, 1974, the tax year-end for one of the partici- pants. A third party, Joseph R. Hamilton, whom Mr. Sundheimer detested and always scrupulously avoided (JA.531-2), was a major participant in the inactive crude oil futures market and had agreed with Mr. Turkish to prearrange these trades in this unregulated commodity (JA.532-3). It was implicit that the loss side of the straddles would be liquidated prior to Mr. Turkish's customer's 1974 tax year-end and the profit side liquidated as early in 1975 as possible to avoid market fluctuation and a consequent imbalance between the 1974 loss and the 1975 gain (JA.15, n.7). Because he was in the room at the time, Mr. Sundheimer's assent was requested and he gave it (JA.533). Mr. Hamilton obviously did not control crude oil prices because Fressner profited on the transaction and returned the profit (JA.475). When the Department of Justice commenced its investigation of Mr. Hamilton's and others' use of the crude Oil futures market for tax evasion purposes, Mr. Sundheimer came forward before charges against him were imminent or pending | (JA.227-8). He spent long hours, including evenings and week- ends, helping the government make its cases (JA.230-1L). A.26 Mr. Sundheiner himself waived indictment (JA.67) | and was charged in a one count information (the "“Information") (JA.65) {a) that he either “did aid, assist, procure, counsel and [or] advise * * *" (b) the filing of either false tax “returns, affidavits, claims and [or] other documents * * *" and that in furtherance of the offense he and others “fixed, rigged, and [or] fraudulently prearranged trades" in crude oil futures at unspecified times during 1974 and 1976. Any one item from paragraph "(a)" above coupled with any one fraudulently prearranged trade at any time prior to April 21, 1975, if an "(a)" = "(b)" combination existed, was sufficient to convict. Mr. Sundheimer pleaded guilty (JA.78). Mr. Sundheimer's plea statement (JA.77) estab- lishes why he pleaded guilty. He was contrite that he had been present and acquiesced when an agreement was made that Pressner accept the otiier side of a prearranged trade which afforded Mr. Turkish's customer a wrongful tax benefit. Implicit was a simil- ar liguidating transaction in early 1975 (JA.77, 533-4, 15 n.7). Mr. Sundheimer forthrightly acknowledged being present in the fal’ of °.97%4 when the arrangement was reached, agreeing to it and that “implicit in the initial understanding" was a liquic¢.cang transaction Judge Broderick accepted this acknowledgment in cesponse to nis inquiry about “consent to a Similar [either a iiqgvidating or a new) arrengeme.* for the following your” (u.\ 533-4. 77). A.27 Judge Broderick sentenced Mr. Sundheimer to one year of community service and fined him $5,000 (JA.64) and Mr. Nordlicht, the active Pressner participant, to two years of such service and fined him $10,000 (JA.532). Mr. Sundheimer performed his full time community service for the New York State Attorney General conscientiously and well (JA.258-9, 349-51). Mr. Sundheimer also accepted a one-year suspension from the Petroleum Associates of the New York Cotton Exchange, and paid it a $7,500 fine, and accepted a nine-month suspension from the New York Mercantile Exchange (JA.532). B. The Proceedings Below. Five years after the event, the CFTC's Division of Enforcement ("DE") commenced proceedings against Mr. Sundheimer (a) Under Section 8a(3) [7 U.S.C.A. §12a(3)] of the Act ("§8a(3)") to revoke his floor broker registration on the ground of unfitness because of his conviction; and (b) Under §6(b) for sanctions for aiding and abetting (i) alleged price manipulation of crude oil futures, Section 9(b) [7 U.S.C.A. 13(b)] of the Act ("§9(v)"); and (ii) a disjunctive panoply of seven possihle alleged violaiions of Section 4dc(a) [7 U.S.C.A §6c(a)]j of the Act ("§4c(a)"), including “accommodation trades" (JA.29). The complaint did not allege, as the CFTC later decided, however. A.28 that the subject transactions were “tantamount to" a violation (contrast the Complaint, JA.29, with the Order, JA.16, n.9). DE moved for summary disposition solely upon Mr. Sundheimer's plea of guilty and his plea statement (JA.41-62), offering no expert testimony as to whether the act allegedly aided by Mr.Sundheimer was known to the trade as an "accommodation trade."* The Administrative Law Judge ("ALJ") awarded partial summary disposition in respect of the §6(b) claims. Sustaining the result, but not the ALJ's reasoning, the CFTC held that Mr. Sundheimer's guilty plea and plea statement established that Mr. Sundheimer had entered into prearranged trades in crude oil futures after April 21, 1975 when such futures first became sub- ject to regulation (JA.14-15). The CFTC accurately observed that a "prearranged trade", however, does not per se constitute a violation of the Act (JA.8, n.1),** and properly held that there was no proof that Mr. Sund- heimer's acts constituted market manipulation under §9(b) (JA. 16-17) and that the transactions in question were not "fictitious sales" (JA.16, n.9) and, apparently, not “accommodations trades". * The statutory structure would appear to require such expert testimony. §4c(a). Corning Glass Works v. Brennan, 417 U.S. 188, 201 (1974); Randolph v. Collectramatic, Inc., 590 F.2d 844 (10th Cir. 1975). ‘The crTC frequently proffers expert testimony in analogous circumstances. See, e.g., CFTC v. Morcan, Harris & Scott, Ltd., 484 F. Supp. 669, 673 (S D.N.Y. 9); CE"°C vo Goldex Int™l Ltd , (1977-1980 Transfer S3inder) Comm. Fut L. Rep. (CcH) 920,039 (N.D. 211. 3979). ** Prearrangemunt iv not e per se evil in the cause of auction Markets. For oxample, "Most transactions and ‘block’ programs in listed comron stocks cake the form of a series of .elative: ly small transactions on the exchange auction market, or in- volve presarcunced ‘crosses’ on the floor of an excnance. Tisphasy avTedl SEC: Special Stucy of Serurity Markets, reported in 3 Socuritie¢s Regulation (Front, ce Hall, i) £34,162. A. 29 Nevertheless, the CFTC held that the subject trans- actions were “tantamount to ‘accommodation trades'" ("the Tantamount Holding", JA.16, n.9) and on that ground alone pro- hibited Sundheimer from trading on contract markets for two years, fined him $100,000 and ordered him to cease and desist. from further violation of §4c(a) (the "§4c(a) Sanctions").* The Tantamount Holding was strikingly inconsistent with the proceedings below.** The complaint did not charge that Mr. Sundheimer's acts were “tantamount to" a violation (JA.28,29). The DE's motion for summary disposition did not Claim that Mr. Sundheimer's acts were accomodation trades, let alone “tantamount to” such trades (JA.41-62). Mr. Sundheimer's response to the motion, prepared by Kaye, Scholer, Fierman, Hays & Handler, evidences no awareness that any claim was made that the subject transactions were either accomodation trades or “tantamount to" such trades (JA.80-137). Faced with the ALJ's erroneous conclusions that the transaction was a manipulation and fictitious, the CFTC took over one year (JA.5 44 57 and 58) from the time the appeal was submitted to conceive the Tantamount * "Mr. Nordlicht, the active participant on behalf of Pressner, was prohibited from trading for three months, fined $75,000 and ordered to cease and desist (JA.532). In re Nordlicht, 2 Comm. Fut. L. Rep. (CCH) %21,027 (1980). ** The venality of DE's present practice of pleading all viola- tions stated in the Act, disjunctively and merely as possibi lities, is made eminentiy clear by this case, since no one apparently took the reference to “accommodation trading" seriously until the CFTC, needing a peg to hang its hat, seized on this camouflaged claim to justify sanctions, even though the Division had never claimed that the acts alleged were “tantamoynt to” a viclation. A.30 Holding and thereby impose sanctions without affording Mr, Sundheimer a hearing. After a hearing limited to Mr. Sundheimer's miti- gation and rehabilitation in respect of the §8a(3) charge for broker registration revocation and sanctions, at which sixteen prominent individuals testified for Mr. Sundheimer and none against (JA.160 et seq., see Point IV, infra), the CFTC held it would not consider this evidence, since rehabilitation requires “a much greater passage of time before any such evidence can persuade us that rehabilitation has in fact occurred * * * " (the "Seven Year Rule", (JA.19, n.13).* The Seven Year Rule is the CFTC's only stated ground for rejecting the impressive evi- dence of Mr. Sundheimer's rehabilitation and mitigation. More- over, the CFTC acted under its harsh new rule that revocation was required where it has “any deubt," not just “reasonable doubt," as to the propriety of continued registration (JA.19, n.13). Under §§8a(3) and 6(b) the CrTC permanently revoked Mr. Sundheimer's floor broker registration, ** * Tho Further Order clarifies that by this observation the crTtc referred to the time in the fall of 1974 of Mr, Sundheimer's “participation in the prearranged trading scheme" to the time “within the past few weeks (October 16, 1981) that the Comnis- sicn has actually considered whether Mr. Sundheimer was re- habilitased * * * " (JA,24), That period is seven years ** Mm. Noeddieht's floor breher registration was revoked for oniy two yeers through February, 1982 with the understanding thor he could reapply then and tne subject events could not be Lhe fae GiGunes to dony vegistration. In re Nordlicht, ? Comm, Put. Lb. Rep (Coil) ©71027 (1L9R0) A.31 ARGUMENT I THE CFTC DENICD JiR. SUNDHEIMER DUE PROCESS OF LAW AID FAILED TO ODSERVE PROCEDURES REQUINMED BY STATUTE IN IMPOSING THE §4e(a) SANCTIONS The §4c(a) Sanctions are available only in the event of a violation of the Act, §6(b), and may not be imposed simply because of a criminal conviction. Indeed, a federal agency may not “poach on the jurisdiction entrusted solely to a federal district court" and impose sanctions for offenses not entrusted to it by its enabling Statute, Steadman v, SEC, 603 F.2d 1126 (Sth Cir. 1979), aff'd, U.S. i, «67 L.Ed. 2d 69 (1981), Each sanction curtails a valuable right protected by the Fifth Amendment to the Constitution ($100,000 of propersy, Mr. Sundheimer's right to pursue his profession of twenty years and his liberty to enter into contracts), United States v. Robe}, 389 U.S. 258, 264 (1967); Greene v. McElroy, 360 U.S. 474, 492 (1959); West Coast Hotel v. Parrish, 300 U.S, 379, 391 (1937); Nebbia v. New York, 291 U.S, 502, 527 (1934); Meyer v. Nebraska, 262 U.S. 390, 399 (1923); Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 446 (2d Cir. 1980), Mr. Sundheimer was deprived of due procens because he was given no notice that the CFTC intended to ground its impositior of sanctions in the Tantamount Holding and he wes @enied his atatutory right to a hearing by a summary disposition based on inconclusive evidence. Notice of charges is an essential element of due process. Mathews v. Eldridge, 424 U.S. 319, 348 (1976); Fuentes v. Shevin, 407 U.S, 67, 80 (1972). The complaint charged Mr. Sundheimer with market manipulation and, in the disjunctive and merely in the words of the statute, with possibly aiding and abetting one or another of seven* additional separate acts prohibited by the Act (JA.29). On motion for summary disposition, DE claimed only that Mr, Sundheimer had prearranged trades and manipulated markets (JA. 42), The ALJ held that MR. Sundheimer had engaged in manipulation and fictitious sales (JA,159). On appeal, the CFTC rejected these claims and conclu- sions and, without giving Mr. Sundheimer any notice that a new question was at issue, held that his acts were "cantamount to ‘accommodation trades'" (JA.16, n.9). The first clue that Hr, Sundheimer would be sanctioned summarily either uncer the Tantamount Holding or for accommodation trading was given in the Order which imposed the sanctions. The meaning of “accommodation trade" is vague (see Point II A, infra); the meaning of “tantamount to ‘accommodation trades'" is even vague The statutory scheme suggests, and elementary due precess requires under the circumstances, that Mr. Sundhesxmer shoute bave been given sufficient notice of nis risks to permit hin to present expert evidence and arguments to TVS Ca oA eo Veh go.e8 eroas teoden, aeceeimutation trades Oe tieticavun taluv,' §4(e} (ad (A), and reporting, registering Or 1eserding prices whien 49 "Ot bone fide, §4e(a) (Cc). A. 33 show that the subject transaction was not “of the character of or * * * commonly known to the trade as * * * accommodation trade", §4c(a), and its “tantamount”. (See Point II(A), infra, for the argument why the transaction was not an accommodation trade or its tantamount.) An agency may not impose sanctions without first giving the party to be sanctioned notice affording him the op- portunity to oppose. Hess & Clark, Div. of Rhodia, Inc. v. FDA, 495 F.2d 975 (D.C, Cir. 1974); Golden Grain Macaroni Co. v. FTC, 472 F.2d 882 (9th Cir. 1972), cert. denied, 412 U.S. 918 (1973); Rodale Press, Inc. v. FTC, 407 F.2d 1252 (D.C. Cir. 1968); NLRB v. Tennsco, 339 F.2d 396 (6th Cir. 1964); NLRB v. Johnson, 322 F.2d 216 (6th Cir. 1963), cert. denied, 376 U.S. 951 (1964). In Rodale Press, supra, the Court stated the rule which requires that the Order be vacated, as follows: "By substituting an issue * * * for the one framed by the pleadings * * *, the Commission has deprived petitioners of both notice and hearing on the substituted issue. The evil at which the statute [the Administrative Procedure Act) strikes is not remedied by observing that the outcome would perhaps or even likely have been the same. It is the opportunity to present argument under the new theory of violation, which must be supplied.” 407 F.2d at 1257. Accord, National Realty & Constr. Co. Inc. v. OSHRC, 489 F.2d 1957 (D.C, Cir. 1973); Bandix Corp. v. FTC, 450 F.2d 534 (6th Cir. 1971); C&C Market, Tic. v. United States 473 F upp. 519 (E.D. Mo. 1979). Im the present proceeding tho claim «> lating to accommodacion trades was camouflaged in-the mult. A.34 clement second count of the complaint and, even then, the CrTc substituted a new issue and held without a hearing that Mr. Sundheimer was guilty of an act not even pleaded. In Johnson, supra, the Court denied enforcement to an NLRB order because the complaint had charged the respondent with refusing to reinstate former striking employees, but the trial examiner had rejected this charge and found the employer guilty of a discriminatory discharge which was not alleged in the complaint. The Court justified its holding on the ground that “one cannot be found guilty [by an agency] of an offense not encompassed by the com- plaint or of which he had no fair notice", 339 F.2d at 399, because, "(t]he right of a defendant to know the issues in an adjudicatory proceeding * * * js a right and not a matter of grace." 339 F.2d at 400. Accord, Golden Grain Macaroni, supra. The right to prior notice applies even to actions taken by an agency against an individual without an evidentiary hearing, Hess, supra, 495 F.2d at 983. In Tennsco, supra, the court refused to enforce an order of the NLRB because the NLRB had buried two actual claims of discrimination in 66 claims of which it did not intend to prove 64. The court concluded that this camouflage deprived the de- fendant of notice of the actual claims against him Here, no accurate statement. of t. @ actual claim (the “tantarount’ claim) was made in the complaint; the distant rela- tive of the actual claim was included in one count camouflaced by seven othe: a 'a.jous claims. OF did not attempt to preve seven of.trads siaime (incluéirg tne claim relating to t A. 35 accommodation trades) and it failed to prove the one it tried to prove (manipulation). The ALJ tried to find two claims (manipulation and fictitious sales) proved (again not including accommodation trading), but he erred in this endeavor. Mr. Sundheimer did not litigate the issue relating to accommodation trades because it was not raised on the summary disposition motion or in the ALJ's decision. He did not liti- gate the Tantamount Holding because there was no suggeston what- soever that he was charged with committing an act "tantamount to" a violation of the Act. Cf. Golden Grain Macaroni, supra. Accordingly, it is clear that Mr. Sundheimer received no advance notice that he was charged with an act "tantamount to" an accommodation trade. B. The CFTC Misinterpreted and Misconstrued the The sole evidence upon which the CFTC based its deter- Slight Evidence. mination that Mr. Sundheimer violated the Act after it became applicable to crude oil futures on April 21, 1975 is the CFTC's debatable inferences from Mr. Sundheimer's plea of guilty to the Information and the transcript of his statement at the time his plea was accepted. These documents do not separately or together Support that determination. The evidence being documentary only, this Court may evaluate and weigh it as if recuiving it in the first instance.* * Tho “weight of evidence” question specified by §6(b) as the standard for review is whether there is “sufficient comsesent evidence” to support the CFTC's factual conclusion, Wiscore, Sit. v. CETC, 604 F.2d 764, 767 (2d Cir. 1979). In making the determination, the standard of review is whether the ‘'ore- ponderence’ or ‘grater werxyht of the evidence'" after "' so7eth (continued) HT A. 36 (i) The Mere Fact of Mr. Sundheimer's Plea Does Not Establish the Commission of Any Act Prohibited By the Act or at ny Act Occurred After April 21, 1975. Where, as here, the commission of any of several acts referred to in the accusatory instrument would sustain the con- viction, a general plea of guilty* or conviction, without more, may not be used in another proceeding to establish under theo- ries of collateral estoppel that any particular one of the acts charged actually occurred. Emich Motors Corp. v. General Motors Corp., 340 U.S. 558 (1951); Piper v. United States, 392 F.2d 462 (Sth Cir. 1968); United States v. Fabric Garment Co., 366 F.2d 530 (2a Cir. 1966); United States v. Guzzone, 273 F.2d 121 (2d Cir. 1959); United States v. Levinson, 369 F.Supp. 575 (E.D. Mich. 1973); United States v. American Packing Corp., 113 F.Supp. 223 (D.N.J. 1953). In Emich, supra, the Suprene Court stated the rule which governs the present appeal as fvilows: “* * * a prior criminal conviction may work an estoppel in favor of the Government in a subsequent criminal proceeding [citations omitted). Such estoppel extends only to questions ‘distinctly put in issue and di- rectly determined’ in the criminal prosecu- tion [citations omitted). Footnote cont'd: other than * * * mechanically reweighing the evidence'” for the "“'purpose of determining whether the finder of the fact was justified, i.e. acted reasonably, in concluding that the evidence * * * the reasonabio inferences drawn therefrom * Indeed, thore is a persuasive argument that a plea of guilty should be entitled to substun"ially less weight in establish- ing an estoppel thun should a conviction. 1B Moore's Federal Praction, [G “18 au 2707-8 A. 37 “* * * RK general verdict * * * does not indicate which of the means charged in the indictment were found to have been used in effectuating the conspiracy. And since all of the acts charged need not be proved for conviction [citation omitted], such a verdict does not establish that defendants used all of the means or any particular one." 340 U.S. at 568-9. Here a number of possible acts were charged as occurring both be- fore and after the effective date of the Act purporting to pro- hibit only some of them, but all acts and dates need not have been proved for conviction. Accordingly, the plea itself did not establish that any particular act was committed or that it was committed after April 21, 1975, the effective date of the Act. Following Emich many courts have held in multi-overt act situations similar to the present one that a collaterzl es~ toppel is not established by a conviction. In Guzzone, suora, this Court held that conviction under a conspiracy charge did not establish any of the overt acts charged except the one as to which testimony was introduced at trial. In American Packinc, Supra, the court held that a plea of guilty to a conspiracy charge did not establish any overt act alleged since the "* * * overt act may be one charged in the indictment, or it may merely be any overt act which has as its purpose the effe.tuation of the objects of the conspiracy." 113 F.Supp. at 225. In Levinson, supra, the court held that a yeneral verdict of guilty to a conspiracy charge did not estabiish the commission of any of the many ovect acts charged. The rule against an estoppel in the present proceeding is not limited to conspiracy cases. In Fabric Garment, supra, this Court held that conviction on a charge of converting approx- imately 19,000 yards of serge, while creating an estoppel as to the fact of conversion, did not estop as to the quantity since the quantity was not an essential element of the charge. In Piper, supra, the court held that a conviction for filing false excise tax returns in a pleaded amount did not create an estoppel as to the amount of tax due since the “correctness of the Govern- ment's assessment was not necessary to convict * * *," 392 F.2d at 464. Thus, since many acts and many possible times for these acts were alleged in the Information, Mr. Sundheimer's plea of guilty to the multi-elenent, single count, Information did not itself establish thet any particular one of the acts charged in the Information actually occurred at any particular time. (ii) Mr. Sundheimer's Plea Statment Does Not Establish Any Ret Prohibited By the Act or that Any Act Occurre ter April 21, 1975. Mr. Sundheimer's statement that "implicit in” his as- sent to the pre-October 31, 1974 transaction was assent to the post-October 31, 1974 liquidating transaction does not establish either a violation of the Act or any act occurring after April 21, 1975. The CITC recognizes that a tax straddle requires a li- Guidating transac’io. promptly in the subsequent year (JA.15, n. 7), bum the CITC surmariiy rejected the Logica: conclusion thet “Yr. Seathor ie. coferrad co an early 1975 licuidating trans- action withou. scuciny wny besie for doing so. A.39 Assuming arguendo that Mr. Sundheimer's plea statement were susceptible of interpretation as referring to a post April 21, 1975 transaction, that is only one possible interpretation and establishes only that the statement is ambiguous. An am- biguous statement may not be used to create an estoppel. Kaufman v. Moss, 420 F.2d 1270 (3rd Cir.), cert. denied, 400 U.S. 846 (1970); Kelly v. Illinois Bell Tel. Co., 325 F.2d 148 (7th Cir. 1963); cf. Northern Oil Co. Inc. v. Socony Mobil Oil Co., Inc., 368 F.2d 384 (2d Cir. 1966); McNellis v. First Fed Sav. & Loan Ass'n, 364 F.2d 251 (2d Cir.), cert. denied, 385 U.S. 970 (1966) In Kaufman, supra, the court stated the rule which governs the present appeal as follows: "Reasonable doubt as to what was decided by a prior [criminal] judgment should be resolved against using it. as an estoppel.” 420 F.2d at 1274, In Kelly, supra, the court held that a jury verdict in a crimi- nal case could not be used to create an estoppel where it was "equally susceptible of diametrically opposed inferences with respect to the basic issue here ***," 325 F.2d at 152. In Northern Oil and McNellis, supra, this Court applied the sare rule to civil judgments, holding that an ambiguity as to what was determined prevented the use of the judgment for collateral estoppel purposes. Evin in tie case of an vnambiguous plea, extraneous circumstarces such 4% the prosecutor's post-convic- tion admission that he could not have proved all of the elements of an indictment precludes collateral estoppel to establish the eluments the prosecutor could not have proved. De Cavalcante v. Commissioner, 620 F 2d 23 (3d Cir. 1980). A.40 Mr. Sundheimer's mere plea to a multi-element criminal | income tax Information, any of which elements would support a conviction, and reference to Mr. Sundheimer's plea statement fail | to establish by collateral estoppel either an act which would constitute a violation of the Act or that any act complained of was committed after the effective date of the Act. Accordingly, | there was insufficient competent evidence to support the CFTC's determination that Mr. Sundheimer violated the Act. C. The CFTC Improperly Sustained Summary Disposition ant Thereby Wrongfelly Deprived Mr- Sundheiner of His Statutory Right to any Adjudicatory Hearing. CFTC hearings are required by §§€(b) and 8a before the CFTC may impose §4c(a) sanctions. The right to a meaning- ful evidentiary hearing is also an essential requirement of due process. Goldberg v. Kelly, 397 U.S. 254 (1970). Here, partial summary Gicposition was granted denying Mr. Sundheimer an adju- dicatory hearing on every issue arising under §4c(a). Summary disposition on the §4c(a) claim was granted despite the absence of any dispositive, unequivocal evidence that any act prohibited by the Act was committed, that any sub- ject transaction occurred after April 21, 1975, that any act co.mitted constituted an accommodation trade or that any such act was “tartamount to" an accommodation trade. Absent dispouilive, unequivocal evidence that the Act was viosated, vhe CPrc tacked authority te grant summary dasposi:: tion and deprive Mr Sundheimer of his statutory adjudicatory heoring United Stutcs v. Cheramie Bo-Truc #5, Inc., 538 F.2d Gv) (Sth Cir, 197). independent Barxers Ass'n. v Board A.41 of Governors of the Fed. Reserve Sys., 516 F.2d 1206 (D.c. Cir. 1975); Patagonia Corp. v. Board of Governors of the Fed. Reserve Sys., 517 F.2d 803 (9th Cir. 1975). Since formalities of pleadings and rules of evidence are more relaxed in agency proceedings, an agency “carries a heavy burden of justification", Independent Bankers, supra, 516 F.2d at 1220, in denying a party his statutorily prescribed ad- judicatory hearing ard such denial "is justified only in excep- tional circumstances." Id., n.57. “(T]he agency must show that the parties could gain nothing", Id., by an adjudicatory hearing and "[a) petitioner need not make detailed factual allegations in order to meet the requirement that he raise ‘issues of material fact.' He need only show that an ‘inguiry in depth' is appropriate." Id., n.57. See also Cheramie Bo-Truc, supra, Agency summary disposition motions are analogous to Summary judgment motions, Independent Bankers, supra, 516 F.2d at 1220, n.57. The DE did net make a sufficient showing of non- disputed material facts to entitle it to summary judgment. Poller v. Columbia Broadcasting Sys., 368 U S. 464 (1962); United States v. Diebold, Inc., 369 U.S. 654 (1962); Robertson v. Siedman & Seidman, 609 F.2d 583 (2a Cir. 1979); National Ass'n of Gov't Employees v. Campbell, 593 F.2d 1023 (D.C. Cir. 1978); United States v. Pent-R-Books, Inc., 538 F.?d 519 (2d Cir. 1976), cert. Gonied, 430 U.S. 906 (L1977}; Heyman v. Commerce $ Indus. Ins. Co., $24 F.2d 1317 (24 Cir. 1975); Patagonia Corp. v. Board of Gover: ors of the Fed. Reserve Sys., 517 F.2d 803 (9th Cir. 1975); A.42 Henderson Trumbull Supply Corp. v- NLRB, 501 F.2d 1224 (2d Cir. 1974); United States v. J. B. Williams Co., Inc., 498 F.2d 414 ——— (2d Cir. 1974); Empire Electronics Co., Inc. v. United States. 311 F.2d 175 (2d Cir. 1962); Doe v. United States Civil Serv. Comm'n, 483 F.Supp. 539 (S.D.N.¥. 1980); Wessinger v. Southern Ry. Co., Inc., 438 F.Supp. 1256 (D.S.C. 1977); Fuller Brush Co. v. United States, 262 F.Supp. 989 (D. Conn. 1966); A. Smith Bow- man & Sons, Inc. v. Schenley Distillers, Inc., 190 F.Supp. 586 (D. Del. 1961). In Henderson, supra, this court remanded the matter for a hearing where the "reasonably probably interpretations" of a certain statement were, as here, the opposite of the interpre- tation assumed by the agency. 501 F.2d at 1230. In Patagonia, supra, the court stated the rule applicable on the present re~ view is follows: “Disputed questions of adjudicative fact normally are not decided without affording to the party that may be adversely affected as evidentiary hearing in which that party has the opportunity to confront witnesses and to hear and contest the evidence against him." 517 F.2d at 816. Summary judgment is an issue finding, and not an issue determining procedure. Thus, the Supreme Court has established strict requirements for a summary disposition of any adjudica- tory matter statiny cnat summary judgment is to be granted “terly wirre the moving party is ontitled tq judgment as a matter of law, where it is quite clear what the truth is . . fand where] 10 genuine issue remains for trial . . [for] the purpose of the rule is not to ecvt Liticants off from their cight of trial * * * if they reaiity havo issives to tc,.'" Poller, supra, 366 U.S. A.43 at 468, quoting from Sartor v. Arkansas Natural Gas Corp., 321 U.S. 620, 627 (1944) TExcisions, except as marked by "***", and bracket insertions by the Court.) Where, as here, it was not “quite clear what the truth is” and at least three “genuine issue[s) remain for trial,” it was inappropriate to grant summary disposition. The rule against summary disposition is applicable even absent the right to jury trial. J.B. Williams, supra, 498 F.2d at 430, n.19. Courts have consistently held that “on motion for sunm- mary judgment the court cannot try issues of fact; it can only determine whether there are issues to be tried." Heyman, supra, 524 F.2d at 1319-20, and cases cited therein. As stated in Campbell, supra, “Summary judgment is unavailable if it depends upon any fact that the record leaves susceptible of dispute." [Empha:: sis added) 593 F.2d at 1027. The right to summary judgment must be established “with such clarity as to leave no room for controversy". (Emphasis added.J Traylor v. Black, Sivalls & Bryson, Inc., 189 F.2d 213, 216 (8th Cir. ssi}, Accord, Campbell, supra. 593 F.2d at 1027; Seaman v. Mumford, F.2d 704, 705 (D.C. Cir. 1964). See also Wessinger, supra, 438 F.Supp. at 1259. If there is “any” or the “slightest doubt," the motion must be denied, Doehler Metal Furniture Co., Inc. v. United States, 149 F.2.. 130, 135 (2d Car. 1945); Doglow v. Ancerson, 438 F.2a 825, 830 (2d Cir. 1971), Wessirger, sugia, 438 F Supp. at 1259, and, of course, the evidence in the record must be “viewed in the light most favorable to the party opposing “he motion". Dicbol3, supra. 369 U.S. at 635. Morcover, im a case sucn as the present one based en- A.44 tirely upon the CFTC's debatable inferences drawn from the am- biguous plea and plea statment, summary disposition must be denied because, "the inferences to be drawn from the underlying facts contained in such materials [affidavits exhibits and depositions] must be viewed in the light most favorable to the party opposing the motion". Diebold, supra, 369 U.S. at 655, ane "“[w]hen conflicting inferences can be drawn from the facts, however, summary judgment is inappropriate." Robertson, supra, 609 F.2d at 591. As stated in Empire, supra, the evidence must be viewed, "giving the opponent [on summary disposition] the benefit of all favor- able inferences that may reasonably be érawn," 311 F.2d at 130, and “"{il]f£, when so viewed, reasonable men might reach different conclusions, the motion should be denied and the case2 tried on its merits.'" Empire, supra, 311 F.2d at 180, quoting from Ramsouer v. Midland Valley R. Co., 135 F.2d 101,106 (8th Cir. 1943). Indeed, inferences must be viewed in favor of the party opposing summary judgment even though the party's “prospect of ultimate success on the merits might be viewed as small." Dolgow, supra, 438 F.2d at 830. As stated in Wessinger, supra, “"Neither should summary judgment be granted if the evidence is such that conflicting inferences may be drawn therefrom * * *!'" 436 F.Supp. 1259, quoting from Phoenix Sav. and Loan, Inc. v. Actna Casualty and Surety Co., 381 F.2a 245, 249 (4th Cir. 1907). See also Soc, supra, 483 F.Supp. at 555. Here, the sole evidence to support summary disposition was the ambigucus plea and the ambiguous plea statment and the A.45 debatable inferences the CFTC chose to draw from these facts. Nothing dispositively and unequivocally established any act prohibited by the Act or that any such act occurred after the effective date of the Act or that the act could have been an accommodation trade or its "tantamount". Under these circun- stances, the CFTC could not properly grant summary disposition and deny Mr. Sundheimer his statutory hearing, because "the moving party [must] show, on the basis of admissible evidence * * * that ‘there is no genuine issue as to any material fact' [citations omitted]. Where this initial showing is not made, summary judgment will be denied, even though the party opposing the motion has submitted no probative evidence to support its position or to establish that there is a genuine issue for trial’, Pent-R-Books, Supra, 538 F.2d at 529, —_— + and "(flacts not conclusively demonstrated, but essential to the movant's Claim, are not established merely by his opponent's Silence", Camobell, Supra, 593 F.2d at 1027, anc the CTFC's "surmise, however, plausible on its face, cannot substitute for full-bodied proof." Campbell, supra, 593 F.2d at 1028. The prohibition against summary disposition on slight ambiguous evidence is especially strong in a case such as the present one where the meaning or effect or words or acts are in dispute, J. B. Williams, Supra, 408 F.2d at 43l,-or where an in- Guiry into the facts may be desired to clarify applicable law. Wessincer, supra, 438 F.Supp. at 1256; Smith Bowman, suora, 190 F.Supp. at 583-9. A. 46 There being substantial disputed facts as to the mean- ing of the plea and plea statement and the inferences to be drawn therefrom and there being no evidence whatsoever as to the mean- ing of “accommodation trade” or the facts and reasoning under- lying the Tantamount Holding, summary disposition was clearly im- properly granted. | II THE CFTC EXCEEDED ITS STATUTORY JURISDICTION AND AUTHORITY BY IMPOSING SANCTIONS GROUNDED IN THE TANTAMOUNT HOLDING The CFTC is authorized to impose the §4c(a) sanctions only upon a proper finding of a violation of the Act. §6(b). Here the CFTC did not find a violation of the Act, but only some- thing “tantamount to” a violation.* Tantamount does not mean “the same as" or “identical with". Some event or thing which is "tantamount to” a term used in a statute does not make the stat- ute applicable to that event or thing. Trotz v. Commissioner, 361 F.2a 927, 929 (10th Cir. 1966). In reaching the Tantamount Holding the CFTC announced its intention to impose its severest sanctions in the strictest form against those who act in any manner of which the CFTC does not approve, whether or not Congress’ so authorized. When com- * Tne roguirement Of §10(e) (2) (C) of the Administrative Pro- cecure Act [5 U.S.C.A. §706(2)(C)] shat this Court “shal) *** set aside agency action *** found to be *** in excess of Statutory jurisdiction, authority, or iimitations ***" is ap- Plicable to CFTC action. Wiscope $.A. v. CFTC, 604 F.2d 764 (2d Cir. 1979); British Am. Commodity Ootions Coro. v. Baclev, 552 F.2d 482, 490 n.12 (2d Cir. T9777), cert. dented, 434 U.S. 933 (1977). OME TEs, VauE Oe, es A. 47 itted, Mr. Sundheimer's acts violated only one law, the federal criminal law, and under that system Mr. Sundheimer has already paid his full penalty. The impact of the Tantamount Holding upon Mr. Sund- heimer is substantial. He is denied his liberty to enter into contracts. He must pay a substantial fine. His registration as a floor broker is revoked. He is expelled from the business in which he has made a living for 20 years. The impact upon others engaged in the same business is equally offensive. The industry is now subject to the whim of the CFTC. The CFTC may one week approve, the next week condone and the following week condemn and impose sanctions for any act which it may loosely characterize as “tantamount to” something which is prohibited by the Act. Regulatory predictability and the ability to plan one's affairs within the context of specific rules are abolished. The impact upon the United States Constitution sys«en is even more venal. How can a court review any discip)inary or exclusionary act of any agency if the Tantamount Holding is sus- tained? As is set forth more fully immediately hereinafter, (a) Mr. Sundheimer's acts do not constitute accommodation “races or anything remotely similar to them, and (b) the CITC may not expand its jurisdiction to include the imposition uf sanctions for things “tantamount to” specific violations of the Act A.48 A. Mr. Sundheimer's Acts Do Not Constitute *Accommodation Trading.” Section 4c(a) was originally enacted in haec verba in 1936, Ch. 545 of the laws of 1936, §5, 49 Stat. 1494, but did not become applicable to crude oil futures until April 21, 1975. Section 4c(a) prohibits any transaction which “is, is of the character of [*], or is commonly known to the trade as, a * * * ‘accommodation trade'", without further definition of the phrase “accommodation trade". At the time the section was originally enacted, Sena- tor Pope, spokesman for the bill, twice advised the Senate that "({a)n accommodation trade is a transaction between two commission houses whereby, one being long with the clearing house and the other being short, the one that is long sells to the one that is short enough of a given future[s) to give each house an even or nearly even position, thus reducing the amount of [the] margin to be put up with the clearing house." 80 Cong. Rec. 6162 and 6088 (1936). (See Addendum to Memorandum on Behalf of Petitioner herein, the "Addendum," submitted herewith, at pp.ié-18.) There are no other definitions in the section's legislative history. Clearly the acts charged against Mr. Sundheimer do not fit within this definition. Under usual standards of Statutory construction, the definition before Congress at the time of enactment, a fictitious trade to circumvent margin re- quirements, is the onity acceptable definition. Cf. Litchfield Sec. Corp. v United States, 325 #.2d 667-73 (2d Cir. 1963). *Trie language, "of tn? character of" is intended to proscribe the specified act wnether or not the term used to describe it subsequently chanaes. See CFTC v. itoccan, Harris & Scott, Ltd., A. 49 Substantially subsequent to enactment of this section, in two isolated decisions the Department of Agriculture used the term "accommodation trade” to mean a “wash" (meaning fictitious, in that there is no “actual change of ownership") trade to enable the opposite broker to offset his own customer's sales and pur- chases without detection, Irwin M. Eisen, 22 Agric. Dec. 7538, 760 (1963), Julian M. Marks, 22 Agric. Dec. 761, 772 (1963). Since the CFTC has properly held that the transactions involved in this proceeding were not fictitious (JA. 16, n.9), this def- inition does not apply to Mr. Sundheimer. In 1966, the CFTC's predecessor, the Commodity Exchange Authority, informally attempted to broaden the definition of “accommodation trading" to mean: "“'wash trading entered into by one broker to assist another broker to make cross trades, wash trades * * *.'"* CFTC v. Savage, 611 F.2d 270, 284 n.13 (9th Cir. 1579). A wash trade is a fictitious trade. Savage, supra, 61ll F.2d at 284 n.13. Hence, under the 1966 definition, an accomo- dation trade must be a fictitious trade. Accordingly, by de- finition, the subject transaction cannot be an "accommodation trade” within the meaning of the 1966 definition. Under this 1966 definition, to be an accommodation trade, the transaction must also be in aid of a cross trade or awash trade. A "cross trade" is (a) an indirect pucketine** * The omitted phrase is merely "“etc.”". (See Addendum at p.33.) ** “Bucketing" is “(dliroctly or indirectly taking the opposite side of a customer's order * * *," S, Rep. No. 93-1131, 93d Cong., 2d Sess. Appendix IN, reprinted in [1974] U.S. Cude Cong. & Ad. News 5891. (ndaenham ater at p.20.) A.50 transaction, (b) an ottect of one customer's crder against an- other's, or (c) a specific type of wash trade (fictitious trade). Id. The CFTC properly held that the transactions which are the subject of the present proceeding were not fictitious, be- cause positions were actually taken in the market in connection with these transactions (JA.16 n.9), and no claim was made of bucketing. Accordingly, for the additional reason that neither fictitious nor cross trades were aided by Mr. Sundheimer's acts, Mr. Sundheimer's acts by any authoritative definition do not con- stitute accommodation trades within the meaning of the 1966 def- inition. In connection with the 1974 enactment of the Act, the Senate Committee prepared a "Glossary of Terms Used in Com- modity Futures Trading." S. Rep. No. 93-1131, 93d Cong., 2d Sess. Appendix IX, reprinted in [1974] U.S. Code Cong. & Ad. News 5891. The glossary defines “wash trading” ("accommodation trade's" companion in §4c(a)) consistently with the foregoing, but the lexicographers dared not attempt to define “accommodation trade”. In 1979 the CFTC submitted a glossary to the Senate Committee on Agriculture, Nutrition and Forestry under a caveat that "(ijt is pot, under any circumstances, to be deemed a set of legal definitions, nor a guide to interpretation of the Commodity Exchange Act." 95th Cong. 2d Sess., Committee Print, Futvres Trading Act of 1978, January 1979, p-lal er sea, (Addendum at pp.24-32.) That glossary defined “accommodation trade" as A.51 “[wlash trading entered into by a trader, usually to assist another with illegal trades", id. and “Wash Trading” as "[(e)ntering into, or purporting to enter into transactions to give the appearance that purchases and sales are being or have been made, usually not resulting in a change in the trader's market position", id. at 164, again repeating the requirement that an “accommodation trade" be fictitious, which the CFTC has properly held is not the pre- sent case. Interestingly, the glossary identifies “cross trade" and “wash sales" (companions of “accommodation trade" and "fic- titious sales" in §4c(a)) as acts prohibited by the Act, but does not so identify "accommodation trade" or "fictitious sale", which latter term has been held to be unconstitutionally vague (see infra, Point II). There being no other authoritative definitions of "“ac- commodation trade", and it being clear both logically and fron the CFTC's own determination to use the word “tantamount” that the acts charged against Mr. Sundheimer do not constitute accon- modation trades, it follows that Mr. Sundheimer did not violate the Act. B. The CFTC May Not Impose Sanctions for Behavior Whtch is tlot Prohibited by the Act In the Tantamount Holding. the CFTC purports to extend its authority to impose sanctions against persons who engase in conduct which the CFTC considers to te "tantamount to" an act prohibited by the Act. In so doing, the CFTC has clearly exceed- ec its statutory mandate A.52 Despite the deference to be afforded the CFTC in respect of its interpretation of the Act which empowers it,* the CFTC “may not bootstrap itself [as here attempted] into an area in which it has no jurisdiction by * * * violating its statutory mandate." Federal Maritime Comm'n v. Seatrain Lines, Inc., 411 U.S. 726, 745 (1973). See also SEC v. Sloan, 436 U.S. 103 (1978). In the Tantamount Holding the CFTC overstepped the “limits, grounded in the language, purpose, and history of the particular statute, on how far an agency properly may go in its interpretative role." International Bhd. of Teamsters v. Daniel, 439 U.S. 551, ‘ The language of §4c(a) prohibits accommodation trades**-- trades currently held to be fictitious trades entered into to enable others to enter into fictitious trades or to bucket or offset customer's orders, and earlier at the time of enactment held to be those entered into to avoid margin requirements. It does not prohibit any act alleged against Mr. Sundheimer. The Tantamount Holding, if sustained, would make §4c(a) "a solution to virtually any other problem which might occur in the marketplace." Sloan, supra, 436 U.S. at 117. * Trere are Jimits to such deference. See, e.g., Judge Feinberc’s analysis in In re Chin Thloot Har Wonc, 224 F.Supp. 155, 164-1F5 (S.D.N.Y. 1963). ** Even the most cursory review of the Act discloses that the prohibition against. “accommodation trades” was directed against a specific practice. Contrast the broad general languace used py the Conusess in prohibiting fraud (Act. §4b(' (7 U S.C.A §6b(A)]) and market price manipulation (Act, §6(b) {7 U.S. C.A §9]1) in accordance with the Congressional purpose. See Act, §3 [7 U S.C.A. §5] Where, as here, the acts complained of do not fall within che broadly defined categuries of fraud >. manipulation, ihe CF’C cannot be permitted simply to recefine the specific pror.b: ions and expand its jurisdiction to suit its suppose ne cits A.53 As the Supreme Court stated in Sloan, supra, rejecting a similar attempt by the Securities and Exchange Commission to broaden its remedial powers beyond that “clearly contemplated by” its en- abling statute, “[wle do not think [the section] * * * was meant to be such a cure-all." Id. Moreover, “had Congress.intended the Commission to have the power * * * we expect that it could and would have authorized it more clearly * * *," 436 U.S. at 122. The CFTC's present effort “to enlarge * * * the appli- cation of a statute should be subjected to close scrutiny”, Celebrezze v. Kilborn, 322 F.2d 166, 168 (Sth Cir. 1963), and the Order must be set aside "if the agency's underlying standards are not in accord with law", Wheatley v. Adler, 407 F.2d 307, 310 (D.c. Cir. 1968), because "[a]n administrative decision based upon erroneous standards cannot stand." Kovac v. Immigration and Naturalization Serv., 407 F.2d 102, 104 (9th Cir. 1969). Since the Tantamount Holding "cannot be derived fron the statutory language or from prior [Commission] * * * preced- ent", it is clear that the CFTC has acted “outside the law”, IBEW v. NLRB, 487 F.2d 1143, 1171 (D.C. Cir., en banc, 1973), cert. Cenied, 418 U.S. 902 (1974), and this court's obligation to defer to the CFTC's interpretation of the Act "is limited by this court's obligation ‘to honor the clear meaning of the stat- ute, as revealed by its language, purpose, and history’, [citing Daniel, supra, 439 U.S. at 566, n.20) and by the requirement that the agency interpretation not‘be clearly wrong or unreasonatle.” Coca-Cola Co. v. Atchison, T. & S.F. Ry. Co., 698 F.2d 213, 222 (Sth Cir. 1979). As stated by the Supreme Court in SEC v. Chenery Corp., “an order may not stand if the agency has misconceived the law." Here the CFTC has interpreted the Act as outlawing or applying to behavior which the Act does not proscribe. Accord- ingly, the order is overbroad and reflects an undue enlargement of the CFTC’s authority beyond that granted by Congress. Since Mr. Sundheimer's acts do not constitute accommo- dation trades or any other behavior prohibited under the Act, and since the Order is therefore beyond the authority of the CFrTc, the Order should be vacated on that ground alone to the extent that it imposes §4c(a) Sanctions upon Mr. Sundheimer. Iii AS APPLIED TO MR. SUNDHEIMER, THE y PROHIBITION OF “ACCOMMODATION TRADES" IS UNCONSTITUTIONALLY VAGUE If “accommodation trade" as used in §4c(a) has any meaning, it should de the meaning ascribed to it at the time of enactment of §4c(a) (see supra, Point I(C)(i)). Here, the Commis- —_—-— sion has attempted to ascribe to it a meaning which it has never had at any prior time -- trades in which actual positions were taken by both sides to the transaction. The fluidity of the definitions ascribed to the *erm “accormmocatin icaue’ .ver the yearns, as describe? in Point II(A} Strra, patently suggests that tne term is unduly vague. The fac: that the Senace Committee considering the 1974 enactment of the | recviled from astempciag u de“inition of the term strongly Svogosts that it « a rieaningless term A.55 The "void-for-vagueness" doctrine applies to any gov- ernment agency attompt to prescribe or proscribe individual conduct. See, e.g., Ashton v. Kentucky, 384 U.S. 195, 200 (1966). ("Vague laws in any area suffer a constitutional infirmity.") See also Giaccio v. Pennsylvania, 382 U.S. 399 (1966); Baggett v. Bullitt, 377 U.S. 360 (1964); Flipside, Hoffman Estates, Inc. v. Village of Hoffman Estates, 639 F.2d 373 (7th Cir. 1981); Paccar, Inc. v. Nat'l Highway Traffic Safety Administration, 573 F.2¢ 632. (9th Cir.), cert. denied, 429 U.S. 862 (1978); Boutilier v. Imni- gration & Naturalization Serv., 363 F.2d 488 (2d Cir. 1966), aff'd, 387 U.S. 118 (1967). Under the void-for-vagueness rule, vague or fluid terms, such as “accommodation trade", may not be used to identify the act which is prohibited. Grayned v. City ot Rockford, 408 %.S. 104 (1972); Cramp v. Board of Public Instruction, 368 U.S. 278 (1961); United States v. La Mantia, (1977-80 Transfer Binder] Comm. Fut. L. Rep. (CCH) 420,667 (N.D. Ill. 1978). In Grayned, supra, the Supreme Court definitively stated the policy considerations supporting the due process pro- hibition against vague regulatory statutes as follows: "It is a basic principle of due process that an enactment is void for vagueness if its prohibitions are not clearly defined. Vague laws offend several important values. First, because we assume that man is free to steer between lawful and unlawfus conduct, we insist that laws give the person of ordinary intelli- gence a reasoneble opportunity to know what is prohibited. so that he may act accordingly. Vague laws may trap che innocent by not providing fair warning. Second, if arbitrary and discrim- inatory enforcement is to be provented, iaws must provide explicit standards for those who apply them. A vague law impormissibly delegates basic v, A.56 policy matters to policemen, judges, and juries for resolution on an ad hoc and subjective basis, with the attendant dangers of arbitrary and dis- criminatory application." (Footnotes omitted. ) 408 U.S. at 108-109. Earlier, in language particularly appropriate to the present case, the Supreme Court struck down a constitutionally vague statute stating the reasoning governing the present appeal, "'Words which are vague and fluid . .. may be as much of a trap for the inno- cent as the ancient laws of Caligula.'" Cramp, supra, 368 U.S. at 287, quoting from United States v. Cardiff, 344 U.S. 174, 176 (1952). Here, it is the fluid and expanding meaning which the CFTC attempts to ascribe to the term “accommodation trade” which offends against the constitutional principles as much as the foct that the term is almost impossible of definition. Indeed, "fictitious sale", a companion in §4c(a) to "accommodation trade", was held constitutionally vague by the court in La Mantia, supra, because, like the term "accommodation trade" as applied by the CFTC in the present case, it was not defined in the Act, there was no judicial construction of the term, the term did not appear in treatises on commodities and the definition sought by the government was not supported by the legislative history of the Act. Nowhere in the present record has the CFTC purported to substantiace its appiication of the term “accommodation trade" to the subject transaction; and nowhere in the prior history of the Act or its predecessor statutes does there appear any indi- cation that the subjcete transaction was intended to be proscribed by tne Act s prohihitiun of “accommodation trades". A.57 ‘ If, as the CFTC apparently asserts, the term “accommodation trade" has no fixed meaning but may be defined and redefined to supply authority for sanctions whenever the CFTC feels impeded by the limitations of its proper statutory mandate, then the term is clearly too vague to give reasonable prior notice of the conduct sought to be prohibited. Thus, whether on the ground that the application ad- vanced by the CFTC in the present case exceeds the scope of all prior authoritative definitions of the term, or on the alterna- tive ground that the various definitions applied to the tern establish its fluidity and imprecision, the imposition of severe sanctions against Mr. Sundheimer upon the basis of his partici- pation in an act characterized as “tantamount to" an “accommoda- tion trade" violates his constitutional right to due process. Iv THE CFTC WRONGFULLY DENIED MR. SUNDHEIMER A MEANINGFUL HEARING ON MITIGATION AND REHABILITATION Section 8a of the Act empowers the CFTC to revoke the registration of a floor broker “after opportunity for hearing" upon a finding of unfitness by reason of conviction of a felony. Substantial CFTC authority establishes that the prescribed hear- ing must relate to the question of mitigation and rehabilitation. 40 F.R. 28126 (1975): In xe Rafferty CFTC Docket No. 79-15 (1981) (Addendum et 6); In se La Mantia, 2 Comm. Fut. L. Rep. (CCH) "21,048 (1480); Lambert Joseph Hagan, (1975-1977 Transfer Binder] Comm. Put. L. Rap (CCu) 420,171 (1976); Eugene E. Shaefer, Jr., (1975-1977 1. 2nsfar Binder] Comm. Fut. L. Rep. A.58 (CCH) “20,191 (1976); Division of Enforcement v. Rodin, [1975- 1977 Transfer Binder) Comm, Fut. L. Rep. (CCH) 20,114 (1976). By imposing the Seven Yeer Rule, without any prior notice to Mr. Sundheimer and by requiring proof of rehabilita- tion beyond “any doubt", not “reasonable doubt", the CFTC de- prived the three day hearing on rehabilitation and mitigation of any meaning and turned it into a sham and mockery and denied Mr. Sundheimer the notice to which he was entitled. (See Point I(A), Supra.) The record is substantial in support of mitigation. The federal prosecutor stated that Mr. Sundheimer was "not intimately involved in the operation of the scheme on a day-to- day basis." (JA.89) He did not initiate the subject transaction, was never involved in it, was not a member of the unregulaced market where it occurred; he merely acquiesced and, not being an owner Of Pressner, he did not benefit. His reputation then and thereafter was of competence and the highest integrity. The evidence of his rehabilitation was also substan- tial. He spent substantial time cooperating before charges were pending or imminent (JA.227-8, 230-1, 233), pleaded guilty, won the support of the prosecutors, and won the support of the prosecuting agency for which he performed his community service. He paid fines and accepted suspensions from commodities ex- changes Except during periods of suspension, he continues as @ troder and broxer with no hint of wrongdoing. He retained tho respect of [viends and business acquaintances. Tho CITC, with full hnowledye of the facts, renewed his registration annvally throusn 1901 A.59 One of the prosecutors, two of his supervisors at the prosecuting agency where he performed his community service, three close perscnal friends and ten prominent members of the commodity futures industry testified on Mr. Sundheimer's behalf in support of mitigation and rehabilitation. In partic- ular, the testimony of the industry leaders was compelling. Five, Rubin, Corby, Geraghty, Landry and Sanborn, were associated persons (the commodity industry's equivalent of customers' representatives) of substantial rank who were in need of the services of a floor broker who would efficiently and honestly execute their customer's orders. Mr. Sanborn, an E.F. Hutton vice-president (JA.321), described Mr. Sundheimer as "{o)]ne of the more professional floor brokers * * * T would refer a good percentage of my business to him because of that reason * * * he is very honest, someone that I would trust * * * that I would put my faith in * * * one of the most competent * * * very highly regarded * * *,." (JA.323). Mr. Landry, a Dean Witter Reyonolds vice-president (JA.403), testified of Mr. Sundheimer “that it would be very detrimental to our (Commodity Guided Account] program if we were not allowed to use him in the future (JA.405] * * * my ability to perform for my clients * * * is measured by my ability to choose the right broker * * * Steve has done an absolutely outstanding job * * *," (JA. 409) and that he would “absolutely not" use a broker he felt was dishonest. (JA.409). Mr. Geraghty, a metal trader at Dean Witter Reynolds (J\.298), tostified of Mr. Sundhoimer that Mr. Geraghty's substantial European clients “prefer to use him ['Nr. Sundheimer]” A.60 (JA.302) and "I've always found him to be honest * * * I wouldn't give the brokerage to anyone that I thought might step ahead of me in a trade or do anything that would affect my customers, or else I wouldn't have the customers.” (JA.302) Mr. Corby, a Merrill Lynch Pierce Fenner & Smith vice-president (JA.190), testified of Mr. Sundheimer “the executions that I got for [from] him were fair and good for my customers * * * his reputation as a floor broker is good * * * his honesty and integrity are fine ee #." (JA.194) Mr. Rubin, a Thompson & McKinnon vice-president (JA.177), testified that his company used Mr. Sundheimer because “the execution service that they gave on the exchange was excellent (JA.181) * * * I've never known him to do anything in terms of executing an order that was dis: honest, and that he did not every [sic] try and execute an order to the best of his possible ability.” (JA.182) Two substantial customers, Mierfeld and Albertson, who used Mr. Sundheimer's services directly for their own accounts and therefore had a substantial interest in the in- tegrity of the commodities market, testified in support of Mr. Sundheimer. Mr. Mierfeld, vice-president of Ray E. Friedman & Co., one of the largest firms in the industry (JA.281-2), testified that eltnough he is licensed to trade on the floor or erychances "I liko to leave that to people who are exports at it as is Mr. Sundhoimer" (vA.284), and that Mr. Sundheimer had a “very good reputation” for honesty and incegrity (0A. 264). A.61 One of the prosecutors, two of his supervisors at the prosecuting agency where he performed his community service, three close personal friends and ten prominent members of the commodity futures industry testified on Mr. Sundcheinmer's behalf in support of mitigation and rehabilitation. In partic~- ular, the testimony of the industry leaders was compelling. Five, Rubin, Corby, Geraghty, Landry and Sanborn, were associated persons (the commodity industry's equivalent of customers' representatives) of substantial rank who were in need of the services of a floor broker who would efficiently and honestly execute their customer's orders. Mr. Sanborn, an E.fF. Hutton vice-president (JA.321), described Mr. Sundheimer as "[o]Jne of the more professional floor brokers * * * I would refer a good percentage of my business to him because of that reason * * * he is very honest, someone that I would trust * * * that I would put my faith in * * * one of the most competent * * * very highly regarded * * *,." (JA.323). Mr. Landry, a Dean Witter Reyonolds vice-president (JA.403), testified of Mr. Sundheimer "that it would be very detrimental to our [Commodity Guided Account] program if we were not allowed to use him in the future {JA.405]) * * * my ability to perform for my clients * * * is measured by my ability to choose the right broker * * * Steve has done an absolutely outstanding job * * *," (JA.409) and that he would “absolutely not” use a broker he felt was Gishonest. (JA.409), Mr. Geraghty, a metal trader at Dean Witter Reynolds (J\.298), testified of Mr. Sundheimer that Mr. Geraghty's substantial European clients “prefer to use him [‘tr. Sundheiner}” A.62 (JA.302) and “I've always found him to be honest * * * I wouldn't give the brokerage to anyone that I thought might step ahead of me in ’ a trade or do anything that would affect my customers, or else I wouldn't have the customers." (JA. 302) Mr. Corby, a Merrill Lynch Pierce Fenner & Smith vice-president (JA.190), testified of Mr. Sundheimer “the executions that I got for [from) him were fair and good for my customers * * * his reputation as a floor broker is good * * * his honesty and integrity are fine * *# *." (JA.194) Mr. Rubin, a Thompson & McKinnon vice-president (JA.177), testified that his company used Mr. Sundheimer because “the execution service that they gave on the exchange was excellent (JA.181) * * * I've never known him to do anything in terms of executing an order that was dis: honest, and that he did not every [sic] try and execute an order to the best of his possible ability.” (JA.182) Two substantial customers, Mierfeld and Albertson, ’ who used Mr. Sundheimer's services directly for their own accounts and therefore had a substantial interest in the in- tegrity of the commodities market, testified in support of Nr. Suncheimer. Mr. Mierfeld, vice-president of Ray E. Friedman & Co., one of the largest firms in the industry (JA.281-2), testified that eltnough he is licensed to trade on the floor or erychances "I lire to leave that to people who are experts at it as is Mr. Sundheoimer" (JA.284), and that Mr. Sundheimer had a “very good reputation” for honesty and integrity (34.264). A.63 Mr. Albertson testified that he is a Florida proc- essor of citrus products (JA.385) and that he employs Mr. Sundheimer's services as a broker because "I consider him able, knowledgeable, and very efficient in terms of his ability to execute in the ring (JA.389) * * * it very often involves discretion and judgment * * * I probably had the most successful experience, in terms of the service that I've obtained from any floor broker, in the relationship I have with Steve," (JA.390). and that Mr. Sundheimer's honesty and integrity is "one of the highest magnitude in all of our dealings.” (JA.390). Three executive members of commodities futures exchanges, Stern, Herman and Mintz, testified on behalf of ir. Sundheimer. Mr. Mintz, the Chairman of the Board of the Commodity Exchange, Inc. (JA.509), testified that he is a member of the New York Mercantile Exchange and has had business dealings with Mr. Sundheimer on that exchange (JA.509). He testified of Mr. Sundheimer "I've been satisfied greatly with the executions, the honesty of the executions, and the service “ * * he's perfectly open, honest, and a very fine member of the Exchange." (JA.510) Indeed Mr. Mintz testified of Mr. Sundheimer "I would recommend him for membership in Comex [Commodity Exchange, Inc.] * * I would sponsor him, even though I'm Chairman of the Board." (JA.511) sir. Sheisw, a member of the Board of Goveriors of che New York Mercantile exchange for 27 years and its Chairman Emeritus (JA.210), testified that he had appointed Mr. A.64 Sundheimer to that exchange's Clearinghouse Committee and “he conducted himself with great distinc- tion. His decisions, his recommendations were always in the public interest and for the good and general welfare of the Exchange." (JA.211) He testified that he has placed orders with Mr. Sundheimer (JA.216-7) and that “his reputation [for honesty and integrity) is impeccable * * * incidentally, he happens to be a very capable broker as well (JA. 213) * * * he's a credit to the commodity futures industry and to those people that he deals with.” (cCA.218) Mr. Herman, a commodity trader and floor broker, who was a member of several commodities futures exchange boards and committees (JA.266-7), testified that he had done business with Mr. Sundheimer for many years. He testified that “(thle has a very fine reputation as a floor broker, as an honest, competent broker * * * he's an extremely honest, reliable, competent broker and a good human being * * * many times * * * the major commis- sion houses, when they had a difficult Order to execute, direct it specifically for Mr. Sundheimer to handle * * * this is quite an accolade to have your colleagues entrust you with their per- sonal business." (JA.269-270) Under these circumstances, it was improper for the CFTC, without notice, to adopt the Seven Year Rule without Stating any rational basis for it, and therefore deprive Mr. Sundheimer of the meaningful hearing to which due process entitled him. FCC v. National Citizens Comn'n for Broadcasting, 436 U.S. 775 (1978); Goldberg v. Kelly, 397 U.S. 254 (1970); Armstrong v. Manzo, 380 U.S. 545 (1965); Local 777 v. NLPS, 603 F.2d 862 (D.C. Cir. 1979), as amended (1979); Florida vy. A.65 | Mathews, 526 F.2d 319, 324 (Sth Cir. 1976); Ashland Oil & Refining Co. v. FPC, 421 F.2d 17, 23 (6th Cir. 1970). Here, there is no rational basis for adopting and applying a rule that, | as a matter of law, a person may not be rehabilitated seven years after aiding another's tax fraud by acquiescence. On that theory, we would never dare release a felon from supervision in | less than seven years. In Goldberg and Armstrong, supra, the Supreme Court held that the hearing required of an agency must be a "meaning- ful" one, 397 U.S. at 267; 380 U.S. at 552. In National Citizens, supra, the Supreme Court held that any agency's rules may be invalidated by a reviewing court "if they are not rational and based on consideration of the relevent factors." 436 U.S. at 803. In Local 777, supra, the court was confronted with a fact pattern where the NLRB, as has the CFTC here, had made sub- stantially inconsistent decisions about the distinction between employment and independent contracting. The court held that an agency must conform to its own precedents or explain its departure, citing International Union v. NLRB, 459 F.2d 1329 (D.C Cir. 1972), and stated the rule governing the present pro- ceeding as follows: “Although an agency may change its policy as it determines is in the public interest, {citation omitted] when, as here, it announces no principled reason for such a reversal, its action is arbitrary and the courts should be quick to so declare.” 603 F.2d at 882. A. 66 There is no rational basis for the CFTC's harsh con- clusion that an individual may not be rehabilitated in seven years. The CFTC did not even attempt to state a rational basis and, in view of other CFTC rulings, it cannot. In Rafferty, supra, the respondent had pleaded guilty in September, 1977 to two felony counts of conspiracy to commit securities and mail fraud and filing false inccme tax returns. He was found to be rehabilitated by decision dated July 15, 1981, despite his psychiatrist's testimony that "I don't think anybody can certify anybody's behavior that they're not going to do anything.” In In re Nordlicht, 2 Comm. Fut. L. Rep. (CCH) 421,027 (1980), the CFTC's decision tacitly held that Mr. Nordlicht, who actually negotiated the wrongful transaction which is the subject of this proceeding, while Sundheimer merely acquiesced, would be deemed rehabilitated by February of 1982. Accordingly, the CFTC's action was arbitrary and Sundheimer's registration as a floor broker should also be restored. Vv THE CFTC WAS ARBITRARY AND CAPRICIOUS IN THE MANNER IN WHICH IT IMPOSED SANCTION The permanent revocation of Mr. Sundheimer's broxer registration an2 the $100,000 penalty are the maximum permitted by the Act. The two-year prohibition of trading. is substantial. The CFTC's imposition of sanctions is subject to court review. APA, 5 U.S.C.A. §5551, 702, 704; Arthur Lipper Cors. v. SEC, 547 F.2d 171, 183-84 (24 Cir. 1976), cert. denied, 434 U.S. A.67 1009 (1978); Beck v. SEC, 430 F.2d 673 (6th Cir. 1970). The sanctions imposed by the CFTC constitute a gross abuse of discretion wecause they were applied discriminatoril,, Sartain v. SEC, 601 F.2d 1366 (9th Cir. 1979); see also Hiller v. SEC, 429 F.2d 856 (2d Cir. 1970), and because they do not bear a reasonable relation to the conduct which evoked the sanc- tions, Kent v. Hardin, 425 F.2d 1346 (5th Cir. 1970), or the goals the Act was designed to accomplish, Barnum v. National Transvortation Safety Bd., 595 F.2d 869, 872 (D.C. Cir. 1979). Moreover, the CFTC has not, adequately stated its grounds for imposing its most severe sanctions. A. The Sanctions Were Discriminatorily Imposed upon Mr. Suncheimer. The sanctions imposed upon Mr. Sundheimer are sub- stantially greater than those imposed upon Mr. Nordlicht*, even though Mr. Nordlicht was the active participant in the offense on behalf of Pressner and Mr. Sundheimer was not directly in- volved, see In re Nordilicht, 2 Comm. Fut. L. Rep. (CCH) %2i,027 (1980); and despite Judge Broderick's conclusion that Mr. Nordlicht deserved twice the penalty imposed on Mr. Sundheimer. See Arthur Lipper, supra, 547 F.2d at 184, in which one imsor eonsccvces CFTC GENERAL REGULATIONS Rule 1.38 [17 C.F.R. beBelviconebonvecseec CFTC RULES OF PRACTICE CFTC, ANNUAL Sec. Ds Oh 6 sees weeee b 6s “eee ewee “see eee OTHER AUTHORITIES PEPOPT, 1980..... res 2d Stems ie OOO ID) le scscesecececs 1970) ..ceee eee eee eer renner! 18 18 3, 5, 18, 19 12, 13 12 A.116 B. In respect of the revocation of the floor broker registration (the "Revocation"): 5. Whether the Seven Year Rule and the “any doubt” rule made a sham and mockery of the hearing on rehabilitation and mitigation? 6. Whether there was substantial evidence that Mr. Sundheimer “can [now] be trusted" (C.Br. p.18)? C. In respect of both the Sanctions and the Revocation: 7. Whether the CFTC's conceded imposition of substan- tially harsher Sanctions and Revocation on Mr. Sundheimer than upon Pressner's more active participant, Mr. Nordlicht, who pre- sented no evidence of mitigation and rehabilitation, establishes that the CFTC behaved arbitrarily and capriciously? The C.Br. misstates and twists facts and relies upon these misstated and twisted facts to support otherwise unsupport- able charges against Mr. Sundheimer (see infra, p.6). More sig- nificantly, however, the C.Br. deliberately courts confusion (a) between the legal issues surrounding the Revocation and Sanctions; and (b) between the sole violation of the Act Claimed by the CFTC -- "tantamount to ‘accommodation trades'" -- and other CFTC disclaimed wrongdoings -- prearranged trading and manipulation -- which the CFTC properly held were not chargeable against Mr. Sundheimer but which appear to be the major topic of the C.Br. Petitioner submits that the CFTC's effort: to confuse A.117 REPLY MEMORANDUM ON BEHALF OF PETITIONER THE ISSUES AS NOW FRAMED BY THE BRIEFS Overt and discreet concessions of the CFTC* Brief (the "C.Br.") permit the refinement of certain issues on this review as follows: A. In respect of the trading prohibition, fine and cease and desist order (the "Sanctions"): 1. Whether the CFTC's tacitly conceded denial of Mr. Sundheimer's constitutionally protected right of notice of the actual charges against him alone requires vacatur of the Order? 2. Whether the CFTC's overt concession (C.Br. p.17 n.23)** that the criminal pleading colloquy upon which it relies to support summary disposition was “only partial” as to the time of the transactions defeats the CFTC claim that it summarily es- tablished transactions occurring after crude oil futures became subject to regulation? 3. Whether the CFTC's resort to the Tantamount Holding is a wrongful and deliberate attempt to expand its jurisdiction beyond that authorized by the Act? 4. Whether the term "accommodation trade" has any mean- ing whatsoever and whether any acceptable meaning is applicable . to the subject transactions? . * Terms defined in Mr. Sundheimer's Brief in Chief ("S.Br.") shall be used herein with the same meaning. ** The CFTC also tacitly concedes that words would have to be added to the colloquy for it to support summary disposition (C.S3r. p.23, see infra, p.14). A.118 merely dramatizes the weaknesses in the CFTC's position on this appeal. Accordingly, the petitioner requests that the Court on this review give particular attention to the significant statut- ory distinctions between the grounds for the Sanctions and the grounds for Revocation. A floor broker registration may be re- voked upon the conviction of a felony, after a determination as to rehabilitation and mitigation. The felony conviction itself bears no relevance to the Sanctions. The Sanctions may be imposed only upon a showing of a violation of the Act, which showing, peti- tioner submits, was not made in the present proceeding. Petitioner also requests that the Court on this review pay particular attention to the facts that (a) prearranged trading per se is not a violation of the Act and, indeed, is specifically authorized unaer certain circumstances by Reg. 1.38 of CFTC's General Regulations ,* (b) the CFTC specifically and properly found that manipulation was not proved against Mr. Sundheimer (JA.12,16 and, in particular, n.10), and (c) no charge of conspiracy was ever made against Mr. Sundheimer in the criminal or the CFTC proceeding. Therefore, the extensive discussions of prearrangement, conspiracy and manipulation which permeate the entire C.Br. (C.Br. pp.6,7,8, 9,10,12,17,18,22,23,24,25,28,30) respond to sham issues and bear * The only prohibition of any form of prearranged trading is con- tained in Reg. 1.38. Mr. Sundheimer was not charged with a violation of Reg. 1.38 (See complaint, JA.28). A.119 no relevance whatsoever to the true issues respecting the Sanctions. The true issues are concerned only with the deter- mination whether Mr. Sundheimer aided something “tantamount to” an accommodation trade. AREAS OF AGREEMENT BETWEEN THE PARTIES The C. and S. Briefs establish substantial areas of tacit agreement between the parties (either because the CFTC attempted no response to the S.Br. statement or because the CFTC response inadequately addresses the issue) as follows: 1. The criminal conviction itself relates only to the Revocation on the grounds of unfitness and in itself is not ground for the Sanctions (no CFTC response). 2. The Sanctions and the Revocation deprive Mr. Sundheimer of substantial constitutionally protected rights which may not be abridged without due process of law (no CFTC response). 3. Due process of law requires meaningful notice and a meaningful hearing (no CFTC response). 4. Meaningful notice of charges is an absolute right in an agency proceeding because a party is entitled to answer charges against him at every step of the proceeding. Mr. Sundheimer was not notified that summary disposition would be sought or sustained on the ground that he had aided an accommoda- tion trade or its tantamount (no CFTC response). 5. A plea of guilty to a multi-element single covnt charging instrument does not establish by collateral estoppel any one of the multi-elemonts of the single count (inadequate CFTC A.120 response, see p.15, infra). 6. The colloquy between Judge Broderick and Mr, Sundheimer upon which the CFTC relied to sustain summary disposi- tion “is only partial as to the four, or more, year scope of the conspiracy ***" [emphasis added] (C.Br. p.17 n.23) and would have required the addition of the words "tax losses for a second year" (C.Br. p.23) to make the plea statement an unambiguous admission by Mr. Sundheimer of a violation of the Act. 7. Crude oil futures contracts did not become regulated or subject to CFTC jurisdiction until April 21, 1975 (specifically conceded, C.Br. p.7). 8. Prearrangement per se is not prohibited by the Act and is permitted under certain circumstances by the General Regulations of the CrTCc. ("Similarly, Rule [Reg.] 1.38, 17 C.F.R. 1.38 has long prohibited most prearrangement * * *" [emphasis added] C.Br. p.24). 9. Summary disposition motions are analagous to summary judgment motions and should be denied under the same circumstan- ces that a summary judgment motion should be denied (no crTc response). 10. The Act does not prohibit acts “tantamount to” a prohibited act (inadequate CFTC response). ll. Substantial legislative history establishes the meaning of “accommodation trade" and requires the element of fic- titiousness (no CFTC response). The same is true of the agency case law which has defined accommodation trades (inadequate CFTC response, sce infra, p.19). The transactions involved in this A.121 proceeding were not fictitious (no CFTC response). 12. The CFTC has no authority to impose sanctions ex- cept for an act prohibited by the Act (no CFTC response). 13. In imposing the Revocation, the CFTC relied on the “any doubt" standard and its rule, announced for the first time in the present proceeding, that seven years was too short a period to permit rehabilitation (conceded by CFTC, C.Br. pp.16,20). 14. Mr. Nordlicht was the prime actor on behalf of Pressner and even Pressner was merely an aider and abettor. Mr. Sundheimer's role was a passive one. Yet, the CFTC prohibited Mr. Sundheimer from trading for twenty-four months and prohibited Mr. Nordlicht for only three. Mr. Sundheimer was fined $100,000 and Mr. Nordlicht only $75,000. The Revocation is permanent; Mr. Nordlicht's floor broker registration revocation is for crly two years (no CFTC response). THE FACTS MISSTATED AND TWISTED IN THE C.BR. The C.Br. is replete with factual error and twisted premises not supported by the record. Petitioner submits that the necessity to misstate and twist facts dramatizes the inher- ent weaknesses of the CFTC position on this review. Prussner was not “Sundheimer's company” (C.Br. p.6 n.9) as Mr. Sundheimer owned no stock in Pressner (JA.530). There is no evidence that Pressner gained any profits from the subject transactions as -laimed at C.Br. p.6 n.9. Indeed, the testimony relied woon by the CFTC to support this claim is "I don't think that that's right" (JA.475). Mr. Sundheimer's testimony strongly suggests that he was not present when any cash may have been A.122 distributed (JA.474-5) and his lack of knowledge of these trans- actions reflected by the foregoing testimony indicates that he surely did not “preside” at any such meeting as claimed at C.Br. p.6 n.9. Although the ALJ may have found that Mr. Sundheimer gave "careful attention to the mechanics of the trading" and that “Respondent's reasons for the activities * * * were to acquire financial gain" (C.Br. p.7), these conclusions are not in any way supported by the foregoing testimony or any other evidence in the record. The ALJ's decision is tainted by this error. The prosecutor most familiar with Mr. Sundheimer's in- volvement advised Judge Broderick that Mr. Sundheimer "was not intimately involved in the operation of the scheme", (JA 558). The fact that Mr. Sundheimer knew after the fact that Pros.ner (the "we" in the testimony at C.Br. p.17) took lawful stepr ("butterfly straddles") to limit risks of price fluctuation does not mean Mr. Sundheimer was involved in those steps at the time they were taken. The fact that such steps were taken does suggest little reliance on cthers' ability to manipulate markets. The testimony of the witnesses as to Mr. Sundheimer's good character was not “based on knowledge gained prior to 1975" (C.Br. pp.8,19) nor was it “Limited to Sundheimer's capability as a floor broker” (C.Br. pp.8,19) although, admittedly, that is what the ALJ erroneously concluded (JA.521) and his decision may be impeached for this erroneous conclusion. Indced, the testimony at the appendix citations Listed at C Br. p.19 to support the CFTC's erroneous claim that the A.123 highly credentialled witnesses testified on past knowledge clearly establishes that the views expressed by these witnesses were based upon both their past and their contemporaneous know- ledge of Mr. Sundheimer*. The testimony at the appendix cita- tions at C.Br. p.19 to support the CFTC's contention that these witnesses were not familiar with Mr. Sundheimer's conviction in- stead show remarkable familiarity with his conviction*’*. The following testimony contained at the appendix citations ac- tually referred to by the CFTC at C.Br. p.19 for the claim of past tense testimony clearly refers to the witnesses' present tense opinion of Mr. Sundheimer. Rubin: "I would not have any reservation about con- tinuing to use him as a floor broker.” (JA.183) Corby: "I have ops jo contacts with him *** at least a couple of times a week." (JA.192) Stern: "I have occasion to meet Mr. Suadheimer very frequently." (JA.211) Herman: "Q.: Do you presently have an opinion? *** A,; *** extremely honest, reliable, competent broker and a good human being." (JA.269) Mierefeld: “(H]e's known to be an honest broker." (JA.285) Geraghty: “They prefer to use him". (JA.302) Mintz: “I would use him in the future.” (JA,511) ** The following testimony contained at: the appendix citations ac- tually referred to by the CFTC at C.Br. ».19 for the claim that the witnesses lacked knowledge of the conviction establishes that the witnesses had extensive knowledge of Mr. Sundheimer's conviction: Rubin: "Q. Have you -- do you know of his conviction ‘ =-=— with respect to the crude oil?" "A. Yos, I do.” (JA.182) Corby: "Q. Now concerning Mr. Sundheimer's conviction in crude oil, how did you become aware of that?" "A. I first became aware of it on the C & S reporting of the indictment." A.124 In respect of the CFTC's erroneous contention that the testimony was "limited to Sundheimer's capability as a floor broker" (C.Br. p.&) petitioner respectfully refers the Court to (footnote cont'd) Corby: Stern: Herman: Mierefeld: "Q. ad « "6. Was he indicted?” I believe so. I'm not sure if that's the exact phsasiology, but there were sone articles on C & 8S." And he was naned in those articles?" Yes." (JA.199=-200) Do you know that he was convicted in con- nection with crude oil trading?" I've heard of it, yes. I know of it." ” ao # Now are you aware of the details of his conviction in the U.S. District curs?" Not exactly; I know that he had pleaded guilty to a charge, bus I don't know the details." Do you know what it involvad at all?" I understand that it involved some tax matters." Do you know whether it was related to futures trading?" Yes, I think it had something to do with with futures trading.” (JA.213,218) You know, do you not, that he was cernvicted?” Yes." De you know that it related to tax concerns?" Yes." And it was a felony?" Yes." Do you know whether it was involved with any commodity futures trades?" It was involved with crude oil trade." (JA, 269) Well, do you know of the conviction?" Yes, I do." Do you know the conviction involved aiding and abetting false tax returns filii.g?” Yes, I do.” Do you know it involves app ae ARE be PSE Se Eee vie 9 ites 9 : A.132 assume that an agency deliberately says what it means, particu- larly where, as here, the agency takes more than one year to ‘issue its decision. This being so, one must assume the CFTC deliberately set out to expand its jurisdiction. "Of the character of" does not mean “tantamount to". "Of the character of" requires all the elements of a specific subject referred to as of a particular time (S.Br. p.27 n.); "tantamount to" suggests “not quite”, and in this sense they are opposites. Should this expansion be sustained, how many agencies would be delighted to employ a similar device to escape the strictures constitutionally placed on their disciplinary powers (see S.Br. pp.30-33)? Even the affirmance without opinion of the already published, 2 Comm. Fut. L. Rep. (CCH) 421,245, "Tantamount Holding” is a green light to.any other agency desir:ng to orcaden its jurisdiction. Iv THE CFTC FAILED TO CONCEIVE A NON-VAGUE DEFINITION OF "ACCOMMODATION TRADE" AND FAILED TO SHOW THAT ANY PROPOSED DEFINITION WOULD APPLY TO MR, SUNDHEIMER The C.Br. alternately argues that “accommodation trade” should be defined in its “everyday meaning"* as "to assist another" in anything (C.Br. p.26) or as trades "outside the com- petitive scheme of the commodity futures market for the pursuse *™ No dictionary defines the term or defines "accommodation" as © “assist". Contrary to C.Br. p.28, there is no “common usace of 3 the term" accommodation trade. There was no testimony or other us evidence below as to any “usage” of the term (See S.Br. p.7 2.). p P Fo iar s SPage Be A.133 of enabling or scsieting another in an illegal trade." (C.Br. pp.28-29). The CFTC points to three related agency decisions which do not define "accommodation trades" as suggested in the C.Br. and which require fictitious trading as part of the defin- ition, an element absent here. The C.Br. ignores.the definition of the Act's legislative history. The first CFTC proposed definition, that of assisting another to do anything, is obviously too simplistic and incom- plete to define a violation. The second definition, that of enabling or assisting another in an illegal trade also cannot be the meaning intended by §4c(a) since aiding, abetting, counsel- ling, commanding, inducing or procuring an illegal trade is prohibited by Section 13(a) of the Act [7 U.S.C.A. §l%c] and the definition here argued for by the CFTC would make the term "accommodation trade" merely a weak redundancy of the prohihition of Section 13(a). Much of the CFTC's discussion of accommodation trading is in actuality a discussion of the desirability of conducting auction markets by open outcry and competitive bidding as man- Gated in most circumstances by Reg. §1.38 of the CFTC's General Regulations. There is no claim or showing, however, that the transactions which are the subject of Mr. Sundheimer's alleged activity were conducted in any manner other than "openly and competitively by open outcry or posting of bids and offers or by other equally open and competitive methods, in the trading pit or ring *** during the regular hours prescribed by the contract marxet for trading in such commodity ***." Reg. §1.38 of thc A.134 CFTC General Regulations. Nor was Mr. Sundheimer charged in the DE complaint with any violation of Reg. 1.38 (JA.28-30). Accord- ingly, that discussion is not relevant to the present appeal. Rejecting the clear definition of the Act's legislative history, the CFTC proposes three alternate means commonly used to determine the meaning of a statutory term in the absence of a clear statutory definition or definition by legislative history (C.Br. p.26): “common understanding” (absent here), “prior judic- ial construction" (also absent here) and "trade usage” (egregious- ly absent here since expert testimony could have been provided). As set forth at S.Br. pp.27-30 the legislative history of the Act is replete with definitions of accommodation trading which do not include any act which is the subject of the present proceeding, | and there is no acceptable reason to exclude the legislative history of the Act as a preferred method where it clearly and copiously exists. - Moreover, the Marks and Eisen cases relied upon by the CFTC at C.Br. pp.27-28 in an attempt to expand and broaden the established definition of accommodation trade, deal with ficti- tious trades which the CFTC has specifically determined were not involved in the present proceeding (JA.16 n.9). In re Laixen, 23 Agric. Dec. 1193 (1964), cited by the CPTC at C.Br. p.28 n.31, does not deal at all with an accommodation trade and the ter7 is mot used in the decision by the Judicial Officer or in the decision on the review by this Court. Accordingly, the agercy case law cited by the CFTC in an attempt to expand the definition Of accommodation trade created by the legislative history of the A.135 Act does not expand that definition to include the transactions which are the subject of the present proceeding. The CFTC argues for an interpretation of the Act which favors its constitutionality (C.Br. pp.25-26). So does Mr. Sundheimer on this review, but Mr. Sundheimer argues that such an interpretation requires that the acts which are the subject of this proceeding be deemed not to be included in the term “accommodation trade" for the very purpose cf preserving the constitutionality of the prohibition. The CFTC's reliance upon United Housing Foundation, Ine v. Forman, 421 U.S. 837 (1975), is misplaced. By determining that a housing cooperative offering plan was not included within the securities laws' definition of “securities” and thereby limiting the jurisdiction of the Securities Exchange Commission, the Supreme Cuurt did not adopt an expansive definitional rvle authorizing agencies to expand statutory definitions over the years to give meanings to regulatory sta utes never intended by Congress. Mr. Sundheimer agrees that the test of whether an act is an accommodation trade “must largely be a practical one". (C.Br. p.28). The most practical test is to refer to the estab- lished definitions of “accommodation trade" and determine that they do not include the transactions which are the subject of this proceeding. The mott practical test avoids tne issue of constitutional vagueness. THE CFTC'S SEVEN YEAR RULE MADE A SHAM OF MR. SUNDHEIMER'S HEARING ON REHABILITATION Sixteen highly credentialled witnesses voluntarily testified to Mr. Sundheimer's present trustworthiness, the issue which the CFTC concedes was the issue with respect to the Revocation (C.Br. p.18). No one testified against. The only testimony which appears at first glance to have been shaken was that of Mr. Aspinwall cited at C.Br. p.19 n.24. But Mr. Aspinwall was shaken by a misrepresentation by the cross-examiner (see Supra, p.11)*. The Seven Year Rule means that there was no way to show Mr, Sundheimer's trustworthiness or that showing it by “extensive testimony" (C.Br. 9.8) was a useless act. Accordingly, the See: Year Rule, announced after the fact of the "extensive testirton;” made a sham and mockery of the hearing. Why deceive Mr. Suné- ‘heimer into the embarrassment of asking his high ranking admirers for this “extensive testimony"? Why put him through the expense Of a hearing? Why put an agency, which complains it has too many applications to process (C.Br. p.16) to the extent of holding and reviewing the hearing? The reason is that the CFTC is required to hold a meaningful hearing. The Seven Year Rule ® Con [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385010_0143%3A2. Public record. Not legal advice.