Opposition — Sundheimer v. Commodity Futures Trading Commission

No. 82-1042 i FEB 17 1983

In the Supreme Court of the Anited States

OCTOBER TERM, 1982

STEPHEN M, SUNDHEIMER, PETITIONER

v~,

COMMODITY FUTURES TRADING COMMISSION

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

Rex BE, Lee

Solicitor General

Department of Justice

Washington, D.C, 205380

(202) 633-2217

DENNIS A, DUTTERER

General Counsel

KENNETH M, RAISLER

Deputy General Counsel

Davip R. MERRILL

S Counsel

ommodity Futures Trading Commission

Washington, D.C, 20581

‘7 * .

aL Wa ae ay)

QUESTIONS PRESENTED

1. Whether the court of appeals erred in its conclu-

sion that petitioner’s guilty plea in a criminal tax case

admitted activities constituting “transaction[s] * * * of

the character of * * * accommodation trade(s]” in viola-

tion of the Commodity Exchange Act.

2. Whether the court of appeals erred in affirming

the conclusion of the Commodity Futures Trading Com-

mission that, under all the circumstances, petitioner's

criminal guilty plea justified revocation of his registra-

tion as a commodities floor broker and the imposition of

other administrative sanctions.

TABLE OF CONTENTS

Page

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TABLE OF AUTHORITIES

Cases:

British American Commodity Options

Corp. v. Bagley, 552 F.2d 482, cert.

denied, 484 U.S. 988 .......ccceseeeeees 6

Emich Motors Corp. v. General Motors

Corp., 840 U.S. B68... .. ccc ee eeeeeeeees 7

Irwin M. Eisen, In re, 22 Agric. Dec. 758.. 6

Julian M. Marks, In re, 22 Agric. Dec. 761 6

Julian M. Marks, In re, 20 Agric. Dec. 457 6

Precious Metals Associates, Inc. v. CFTC,

GP Fee OOO co nccccicncvccesvesecesens 6

SEC v. Sloan, 486 U.S. 108 ..........0065 5

Il

IV

Statutes and regulation: Page

Commodity Exchange Act, 7 U.S.C. 1 et

seq.:

Section 2(a)(1), 7 U.S.C. 2............

Section 4e(a), 7 U.S.C. 6e(a) ......... 2, 5,

Section 4c(a(A), 7 U.S.C. 6e(aXA) .... 3

Section 4e, 7 U.S.C. 6e............44.

Section 6(b), 7 U.S.C. 9 ..........006.

Section 6(c), 7 U.S.C. 18b ............

Section 8a(2), 7 U.S.C. 12a(2).........

Section 8a(3), 7 U.S.C. 12a(8).........

Section 9, 7 U.S.C. 18................

Section 9(b), 7 U.S.C. 18(b)........... 3,

56 UBD. TRIO) oo ciccovvvcccccccccccces

STF Be TAG on ccccccccvihoccvcrecceves

On & NNNNWNN & &

In the Supreme Court of the United States

OCTOBER TERM, 1982

No. 82-1042

STEPHEN M. SUNDHEIMER, PETITIONER

Vv.

COMMODITY FUTURES TRADING COMMISSION

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. Al-A8)

is reported at 688 F.2d 150. The final opinion and order

of the Commodity Futures Trading Commission is re-

ported at [1980-1982 Transfer Binder] Comm. Fut. L.

Rep. (CCH) 4 21,245 (Sept. 16, 1981) and the Commis-

sion’s subsequent opinion denying a petition for recon-

sideration is reported at [1980-1982 Transfer Binder]

Comm. Fut. L. Rep. (CCH) 4 21,270 (Oct. 16, 1981).

The initial decision and order of the administrative law

judge are reported at [1980-1982 Transfer Binder]

Comm. Fut. L. Rep. (CCH) 4 21,020 (Feb. 15, 1980)

and incorporate an earlier decision and order reported

at [1977-1980 Transfer Binder] Comm. Fut. L. Rep.

(CCH) 4 20,855 (July 13, 1979).*

1 The opinions of the Commission and the administrative law

judge are attached as Appendices A, B, C, and D to this brief.

a

JURISDICTION

The judgment of the court of appeals was entered on

September 3, 1982. A petition for rehearing was denied

on October 21, 1982 (Pet. App. A9). The petition for a

writ of certiorari was filed on December 20, 1982. The

jurisdiction of this Court is invoked under 28 U.S.C.

1254(1).

STATUTES INVOLVED

Sections 4c(a), 6(b), 6(c), 9, 8a(2) and 8a(3) of the

Commodity Exchange Act, 7 U.S.C. 6e(a), 9, 13b, 13,

12a(2) and 12a(3), are se* forth at Pet. 3-10.

STATEMENT

On October 27, 1978, in the United States District

Court for the Southern District of New York, petition-

er pleaded guilty to a criminal information charging him

with knowingly aiding, assisting and advising in the

preparation of false and fraudulent income tax returns,

in violation of 26 U.S.C. 7206(2) (Pet. App. A3). In

pleading guilty to that felony, petitioner acknowledged

that the tax fraud was accomplished through pre-

arranged trades in crude oil futures contracts in which

he had authorized his firm to participate (Pet. App. A3,

Al8).

On January 16, 1979, the Commodity Futures Trad-

ing Commission (CFTC) issued an administrative com-

plaint pursuant to Sections 6(b), 6(c) and 8a(3) of the

Commodity Exchange Act, 7 U.S.C. 9, 13b and 12a(3),

alleging that petitioner, a convicted felon, was unfit to

remain registered with the Commission as a floor bro-

ker (Pet. App. A3).? In light of petitioner’s admitted

2 See Section 2(a)(1) of the Act, 7 U.S.C. 2, for a definition of

the term “floor broker,” and Section 4e, 7 U.S.C. 6e, for the re-

quirement that all floor brokers be registered with the CFTC,

3

participation in prearranged trades and manipulation of

the prices of crude oil futures contracts, it was also al-

leged that petitioner had violated, or aided and abetted

violations of, Section 4c(a)(A) of the Act, 7U.S.C.

6ce(a)(A), which inter alia, prohibits transactions “of the

character of’ accommodation trades, and Section 9(b) of

the Act, 7 U.S.C. 13(b), which forbids market price ma-

nipulations. The complaint sought an order revoking

petitioner’s registration, assessing a civil penalty of up

to $100,000 per violation, requiring petitioner to cease

and desist from violating the Act, and barring him from

trading on any commodity exchanges and requiring all

exchanges to refuse him trading privileges (App. A,

infra, 2a).

The CFTC’s Division of Enforcement moved for sum-

mary disposition of all allegations of the complaint pur-

suant to Commission Rule 10.91, 17 C.F.R. 10.91. The

Division argued that petitioner’s felony plea and convic-

tion estopped him from contesting allegations encom-

passed by the criminal information (Pet. App. A3-A4).

The administrative law judge agreed (App. D, infra,

33a-54a). He held that the guilty plea created a prima

facie case of unfitness, and that Sections 9(b) and

4c(a)(A) of the Act had been violated (Pet. App. A4). In

reaching this determination, the administrative law

judge found that petitioner’s conduct in prearranging

trades in crude oil futures contracts did not end prior to

April 21, 1975, the date the Act became applicable to

crude oil futures (ibid.). Accordingly, the administra-

tive law judge granted in part the motion for summary

disposition, but reserved judgment on the imposition of

sanctions pending a hearing at which petitioner could

present evidence of mitigating circumstances and reha-

bilitation (ibid.).

Following the hearing, the administrative law judge

concluded that petitioner had presented insufficient evi-

dence to show mitigation and rehabilitation (Pet. App.

4.

A4; App. C, infra, 21a-32a). Accordingly, the adminis-

trative law judge suspended petitioner’s registration as

a floor broker for six months, suspended his trading

privileges for two years, ordered him to cease and de-

sist from further violations of the Act, and fined him

$200,000 (Pet. App. A4).

On appeal, the CFTC affirmed the administrative law

judge’s finding that petitioner was unfit to remain reg-

istered because of his felony conviction. (App. A, infra,

10a). The Commission also held that the guilty plea

estopped petitioner from denying his participation in a

scheme involving the prearrangement of trades in com-

modity futures contracts after April 21, 1975, and that

this conduct constituted a violation of Section 4c(a)(A)

of the Act (App. A, infra, 9a). However, the commis-

sion vacated the administrative law judge’s holding that

petitioner had violated Section 9(b) of the Act, because

the guilty plea did not encompass all the elements nec-

essary to establish a prima facie case of market manip-

ulation (App. A, infra, 9a-10a). The Commission deter-

mined that petitioner’s registration should be revoked

rather than suspended, reduced the civil penalty to

$100,000, and affirmed the remaining sanctions (id. at

14a).

The court of appeals affirmed the Commission’s opin-

ion and order in a!! respects (Pet. App. Al-A8).

ARGUMENT

The decision of the court of appeals is correct and is

in accord with decisions of this Court and other federal

courts that have reviewed the imposition of administra-

tive sanctions. None of the issues presented warrants

further review by this Court.

1. Petitioner contends that the Commission exceeded

its statutory power in finding that the crude oil futures

transactions in question violated Section 4c(a)(A) be-

cause they were “tantamount to ‘accommodation

trades’” (App. A, infra, 9a n.9). Section 4ce(a)(A), ex-

5

pressly prohibits transactions “of the character of,” or

“commonly known to the trade as” accommodation

trades. Petitioner’s assertion is that the Commission’s

use of a semantic variation of the statutory phrase con-

stitutes an impermissibly expansive interpretation of

the statute (Pet. 23-28). In rejecting this argument

and upholding the Commission’s finding, the court of

appeals, while admonishing the Commission to adhere

more closely to the exact language of the Act, correctly

concluded that the Commission equated the terms “tan-

tamount to” and “of the character of’ (Pet. App. A5).

2. Petitioner also contends that the futures transac-

tions in issue were not of the character of accommoda-

tion trades because they were not fictitious, but were

trades actually executed on the floor of a commodity ex-

change (Pet. 21-23). In addressing this argument, the

Commission noted that while the prearranged trades

were real in the sense that they brought about an actu-

al change in the market position of the parties involved,

3 Petitioner attempis to analogize the Commission’s holding

that the crude oil futures transactions were tantamount to ac-

commodation trades to the former practice of the Securities and

Exchange Commission of issuing a series of 10-day orders sus-

pending trading of stock that this Court invalidated in SEC v.

Sloan, 436 U.S. 103 (1978) (Pet. 25-26). That case, however, in-

volved an agency’s attempt to fashion a remedy in a form that

was contrary to a clear and precise statutory provision. 436

U.S. at 117-119. Here the statutory provision does not address

the type of remedy to be employed but rather the parameters of

unlawful conduct, which the statute defines in the broadest of

terms.

Petitioner also suggests that the court of appeals’ determina-

tion upholding the Commission’s finding of accommodation

trades is in conflict with the holdings of other courts of appeals

(Pet. 26-27). However, the cases cited by petitioner to support

this assertion merely recite general propositions to the effect

that expansive interpretations of statutory standards by admin-

istrative agencies must be given careful judicial review. None of

these cases concerns Section 4¢(a) or any other provision of the

Commodity Exchange Act.

6

they were nonetheless tantamount to accommedation

trades prohibited by the Act (App. A, infra, 9a n.9).

The Commission based this conclusion on its finding

that these prearranged trades furnished “a vehicle for

utilizing a commodity futures market for extrinsic ad-

vantage without exposure to market risk” (ibid.). In

approving the Commission’s analysis, the court of ap-

peals noted that “[iJt is this intent, the absence of good-

faith, arms-length trading, and the undisclosed prear-

rangement for losses and gains, that demonstrates the

‘accommodation’ nature of the transactions in the in-

stant case” (Pet. App. A6).

Petitioner also claims that the prohibition against ac-

commodation trades in Section 4c(a) of the Act is uncon-

stitutionally vague (Pet. 28-30). Petitioner notes (Pet.

29) that the term “accommodation trade” is not defined

in the Act. The court of appeals nevertheless concluded

that there is no constitutional ambiguity in defining ac-

commodation trade as the Commission did here because

such a description conforms with the practical, every-

day meaning of the phrase (Pet. App. A6). See Pre-

cious Metals Associates, Inc. v. CFTC, 620 F.2d 900,

907 (1st Cir. 1980); British American Commodity Op-

tions Corp. v. Bagley, 552 F.2d 482, 484-485 (2d Cir.),

cert. denied, 434 U.S. 938 (1977). In addition, as the

court of appeals recognized (Pet. App. A6), this every-

day meaning is consistent with the prior administrative

application of the term. See, e.g., In re Julian M.

Marks, 22 Agric. Dec. 761, 766-772 (1963); In re Irwin

M. Eisen, 22 Agric. Dec. 758, 759 (1963); In re Julian

M. Marks, 20 Agric. Dec. 457, 458-459 (1961).

3. Petitioner next contends that his due process

rights were violated because the theory of the Commis-

sion’s case and the violations of law with which he was

charged were changed during the administrative proc-

ess without first giving petitioner notice and affording

7

him an opportunity to oppose (Pet. 20-34). This conten-

tion has no basis in fact.

The Commission’s conclusion that petitioner’s con-

duct involved engaging in transactions tantamount to

accommodation trades was based squarely on the

administrative complaint that the transactions “‘were

of the character of, or were commonly known to the

trade as, wash sales, cross trades, accommodation

trades, or fictitious sales * * *” (App. A, infra, la

n.1). The fact that the Commission did not sustain the

administrative law judge’s conclusion that petitioner

had engaged in “fictitious” sales does not, therefore, es-

tablish that petitioner did not have adequate notice of

the charges.

4. Petitioner asserts that ambiguities in his plea of

guilty and pleading allocution made it improper for the

Commission to conclude that petitioner had admitted

engaging in prearranged trades after April 21, 1975,

when the Act became applicable to trading in crude oil

futures. In reaching this conclusion, which was specifi-

cally upheld by the court of appeals (Pet. App. A3-A5),

the Commission was guided by this Court’s opinion in

Emich Motors Corp. v. General Motors Corp., 340

U.S. 558 (1951). See App. A, infra, 5a. In Emich Mo-

tors, the Court held that a party in a subsequent civil

proceeding is “entitled to introduce [into evidence a]

prior judgment to establish prima facie all matters of

fact and law necessarily decided by the conviction and

the verdict on which it was based.” 340 U.S. at 569.

The Commission applied this standard and concluded

that the administrative law judge, after making a care-

ful examination of the record of the plea proceeding,

had properly determined that petitioner’s plea included

an admission that prearrangement of trades continued

after April 21, 1975 (App. A, infra, 7a-9a).

5. Finally, petitioner contends that in concluding that

petitioner had not been rehabilitated, the Commission

8

improperly ignored the evidence of rehabilitation and

instead made the passage of time the determinative fac-

tor in its decision (Pet. 39-40). In rejecting petitioner’s

evidence of rehabilitation, the Commission concluded

that “[bJecause of the gravity of respondent’s violation

of the Act, we believe that rehabilitation in a case like

this requires a much greater passage of time before any

such evidence can persuade us that rehabilitation has in

fact occurred * * *” (Pet. App. A7; App. A, infra, 12a

n.13). As the court of appeals recognized (Pet. App.

A7), the passage of time is a relevant factor. Separate

from this criterion, the Commission gave serious con-

sideration to the evidence of rehabilitation (App. A,

infra, lla n.13), and its resulting determination was

correctly upheld by the court of appeals (Pet. App.

A8).* Although the court noted some concern with the

Commission’s choice of language, its review of the en-

tire record led it to conclude that the sanctions imposed

did not constitute an abuse of discretion (ibid.). The

court also observed (ibid.) that “[pJetitioner may

reapply * * * for registration. Silverman v. Commodi-

ty Futures Trading Commission, 562 F.2d 482, 489

(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 peti-

tioner a fair hearing accompanied by proper considera-

tion of all the evidence, petitioner’s claim of prejudice

may then be viewed in a different light.”

* The administrative law judge had also seriously considered

petitioner’s evidence of rehabilitation (App. C, infra, 24a-28a).

9

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

Rex E. LEE

Solicitor General

DENNIS A. DUTTERER

General Counsel

KENNETH M. RAISLER

Deputy General Counsel

DAVID R. MERRILL

Special Counsel

Commodity Futures Trading Commission

FEBRUARY 1983

crt:

OFFICE OF

UNITED STATES OF AMERICA HEARING CLERK

Before the

COMMODITY FUTURES TRADING commissianger If 2 38 PH’ BI

In the Matter of

Stephen M. Sundheimer,

Respondent

CFIC Docket No. 79-22

OPINION and ORDER

This proceeding was initiated on January 16, 1979 when a complaint

was filed pursuant to Sections 6(b), 6(c) and 6a(3) of the Commodity

Exchange Act ("Act"), as amended, 7 U.S.C. §§9, 13, and 12a(3) (1976),

alleging that Stephen M. Sundheimer had been convicted of aiding and abet-

ting the filing of false tax returns in violation of 26 U.S.C. §7206(2), a

felony, and hence was unfit to be registered as a floor broker. It was

also alleged that respondent had violated. Sections 4c(a) and 9(b) of the

Act insofar as he had adinitted to prearranging ns manipulating

prices of crude oil futures contracts traded on the New York Cotton Exchange,

respectively, while pleading guilty to a criminal information charging him

with such activities in connection with the filing of false tax returns.

Y None of the subsections of Section 4c(a) of the Act proscribe “pre-

arranged trading” in haec verba. However, the Division of Enforce-

ment in the complaint averred, inter alia, that respondent's pre-

arranged transactions “were of the character of, or were commonly

known to the trade as, wash sales, cross trades, accammodation

trades, or fictitious sales, or which were used to cause prices

to be reported, registered, or recorded which were not true and

bona fide prices, in order to create predetermined losses and gains

In commodity futures accounts" (Complaint at 2). These allegations,

if proven, would establish violations of Sections 4c(a)(A) and (C)

of the Act. See note 9, infra.

7 Gm October 27, 1978, respondent pleaded guilty to a criminal infor-

mation charging him with aiding and abetting the filing of false tax

(footnote continued)

la

-2-

Based on the foregoing, the Division of Enforcement sought a cease and desist

order) on order revoking respondent's registration as a floor broker; an

order prohibiting Mr. Sundheimer fram trading on or subject to the rules

of any contract market; and a civil money penalty (Complaint at 3).

(m March 19, 1979, respondent filed an answer admitting the guilty

plea and conviction, but denying unfitness. Upon motion of the Division of

Enforcement, Administrative Law Judge Robert £. Duncan partially granted

summary dieponition, finding that the Division of Enforcement had made a

prima facie showing that Mr. Sundheimer is unfit to be registered as a

floor broker by virtue of his felony tax conviction in federal district

court and the underlying prearrangement of trades and price manipulation

4 (footnote continued)

returns in violation of 26 U.8.C. §7206(2). It was also charged in

the information that respondent =~ :

(on behalf of Pressner Trading Corporation, of

which at all times relevant to thie Information

he was vice-president), together with other per-

sons, fixed, rigged and qe ey

trades and manipulated the movement of prices on

the Crode Oi] Market of the New York Cotton Exchange

for the Vg of creating predetermined losses

for an oi) for the fiscal endi

October 31, 1974 and for the fi year end

October 31, 1975, and predetermined gains for

the oi] company in the following fiscal years.

(Motion for Summary Disposition, Exhibit II, at 1.)

Cn January 9, 1979, the United States District Court for the Southern

District of New York entered a judgment of conviction against re

ent for “unlawfully, willfully and knowingly aid[ing), assisting

and bat Sr in we popes ion of falee and fraudulent income tax

e 26, Uni States Code, Section 7206(2))." (Motion

Respondent was thereupon

sentenced to imprisonment for one and was fined $5,000. This

qontene ws ee Sree SS SS

for one year with « jal condition that he one year to

some community activity on @ full-time basis, In fulfillment of

this condition, r served as a technica) assistant full-

tire with the Bureau of Bwironmental Protection of the New York

State Attorney General's office for one year without pay.

-}-

in crude 01] futures (Order Granting Summary Disposition at 15)“ mesons,

the judge Sound that because of admissions made during his guilty plea for

the filing of false tax returns the doctrine of collateral estoppel precluded

respondent fram denying that he violated Sections 4c(a) and 9(b) of the Act.

Id,, at 15.” However, respondent was afforded an opportunity to offer

y ‘The Administrative Law Judge aleo granted summary disposition as

to whether respondent's activities involving ation and pre-

arranged trading pooesetes April 21, 1975, the date which the

Act was made applicable to crude oii and whether Section 9(b) —

which provides criminal Beg oe my for manipulation, a fel under

that section — can be basis for civil sanctions under

the Act. (Order Granting Summary Disposition, at 2-3.) The judge

resolved all of these questions affirmatively.

y In this regard, the Administrative Law Judge stated:

Respondent contends that any collateral es

pertaining to his conviction is limited to his

crime and his ‘crime was that he aided and abetted

the filing of a falec tax return in 1974 and in

admitting his quilt he did not admit to all of the

matters cheseel ia the information.' The record,

however, does not t tis contention. At the

hear before the District Court on October 27, 1978,

ae Ly without reservation pleaded guilty to all

the facts charged in the Information, at para-

aph @. Respondent correctly ues under the

Mpeneral doctrine of estoppel,” “estoppel extends

only to questions ‘distinctly put Sa and directly

ety.” ¢ guilty plee yA

° © sa uv

tho aveonente in the indectenion admitted.

Vv» Rubin, 243 F.2d 900, 902 (7th Cir. 1 °

n the case of @ guilty plea collateral estoppel

may y by examining the record

i M 0 a= ) ‘ 15

Bi > ‘ ; olloway, concur i

py ; It). (Order Granting Summary pret ta

The j thereupon concluded that eepenas was collaterally

aie ft that he engaged in fictitious sales and

sanipeiation tn vialbtion of Un'nnne (Order Granting Summary

Disposition, at 14.)

ade

evidence on the issues of mitigation and rehabilitation at an oral hearing

held on July 25, 26 and 27, 1979, in New York, New York, at which time

sixteen witnesses, in addition to respondent, testified on these questions.

Qn February 15, 1960, the Administrative Law Judge filed an initial

decision in which he found that the evidence of mitigation presented by

respondent was insufficient to offset the gravity of his violations of the

Act. He also found that the evidence presented by Mr. Sundheimer did not

establish that Mr, Sundheimer was sufficiently rehabilitated to permit

registration or to conclwde that sanctions under the Act would be unwar-

ranted, Accordingly, the judge ordered Mr, Sundheimer to cease and desist

from further violations of Sections 4c(a) and 9(b) of the Act; suspended

hie registration as a floor broker for six months; prohibited him fran

trading on or subject to the rules of any contract market for twenty-four

months; and assessed Mr. Sundheimer a civil money penalty in the amount of

$200,000.

Fespordent has appealed to the Commission, challenging the judge's

findings that he viplated the Act, as well aw the severity of the sanctions

imposed against him, ‘The Division has crose-appealed arguing that Mr, Sund-

heimer's registration as a floor broker should be revoked, not merely sue

pended. After consideration of the record and all of the issues raised and

briefed by the parties on appeal, we have determined to affirm the determi-

nation of unfitness made by the Administrative Law Judge.

I.

In our view, Stephen M. Sundheimer is unfit to be registered with the

Commission because of hie felony conviction and because the admissions which

respondent made in pleading guilty establish that he violated Section 4c(a) (A):

da

+5.

of the net oe hold also that Mr. Sundheimer is estopped fran disputing the

factual bases for this conclusion. However, we have also determined that

the mere use of the word "manipulateJ” in the criminal information without

more specific detail does not establish that respondent actually manipulated

the crude oi] market as prohibited by Section 9(b) of the Act.

In deciding whether the ultimate judgment of guilt in respondent's

earlier criminal case has any collateral estoppel effect in this proceeding,

the Supreme Court's opinion in Bmich Motors Corp. v. General Motors Corp.,

340 U.S. 558 (1951), is instructive. In Emich Motors, the Court ruled that

a party in a subsequent civil proceeding "is entitled to introduce [into

evidence a) prior judgment to establish prima facie all matters of fact and

law necessarily decided by the conviction and the verdict on which it was

based.” 340 U.S., at 569 (emphasis added). Noting that there may be a

difficulty in determining "what matters were adjudicated in the antecedent

suit,” id., the Court indicated that trial judges in future cases must

"examine the record of the antecedent case to determine the issues decided

by the judgment.” 340 U.S., at 572. We are satisfied that the Administrative

Law Judge in accordance with Emich Motors conducted an examination of the

record of the respondent's guilty plea proceeding to ascertain what matters

were necessarily decided by that proceeding.

It is worth noting here that a knowing and voluntary plea of guilty

to a criminal charge constitutes an admission of all the material facts

alleged in the indictment or information, see, e.g., McCarthy v. United States,

394 U.S. 459, 466 (1969); Kercheval v. United States, 274 U.S. 220, 223

(1927); United States v. Rubin, 243 F.2d 900, 902 (7th Cir. 1957). In the

5/ _ See note 9, infra.

5a

=§=

earlier proceeding, Mr. Sundheimer entered a plea of guilty to a criminal

information charging him with filing false tax returns by fraudulently

prearranging trades and manipulating prices of crude oi) futures. Although

respondent was ultimately convicted of the tax offense only, our examination

of the record leads us likewise to the conclusion that the information was

sufficiently specific and respondent's prearrangement of trades was so

integrally related with his tax offense that all the activities specified

in the information, including those which constituted violations of the

net, were “necessarily decided” as the factual basis for his plea of guilty

to the tax offense.

Tf When the guilty plea was taken in district court, Mr. Sundheimer was

questioned by the court concerning the circumstances upon which the

plea was based:

[By the Court:) Q. Mr. Sundheimer, I want you, in your

own words, to tell me just what it is that

you did that is the foundation for your

Gecision to plead guilty to the information.

I gave my consent to that arrangement and I

was present when it was made.

Q. And consent was necessary to the making

at Gas ecsment

A. Yes, it was, your Honor,

(footnote continued)

6a

-7-

It is on this basis that we disagree with Mr. Sundheimer that, not~

withstanding his plea of guilty to all matters alleged in the information,

he did not admit that the prearranged trades occurred on or after April 21,

1975. He argues on appeal that “there is simply no evidence [in the

record) that respondent engaged in unlawful conduct in (sic) or after April

21, 1975" the date on which the Commodity Exchange Act was made applicable

to crude oi] futures (Respondent's Brief at 26).

As mentioned previously, the criminal information to which respondent

pled guilty charged him with "creating predetermined losses . . . for the

6/ (footnote continued)

Q.

A.

Q.

And did you understand that the purpose of that

arrangement was to enable the oil campany to

take certain tax losses on its corporate tax

return?

Yes, I did, your Honor.

And did you also then give your consent to a

similar arrangement for the following year?

I think that it was implicit in the initial

understanding. ‘There was no additional consent

required.

Are you in good health today, Mr. Sundheimer?

I hope so.

[By the Court:) Very well, gentlemen. I shall accept the plea.

(Order Granting Summary Disposition In Part, Exhibit III, at 9-11.)

Furthermore, Stephen Sundheimer was questioned by the court:

Q.

A.

(1d. at 11.)

Gm an information filed this day, October 27,

1978, how do you plead to this information?

I plead guilty, sir.

7a

-8-

fiscal year ending October 31, 1974, and for the fiscal year ending October

31, 1975, and predetermined gains for that company in the following fiscal

years” (Motion for Summary Disposition, Exhibit II, at 2; emphasis added).

Given the nature of straddles intended to result in a tax benefit, a "gain"

transaction in "the following fiscal year” necessarily requires trading

activity within that vont tt therefore follows tran the quoted

language that respondent's unlawful activities and consent carried into the

fiscal year commencing November 1, 1975 and ending October 31, 1976-—the

fiscal year following that ending October 31, 1975—and, thus, after the

date on which the Act became applicable to trading in crude oil aia”

On that basis, we conclude that respondent is also estopped from denying

his participation in a scheme involving the prearrangement of cammodity

Vy In typical commodity straddle transactions that are intended primarily

for tax benefit, a trader buys and sells an equal number of contracts

of a commodity in different delivery months. It is hoped that any

market price movement will result in a loss on one side, or leg, of

the straddle and a gain of a ago | equivalent amount on the other

leg. ‘The trader then seeks to liquidate the losing side in the present

tax year, as pertinent here, the year ending October 31, 1975. If

successful, the trader then claims a loss in that accounting period,

while the other leg of the straddle, the one showing a profit, is

not intended to be liquidated until the following tax year, in this

case the year ending October 31, 1976. ‘This is designed effectively

to shift what might otherwise be taxable incane from one year to the

next.

LTA Mr. Sundheimer's testimony at the guilty plea proceeding, the relevant

portion of which is set forth in note 6, , is not inconsistent

with this conclusion. Respondent expla the court that "some-

time in the fall of 1974" he authorized prearranged trades which

"ultimately" — meaning the following year as respondent was speaking

about tax straddles — enabled an oil company to obtain tax benefits.

He further testified that he consented implicitly to a similar arrange-

ment for the following year, i.e., respondent authorized additional pre-

arranged transactions which ed an oi] company to take losses

that year — fiscal 1975 — and ultimately to obtain tax gains in

following year — or fiscal 1976. Further, Count I of the informa

specified that Mr. Sundheimer's assistance in the tax fraud scheme

extended until July 19, 1976.

in

the

tion

-9-

futures transactions after April 21, 1975 and that this constituted a

violation of Section 4c(a)(A) of the Act.

Turning then to the second count of the administrative complaint,

the Commission is not persuaded that a guilty plea to a criminal information

charging merely that respondent “manipulated the movement of prices on the

Crude Oil Market” in the context of a false tax return case prosecuted by

the Department of Justice necessarily establishes all the elements of a

market manipulation as proscribed by the Commodity Exchange Act. To be

sure, the "methods and techniques of manipulation are limited only by the

ingenuity of man.” Cargill, Inc. v. Hardin, 452 F.2d 1154, 1163 (8th Cir.

1971), cert. denied, 406 U.S. 932 (1972). Nevertheless, while the pre-

arranged transactions were necessarily a part of respondent's overall tax

evasion scheme, it does not follow that the transactions resulted in a

market suiieitantin.”” phim there is an inadequate basis in this record

9/ Section 4c(a)(A) ee persons fram engaging in transactions

lving any commodity: “if such transaction is, is of the char-

acter, or is commonly known to the trade as a ‘wash sale’, ‘cross

trade,’ ‘accommodation trade’, or is a fictitious sale." Insofar

as the prearranged transactions to which Mr. Sundheimer admitted

were real trades, that is, they brought about an actual change in

market position between respondent's company and the oil company,

see Tr. — 379-80, they did not constitute "fictitious sales” as

proscribed by Section 4c(a)(A). ‘Therefore, the judge's cuaiusion

in this regard is vacated. However, respondent's prearranged

transactions did furnish the oil company with a vehicle for utilizing

@ commodity futures market for extrinsic advantage without exposure

to market risk, and to that extent, they were tantamount to “accom

a trades” which are also prohibited by Section 4c(a)(A) of

Act.

10/ Without purporting to delimit the parameters of manipulation, we would

note that, in general, the elements of the ae Deen © SNS

ability to affect price levels or trends in the — contract and

market, the intentional exercise of that power, and an effect on price

resulting fram that exercise.

9a

-10-

to support a conclusion that the activities of Mr. Sundheimer in fact

caused a manipulation, we conclude that the Administrative Law Judge erred

in his assessment that the Division established prima facie that Kota 7

violated Section 9(b) of the Act and we vacate his holding in that regard.

Il.

As noted above, the Division has cross~appealed challenging the

judge's order merely to suspend Mr. Sundheimer's registration as a floor

broker, arguing that it should be revoked. Mr. Sundheimer has endeavored

to persuade us that we should not do so. We agree with the Division.

By virtue of Section 6a(3) of the Act, the Commission is empowered to

revoke the registration of a person who has committed a felony. ‘Therefore,

Mr. Sundheimer's conviction for the filing of false tax returns, a felony,

justifies revocation of his registration. See 7 U.S.C. $12a(2)(B) as

incorporated in §12a(3). And we have also concluded that Mr. Sundheimer

engaged in prearranging trades in the crude oi] market. This conduct

constitutes a serious violation of the Commodity Exchange Act.

11/—s We wish to emphasize that this conclusion is based on the record as

it exists herein. ‘The only evidence Produced by the Division of

Enforcement was the criminal information and the testimony of Stephen

Sundheimer at his guilty plea Proceeding. Nothing in this decision

should be construed to mean that the Commission has analyzed the

facts and circumstances underlying respondent's guilty plea and testi-

mony or the conduct of other persons involved with Mr. Sundheimer in

his tax fraud scheme. Further, we do not mean to suggest that a guilty

plea in other circumstances might riot bare sufficient detail to estab-

lish a market manipulation in the full measure of proof required under

the Commodity Exchange Act.

1 An administrative agency may increase a sanction beyond that imposed

4/ by an administrative law judge. Pink v. Securities and

Commission, 417 F.2d 1058, 1059 (24 Cir. ; v.

Commission, 415 F.2d 591, 599 (24 ¢. ct. 969).

Putures Trad ssion, 562 F.2d + 48

10a

-ll-

Moreover, as a floor broker, Mr. Sundheimer's participation in

prearranged trading, apart fran being a violation of law, breached the duty

that commodity professionals owe, not only to the futures market but also

to those who rely upon their bona fides. We believe that it ir our trust

to assure beyond all question that "the highest ethical standards prevail"

in every facet of the commodity futures industry and that breaches of those

standards must be answered in kind. Cf. Commodity Futures Trading Commission

v. J.S. Love & Associates Options, Ltd., 422 F. Supp. 652, 659 (S.D.N.Y.

1976). And "Congress invested the Cammission with revocation power to

safeguard the public interest in the well being of the nation's canmodity

futures markets.” Silverman v. Commodity Futures Trading Commission, 562

F.2d 432, 439 (7th Cir. 1977). To insuie against such conduct in the

13/ _—siIn In the Matter of Carl M. Tipton, Jr., [1977-1980 Transfer Binder)

Comm. Fut. L. Rep. (CCH) #20, a3 (September 22, 1978), aff'd mem.,

No. 78-3581 (6th Cir. Oct. 3, 1980), at 22,750, we sta

although the burden of producing a sufficient

quantum of evidence to establish pr facie

unfitness initially is on the Division, the

ultimate burden — the burden of persuading

the Commission that he is not unfit for regis-

tration — is squarely on the applicant once

the prima facie showing has been made.

Upon consideration of Mr. Sundheimer's proffered evidence of rehabil-

itation and mitigation, and in light of his past misconduct, the

Commission is not persuaded that Mr. Sundheimer's continued a ge

tion would present no substantial risk to the marketplace. Cf.

the matter of sus-Feter F. Schreiber, CFIC Docket No. "8-6 (ecanie-

sion Commission is not insensitive

to the fact that pocondh AM has already performed one year of full-

time community service in lieu of imprisonment for the same duration.

See n. 2, supra. But this was nothing more than payment of the debt

owed as the result of respondent's felony tax conviction, which

levebeee different policy considerations and a different social

purpose. And Mr. Sundheimer's proffered evidence of rehabilitation

(footnote contir.ued)

ila

“12

future and to serve as a warning to others, we conclude that the public

interest policies of the Act can best be served by revocation, not merely

suspension, of Mr. Sundheimer's registration as a floor broker.

We also find the twenty-four month suspension of respondent's trading

privileges to be particulary appropriate. It is apparent that the unlawful

trading activity was carried out with Mr. Sundheimer's authorization for

the benefit of his own company. This conduct, while not causing injury to

customers, as far as the record shows, was a serious violation and a direct

abuse of his market trading privileges. A denial of those privileges will

serve as a signal to others and to protect the market at least for the

period of the tisding prohibition. Cf. Haltmier v. Commodity Futures

Trading Commission, 554 F.2d 556, 564 (2d Cir. 1977).

Finally, in furtherance of the remedial policies of the Commodity

Exchange Act and to Jeter others in the industry fran committing similar

violations of the Act, we find it necessary to impose a civil money penalty

13/ = (footnore continued)

has received: serious consideration by the Commission. However, in

Tipton, supra, at 22,750, we stated that

the applicant's failure to persuade the Can-

mission that the public interest will not be

Gisserved by his registration will be fatal to

his application. Indeed, if the Commission,

after considering the evidence offered by the

applicant, retains any doubt as to whether or

not the public interest dictates a refusal of

registration, the applicant will not be registered.

Because of the gravity of respondent's violation of the Act, we

believe that rehabilitation in a case like this requires a much

greater passage of time before any such evidence can persuade us

that rehabilitation has in fact occurred such that registration

poses no unreasonable risks to the commodity futures markets and

to the public.

l2a

-13-

against Mr. aeitlictetie Pa determining the amount of such penalty, we

have focused primarily upon the gravity of respondent's violation, that

is, his participation with others for the purpose of financial gain in pre-

arranging the trades, the deliberate intent on the part of respondent and

the fact that respondent's participation in the prearranged trading scheme

continued for at least two years. All reflect to respondent's detriment in

our consideration of the gravity of his violation. ‘The Administrative Law

Judge found Mr. Sundheimer's net assets to be worth more than $1,000,000.

(Initial Decision, at 11.) While respondent complains that most of those

assets are iatiquid,~” be does not challenge the judge's computation

of his net worth. Since this offense is nearly as egregious as market

14/ ~—s See Section 6(d) of the Act.

15/ = Respondent has also raised the argument that the Administrative

Law Judge's assessment of a civil money penalty must be set aside

because the judge failed to consider that most of his assets are

not liquid and thus not readily available for the payment of a fine.

We consider this argument to be frivolous; there is no basis in law

to conclude that the nature of a respondent's assets requires the

government to stay its hand in imposing a monetary sanction.

The Administrative Law Judge considered Mr. Sundheimer's ability to

continue in business in determining the amount of the penalty, and

found his net assets to be a relevant factor in figuring respondent's

ability to continue in business (Initial Decision at 11). Respondent

argues that because it was established that he is a person “whose

primary business involves the use of the commodity futures markets,"

under Section 6(d) of the Act, it was error for the judge to con-

sider his net assets or net worth as factors in assessing the amount

of the penalty (Respondent's Brief, at 47).

We have a slightly different view, given our determination to revoke

Mr. Sundheimer's registration. We have made the ultimate determination

that Mr. Sundheimer is unfit to “continue in business on the basis

of his present registration.” Therefore, while that factor must be

considered by the Canmission where a termination of registered status

is not contemplated or where the respondent's business activities

did not require registration, consideration of respondent's ability

to continue in business has become moot under the circumstances

presented here. Moreover, the net worth of respondent to the extent

that standard is applicable here, is more than sufficient to sustain

the civil money penalty imposed here.

l3a

-14-

manipulation, the gravest offense under the Act, a civil money penalty of

$100,000 is appropriate here. Accordingly, the $200,000 penalty imposed =

Mr. Sundheimer by the Administrative Law Judge is remitted to that amount.

Upon consideration of the record as a whole, all arguments raised

and briefed by the respondent on appeal and in accordance with a preponder-

ance of reliable, probative and substantial evidence, IT IS that

the registration of Stephen M. Sundheimer as a floor broker is HEREBY REVOKED.

TT IS FURTHER ORDERED that respondent cease and desist fran further viola-

tions of Sections 4c(a)(A) of the Act; that respondent be prohibited fran

trading on or subject to the rules of any contract market for a period of

twenty-four months. Respondent is also ordered to pay a civil money penalty

in the amount of $100,000 within thirty days of notice of this order.

By the Commission (Chairman JOHNSON and Commissioners DUNN, GARTNER

Secretary of the Canmission

Commodity Futures Trading Commission

Dated: September 16, 1981

16/ Under Section 6(d) of the Act, the Commission is empowered to impose

a civil monetary penalty against a respondent who has violated the

Act up to $100,000 per violation. ‘The Administrative Law Judge's

imposition of a penalty in the amount of $200,000 inst r t

was based in part on his conclusion that Mr. Sundheimer had violated

both Sections 4c(a) and 9(b) of the Act. See Initial Decision at

10-11. Because we have vacated the juige"s determination that

respondent engaged in manipulation, the $100,000 assessed for this

offense is required to be withdrawn under Section 6(d) of the Act.

l4a

APPENDIX B

ore ££ oF

COMCOTTY FUTURES TRADING commcrssron WEARING CLERK

cr 6 9 35 AHO!

In the Matter of

Stephen M. Sundheimer,

Respondent

CFTC Docket No. 79-22

ORDER

* + + 08 oF oe oe oe

Qn September 16, 1981, the Commission issued its final opinion and

order in the above-captioned proceeding in which it determined that respondent

Stephen M. Sundheimer was unfit for continued registration because he had

been convicted of filing false tax returns in violation of 26 U.S.C. §7206(2),

a felony. The Commission also determined that Mr. Sundheimer participated in

a prearranged crude oil futures trading scheme in violation of Section

4c(a)(A) of the Commodity Exchange Act, as amended, 7 U.S.C. §6c(a)(A)

(1976). On those bases, the Commission revoked Mr. Sundheimer's registration

as a floor broker, ordered respondent to cease and desist fram further

violations of Section 4c(a)(A) of the Act, ordered that respondent be

prohibited fram trading on or subject to the rules of any contract market for

a period of twenty’-four months, and assessed a civil money penalty of $100,000

against Mr. Sundheimer.

M& October 1, 1981, Mr. Sundheimer filed a “petition for reconsidera-

tion" of the Commission's September 16 opinion and order. Respondent also

filed on that date a motion for a stay of the Commission's opinion and order

“pending determination of the petition for reconsideration and of the appeal

of that order to the United States Court of Appeals for the Second Circuit."

yY Qn October 1, 1981, respondent also filed a notice of appeal of

the Commisrics's opinion and order in the United States Court of

Appeal for the Second Circuit. Mr. Sundheimer sets forth his grounds

« appeal at tie end of his petition for reconsideration.

s

15a

-2-

Q&m October 8, 1981, the Division of Enforcement filed responses opposing

both the petition for reconsideration and the motion for a stay.

The standard against which respondent's petition for reconsideration

must be judged is Commission Regulation 10.106, 17 C.F.R. §10.106 (1981)

which provides that "[a)]ny petition filed under this subsection must be

confined to new questions raised by the opinion or order and concerning which

the petitioner had no opportunity to argue before the Commission.” In our

view, respondent's petition does not meet this standard, and, therefore,

should be denied. In addition, we believe that inasmuch Mr. Sundheimer's

motion for a stay articulates no adequate justification for the Commission

granting a stay, it should likewise be denied.

In his petition, Mr. Sundheimer sets forth several criteria as bases

for reconsideration by the Commission of its opinion and order. None of

those criteria pose "new questions raised by the opinion and order" about

which he did not previously have an opportunity to argue before the Commis-

sion. Foremost among what might be considered "new" matters raised by respon-

pw a basis for reconsideration is his argument that the Commission has

not considered the' passage of time since the July 1979 hearing as evidence of

rehabilitation. To that end, Mr. Savtheinee argues that the absence of “any

complaint by any member of the public, any member of any exchange, or any

enforcement agencies" constitutes new and additional evidence of his reha+

bilitation. (Petition, at 3.) Another new matter raised by respondent is

his averment that his company, Pressner Trading Company, voluntariiy dis-

2 Al these may be considered new matters raised by respondent

at this juncture, they are not "new questions raised by the opinion

and order and concerning which the petitioner had not rtunity

‘que

to ar before the Commission." Commission Regulation 10.106.

l6a

-3-

continued its operations as a futures commission merchant in order to

preserve the positive image of the futures industry, because several

of the company's officers had been under criminal indictment. (Petition,

at 11-12.)

Mr. Sundheimer's first “new” matter presupposes that the Commission

failed to consider the complete passage of time that has elapsed since his

participation in the prearranged trading scheme in arriving at its determi-

nation that respondent was insufficiently rehabilitated. However, it

has only been within the past few weeks that the Commission has actually

considered whether "ir. Sundheimer was rehabilitated, and it was concluded

that “rehabilitation in a case like this requires a much greater passage of

time before any such evidence can persvade us that rehabilitation has in fact

occurred such that registration poses no unreasonable risks to the commodity

futures markets and to the public.” Opinion and Order, at 12 n. 13. It was

presumed at that time that Mr. Sundheimer had obeyed the law — as he was

required to do — between July 1979 and Commission consideration. ‘Thus,

respondent's argument provides no basis for reconsideration. _

Respondent's other "new" matter raised concerns a voluntary discon-

tinuance by Pressner Trading Company of its operations as a fitures commission

merchant to preserve the positive image of the futures industry. While this

matter may be viewed as a commendable gesture, it is not pivotal on the issue

of whether the public interest dictates that sanctions be imposed against

respondent. Mr. Sundheimer's illegal conduct was an abuse of the camndity

futures markets and his license as a floor broker, irrespective of any

involvement of Pressner Trading Company in its capacity, or role, as a

futures commission merchant. While discontinuance of Pressner's operations

17a

-4-

as a futures commission merchant may foreclose an avenue by which respondent

may commit unlawful activity, only revocation of respondent's individual

registration as a floor broker and a prohibition of his trading privileges

will ensure that further opportunities for abuse of the markets on his part

are foreclosed. As the Commission recognized in its opinion and order, the

cease and desist order and the civil money penalty are necessary to protect

the public interest and to deter respondent and others in the industry from

committing similar violations of the Act in the future.

The other questions raised by respondent's petition cannot be consid-

ered "new." Mr. Sundheimer previously had the opportunity to argue all such

questions before the Commission, and the Commission, in fact, addressed most

of then in its opinion and a, Accordingly, we have concluded that

respondent's petition for reconsideration fails to satisfy the standard

enunciated in Commission Regulation 10.106, and on that basis, the Commission

HEREBY ORDERS that Mr. Sundheimer's petition for reconsideration is DENIED.

3/ The other matters raised by respondent which cannot be considered to

raise "new questions” are: that the Commission failed to appreciate

fully respondent's proferred evidence of rehabilitation and mitigation

(Petition, at 8-9); that the unlawful prearranged crude oil futures

trades were not executed by Mr. Sundheimer personally (Petition, at

4); that it was implicit that respondent's participation in the

prearranged crude oil futures trading scheme terminated before April

21, 1975, the date upon which the Commodity Exchange Act became

applicable to crude oil futures (Petition, at 7); and , finally, that

respondent's econamic livelihood derives solely from his ability to

trade in commodity futures, and he.has no other business experience

fran which to earn a living (Petition, at 11).

In a footnote, Mr. Sundheimer also camplains that he received harsher

sanctions than an “active participant” in the same prearranged trading

(footnote continued)

18a

--

As mentioned earlier, Mr, Bundheimer has aleo filed a motion for a

etay of the Camniasion's opinion and order “pending determination of the

Petition for reconsideration and of the appeal of that order to the United

Btates Court of Appeal for the Becond Ciroult." Respondent has not proffered

any other justification for a stay beyond the motion for reconsideration

whieh we have just considered and denied, Under the ehrounstances, we are

not persuaded that the public interest will best be served other than by

applying the sanetions ordered againgt Mr, Bundhelmer at the earliest possible

Y —_—_ (footnote continued)

sohene, Gee Petition, at 6, Reapondent te referring to 4 Mr, Jules

Nordlicht, seeretary-treasurer of Presener Trading during the

relevant time pot » Nordlieht was named as a ina

ope Coe proceeding, That soveding van ressived wy tay

ition wherein the Nieteative Law Judge concluded

f, yg erst » had engaged in "fictitious ae in

violation of fection the hot, 70.8.0, G6e(a) (1076), and

that he intentionally manipulated the erude O11 futures markets, in

violation of Beetion 0(b) of the Act, 7 U.6.C, €13(b) 444 Ob) (Perry

‘ 2 Cam, Put, L. . aon ae

ring on sanetiona,

the sole ais for the denial of hie regieteation,) Mr. Nordlieht

also agreed to # 675,000 civil money ty, @ Cease and desiat

order, and a three month prohYition an trading.

To the extent that Mr, Gundheimer by this complaint te ting

that the Comniasion has diseriminated againat him concern he the

opeen of sanctions, suffice it to that the Comnias

mines the propriety of sanctions to be meted againat individual

voqpendente On &@ Ganenty-cane basis, not with @ view toward other

reapondents in other proceedings, ‘That the Cowalesion has entered

into @ settlement concerning sanctions against another respondent in a

capenetes although similar, proceeding in no way limite the diseretion

~~~ Ay B A. - And the ; no 1

his re requir

Under the Act or the Maministrative Procedure Rot for absolute

wiiformity of sanctions for similar + pee rads v.

» 4 0.6, 162, a '

- ‘ Fe ’ (sth Cir. 1970).

«ge

moment, ‘Therefore, the Commission MED’ ORDERS that respondent's motion

for a atay ie DENIED,

y Ly Commiasion (Chaleman JOMNSON and Commissioners DUNN, GAFINER and

" pecretary of the Cawnlasion

ity Futures Trading Gowniesion

Dated) Geteber 16, 100)

v Gn Cotober 6, 1001, the Division filed a motion to amend the opinion

and order in thie proceeding to clarify the effect of the eslon's

order prohibit we Swe tram trading and to apecify the

effective date sanctions, ‘The Commission's order LA

effective Ad yr L. the civil money peaty oe be quite on o

on

+ B thir y aye Peres . hasordiraly y onpuee Oe 2 oe ets

4 ‘ate contract mastets were fequived to pe 4. respondent trad

vee upon notice of the Commission's Beptember 16, 1981 op

order,

204

APPENDIX &

AAS UNITED BTATER OF AMERICA

\ CGMMODITY FUTURES TRADING COMMISSION

ob ah EEN

In the Matter of

ATEPHEN M, SUNDHEIMER, , GFTC Docket No, 79622

heapondent

VINCENT L, MORGAN, Baquire

DONALD R, LEVINE, Bequire

Division of Enforcement

Commodity futures Trading Commission

2033 K Street, NW,

Washington, BD, C, 2058)

For the Divieton of Enforcement

JULIUS BERMAN, EBaquire

VINCENT J, SYRACUSE, EBequire

hax! feholer, Flerman, Haye & Handler

425 Park Avenue

New York, N.Y, 0022

For the Reapondent

Hhefore; ROBERT BE, DUNCAN

Admintatvative Law Judge

INITIAL DECTOION AND ORDER

Zia

fxerement of the Case

On July 13, 1979, @ Decision and Order was tesved in

thie adminietrative proceeding brought againat Stephen M.

fundheimer, Respondent, a regletered floor broker, grentins.

in part, summary disposition and Sotermsaine that ]

euffictent showing had been wees by the Divieton o orce-

ment that Respondent, because of hie felony eonvietion and

beause of hie manipulation of futures prices and fietitious

sales of fucures contracts in violation of the Commodity Exchange

Act, ae amended, gc.0§ i ti ("aet") «« in the

absence of vitiating or countervalling evidence «» te wnfit

to remein realstere ae a floor broker, (2) Reaponden $

manipulation o younee prices and fietitious sales § utures

contracts oceurved after the effective date of the 1974 amend-

ment i$ the Act and are within the juriedietion of the Commission

and ( Reapencen # manipulation of futures prices in violation

of fection 9(b) of the Act provided a basie for the imposition

of sanctions in an adminiatrative proceeding t wae further

determined that an evecen) tery hearing should we afforded the

parties for the purpose of offering evidence on the tesues of

mitigation, rehabilitation and the eoprepepacenses of the

appl cation of any sanetions pursuant to the provisions of the

Act, The hearing for thie purpose wae held on July 25, July 26

ang July 27, 1079, in New York, N. ¥. The parties were afforded

ull opportunity to be heard, adduce evidence, call, examine and

cross-examine witnesses, submit oral argument and file proposed

findings and conclusions,

Leevee

The Leaves remaining for egnesdereston and decieton in

thie case are the following (Tr. eA, 41);

1, Whether Respondent nes eatabliehed that

there are mitigating facta pevcesens

to hhe violations of the Act,

Il, Whether Respondent has established

facts showing hie rehabilitation,

Ill, Whether, based upon Respondent's

violations of the Act and the evidence

of record, sanctions should be imposed

againet Respondent pursuant to the

provietone of the Act,

e $e

Based upon the entire record, including the exhibits

and testimony adduced and from my observation of the witnesses

and their demeanor, I make the following Findings of Fact,

Conclusions of Law and Order:

Findings of Fact and Conclusions of Law

On July 13, 1979, after consideration of a motion

filed by the Division of Enforcement, an opposition thereto

by Respondent and supporting papers and arguments by the

parties, an Order granting partial summary disposition was

issued in this case. It was determined therein that on

genuety 9, 1979, Respondent was convicted of a — in

Federal Court and that Respondent acted with others between

September 1974 and July 19, 1976, in fixing, rigging and

fraudulently prearranging trades and manipulating prices on

the Crude Oil Market of the New York Cotton Exchange for the

purpose of creating predetermined losses. Respondent intentionally

and willfully engaged in fictitious sales in violation of the

Act and in price manipulation of futures contracts which resulted

in artificial prices in violation of the Act.

2. Because the hearing held on July 25, July 26, and

July 27, 1979, arguably interjects additional considerations

concerning the nature and character of the violations, a

re-evaluation of the allegations of the amended complaint

in the context of the record as supplemented by the evidence

adduced at the ——— has been made. on such re-evaluation,

the Findings and Conclusions stated in the July 13, 1979

Decision and Order continue to be findings and conclusions

in this case and are adopted and confirmed as a part of the

Findings and Conclusionsin this Initial Decision and Order.

a The evidence of mitigation in the

record fails to establish that the

facts and circumstances of the

violations alter or alleviate the

seriousness and gravity of the

violations.

3. As noted, supra, the Division of Enforcement has

established a prima facie case of Respondent's willful viola-

tions of the Act. In such circumstances, it is Respondent's

“burden to go forward to persuade" that sanctions contained

in the Act should not be applied, Silverman v. Commodity Futures

23a

-4-

i ission, 562 F.2d 432, 438 (7th Cir. 1977); Savage v.

utures Trading Commission, 548 F.2d 192, 196 Ce

r. @ evidence submitted at the July 1979 hearing

concerning mitigation or be nrg circumstances was fragmentary

and insubstantial. Respondent testified and called 16 witnesses

who testified in support of his contentions. Respondent stated

that his plea of guilty to the criminal charge of aiding and

abetting the filing of false tax returns followed discussions

between Respondent, Respondent's attorney and Government prose-

cutors (Tr. 355). agama testified that the reason he pled

guilty was (Tr. 356-357):

I came to realize that I was pity. 1

was guilty of the crime that I pled guilty

to. I don't think I was really guilty of

the crime the very first day that I committed

the crime.

ae * *

I learned it later, and when I knew it

I felt that it was wise to own up to it.

I wasn't going to run away from it.

Respondent further testified that his involvement in the fictitious

sales and price manipulation of futures contracts which resulted

in the criminal charge began in 1974 and that he consented to

the transactions. As a vice-president of Pressner Tradin per” oh

his consent to the arrangement was necessary (Tr. 372-373). e

sqrenereene was a "tax straddle" and "it was completed in 1975"

(Tr. 383). Respondent testified (Tr. 379-380):

[C)ertainly the initial transaction was

prearranged, but I had a great deal of

pine ag oo whether or not in the end there

could be successful prearrangement of the

offset because -- but, in any case, it did

come out that way, yes.

* * *

When we put the trades on initially we

insisted they be of a character of what

is known as ‘butterfly spreads’, which

affords a greater degree of protection

against peculiar market movements in

connection with differences, price

differences. Butterfly you would have --

the structure of the transaction affords

certain protection.

24a

« $e

We felt that the butterfly spread was

our insurance that in case something

happened to the prearrangement * * *,

Respondent's testimony reflects a deliberate and knowledgeable

action on his part with careful attention to the mechanics of

the trading to protect against the positions poing awry. Nothing

in Respondent's eT ounseste that extraordinary circumstances

existed at the time of the challenged transactions, compelling

Respondent's actions resulting in Respondent's violations of

the Act. Respondent's reasons for the activities found to be

violative of the Act were to acquire financial gain (See Tr.

388). I have carefully reviewed the record for conviieeng

evidence of extenuating or mitigating circumstances, and

find and conclude that there is no such evidence attendant to

the transactions constituting violations of the Act.

4. Respondent relies upon testimony by Mitchell F.

Baumeister, an Assistant District Attorney who was in charge

of the investigation on behalf of the State of New York into

trading activities on the crude oil futures market of the

New York Cotton Exchange. The evidence collected bv the

investigation was submitted to Federal authorities in New York

and Mr. Baumeister was asked to become a Special Assistant

United States Attorney and to assist in the further preparation

of the cases. He participated in the trial of indictments

resulting from the investigation of the crude oil futures

market (Tr. 115-116). In furtherance of his duties, Mr.

Baumeister had several meetings with Respondent and was present

when Respondent testified at the trial of the indictments. His

testimony, according to Mr. Baumeister, showed Respondent's

“minimal involvement" in the criminal activity — the

crude oil futures market (Tr. 119-121). Mr. Baumeister did not

explain the basis for his assessment that Respondent had only

minimal involvement. The record contains no information which

can be used to compare or contrast Respondent's actions with

the actions of other participants. Respondent's ee

that his agreement was essential to the conduct of the unlawful

activities (Tr. 372-373) sharply conflicts with Mr. Baumeister's

conclusion that Respondent's involvement was minimal. The

testimony of John M. Burns III, Esquire, is also relied upon

to show mitigating circumstances (Resp. Brief, pp. 47-48).

Mr. Burns was formerly an Executive Assistant United States

Attorney for the Southern District of New York and is now

practicing law in New York. Mr. Burns stated (Tr. 280-281):

25a

BY MR. MORGAN:

Going back to the nature of Mr. Sundheimer's

conviction, are you aware of what he was

convicted of?

Yes.

What was it?

Well, he was convicted to a very limited

part of the charges against him. In fact,

I discussed with him, prior to his plea of

god whether or not he should do it and

was impressed that the plea of guilty

would only be -- and I knew this as a

U. S. Attorney, a former Executive Assistant --

that the plea was limited to what the plea

was to, not to the entire amount of charges.

He was pleading only to aiding and abetting

the filing of a false return which reflected

a rigging of prices, as I recall it, and

that he was not pleading guilty to anything

else and they were going to let those charges

fall into abeyance. I knew at the time

essentially that -- what he was pleading

guilty to. I had a hunch he could have won

the case because he hadn't aided and abetted;

he's only condoned. But the fact that con-

donation, as opposed to aiding and abetting,

is such a narrow line and it was affecting

him so much because he's the kind of guy who

egos med reacts -- he doesn't want to do

ad things -- and — charged with something

wrong was personally affecting him so much,

that it seemed to me that he made the right

‘ecision to go ahead and get the thing over

with so that he could start living a con-

structive life again. But it was a very

limited plea of guilty.

You say he could have won it if he had

fought it?

That was my opinion, yes.

at's your opinion as to the charge he

plead guilty to?

That's correct.

26a

-7J7-«

While Mr. Burns in his testimony makes light of the substance

of the evidence of illegal activity available against Respondent

his observations are considerably weakened by Respondent's plea

of prs ty to the — in the indictment. Moreover Mr. Burns

in his testimony provides no factual explanation to support

his statements (Tr. 267-283). A similar sparsity is present

in the material submitted from the pre-sentencing report of

the Seon officer who investigated Respondent. t was

concluded in that report that Respondent's unlawful activity

exhibited nothing more than “a lack of good judgment and poor

discretion" (Tr. 362-363). I have closely reviewed the testimony

and exhibits relied upon by Respondent and I find and conclude

that there is insufficient evidence to support a determination

that extenuating or mitigating circumstances pertaining to

Respondent's violations of the Act have been shown.

Il. The evidence of rehabilitation

fails to establish that Respondent

has rehabilitated himself since

his violations of the Act.

The Commission has ruled in the case of In re Jack W.

Savage, CFTC Docket No. 76-1, COMM. FUT. L. REP. yi

at 78522 (Comm. Opinion and Order, March 1, 1976) that "Evidence

introduced by [a Respondent] aigne include a showing * * * that

his actions and his social and business conduct subsequent to

the infractions evidence his rehabilitation, integrity and

ood character in the community and his fitness for registra-

ion." Regarding the issue of rehabilitation Respondent relies

upon evidence showing ey ate with prosecuting authorities

4 full disclosure to the ission when he applied for renewa

of his registration as a floor broker and his work in the New

York State Attorney General's Office (Resp. Brief, p. 49).

5. Respondent's full cooperation with the criminal

rosecuting authorities as reflected in this record (Tr. 117-

40, 354-357; Resp. Ex. 1) is, to be sure, strong evidence in

his favor. It is apparent, however, that Respondent offered

his cooperation only after he became aware of the criminal

investigation and even then made no effort to assist the

Commodity Futures Trading Commission in its enforcement of

the Act or the New York Cotton Exchange in complying with its

obligations to enforce its own rules coming forward with

offers of cooperation (Tr. 365, 381, 383, 389). The failure

by Respondent to promptly come forward and volunteer full

assistance to the Commission and the Exchange (Tr. 389, 392-

393) weighs heavily against him in the evaluation of his claim

27a

of rehabilitation. When Respondent renewed his registration

as a floor broker in 1978 he filed documents showing his criminal

involvement at that time (Tr. 364). Such disclosure was egneee

under Sections 4e and 4£(1) of the Act, 7 U.S.C. §§6e and 6

(1), and Section 1.10a(a) of the Commission's regulations, 17

C.F.R. §1.10a(a). Respondent, at the time of his application

for renewal of his registration, knew the Commission's staff

was aware of his activities (Tr. 381). The public service

work by Respondent since his violations also cannot be assigned

significant weight. This work was required by the United States

District Court as an alternative to a jail sentence for the

felony conviction (Tr. 146-150, 246-250, 357). Respondent

must receive credit for the circumstances that he has accepted

his assignments in this work with enthusiasm and has made

ositive contributions to the work of the State Attorney

meral's Office (Tr. 255-256). While effective public service

work is a positive activity for Respondent, I am convinced that

a determination herein that Respondent has demonstrated his

rehabilitation is premature.

6. Respondent relies upon the testimony of a number

of witnesses who had experience with futures trading as establishing

his good character, high reputation and special competence in

the futures industry (Resp. Brief, p. 49). I have carefully

reviewed and considered the testimony of these witnesses.

Generally these witnesses based their testimony concerning

ee upon knowledge gained ae to 1975 and expressed

confidence in Respondent's integrity and ry vie tT ee | as a floor

broker (Tr. 68, 72-73, 82, 96, 101, 103-104, 158, 160-161, 174

176, 191, 193-194, 219-220, 230-231, 232-233, 299-303, 332, 333-

334, 422, 423-424. Some of the witnesses were unaware, prior

to the hearing; of an ortant event in Respondent's futures

trading history, i.e., that sanctions had been applied against

him in 1970 for trading after hours on an Exchange in violation

of the Exchange's rules and the Commodity Exchange Act (Tr. 78,

93, 234-235, 329-330, 336). I recognize that considerable

weight and deference is due to the testimony of these witnesses,

however, their general observations and opinions concerning

Respondent do not convince me that a finding of rehabilitation

is warranted. I find and conclude that the evidence of record

fails to show Respondent's rehabilitation since Respondent's

violations of the Act.

Ill. The violations by Respondent warrant

sanctions provided by the Act and the

sanctions should be designed to

effectuate the purposes of the Act.

28a

7. The complaint requests as sanctions in this pro-

ceeding that an order be issued (1) revoking the registration

of the Respondent ,(2) assessing a civil penalty of not mot2

than $100,000.00 for each violation of the Act ,(3) requiring

Respondent to cease and desist the activities found to be

in violation of the Act ,and (4) barring Respondent from

trading on or subject to the rules of any contract market

and requiring all contract markets to refuse trading privileges

to Respondent.

8. Respondent's manipulation of futures patane and

fictitious sales of futures contracts are among the most

serious and destructive practices outlawed by the Act. Such

conduct is antithetical to the price discovery and price

information functions of the futures markets. The “transactions

and prices" on commodity futures markets “are susceptible to

a manipulation, and control * * *." Section 3 of

the Act, 7 U.S.C. §5. The commodity futures markets are

“extremely sensitive" and "[a]t best, with all the safeguards

possible to be thrown around transactions in futures, these

merket exchanges possess possibilities of manipulation to the

advantage of the shrewd and unscrupulous trader with corresponding

loss to the thousands of producers who are innocent victims"

80 Cong : Rec. 6164 (April 27, 1936). See also, 80 Cong. Rec.

7857-7858 (May 25, 1936). go oye and controlled prices

for profit "exert a vicious influence and produce abnormal und

disturbing temporary fluctuations of prices that are not

responsive to actual supply and demand and discourage not

only this justifiable hedging but disturb the normal flow of

actual consignments. A futures market lends itself to such

manipulation mych more readily than a cash market." Chicago

Board of Trade v. Olsen, 262 U.S. 1, 39 (1923). See also

artlett Frazier Co, v- Hyde, 65 F.3d 350, 354 (7th Ciri933),

certiorari denied, 290 U.S. 654.

9. As stated in the July 13, 1979 Decision and Order, p. 16,

the Division of Enforcement by proving that Respondent was con-

victed of a felony in Federal Court and engaged in the practices

of price manipulation of crude oil futures contracts and fictitious

sales of crude oil futures contracts -- practices prohibited by

Sections 4c(a) and 9(b) of the Act -- established a pr facie

case of Respondent's unfitness for registration as a Floor

broker and a basis for the application of other sanctions

against Respondent. I find and conclude that there is insufficient

evidence of mitigation and rehabilitation of the Respondent in this

case and that Respondent is unfit to remain registered as a floor

broker. I also find and conclude that the record supports the

imposition of sanctions provided in the Act.

29a

«= 10 «

10. The complaint estates that a determination should

be made ae to whether Respondent's registration should be revoked

if the allegations of the complaint are found to be true and

euch a sanction te otherwise warranted (Soup. p. 3). The

complaint in this case ie eilent as to the imposition of a

suspension of Respondent's regietration. The Act authorises

either a suspension or revocation for unlawful activities

euch a6 manipulation and fictitious eales. Section pals F ?

U.8.C, §9, Commission in setting forth in the complaint

that an Order revoking Respondent's registration may be entered

muet have intended to say that @ sanction a8 severe as revoca~

tion ip | be imposed or corrective action of a lesser degree

may be directed if warranted. I find and conclude that a

suspension for eix (6) monthe te reasonable in thie case and

effectuates the remedial rr of the Act. Adminietrative

sanctions are not designed as punishment or retribution but

rather ae a meane of obtaining compliance in the future with

applicable requirements. A suspension of six (6) monthe and

the other sanctions applied herein will euffice to caution Respondent

and othere that the Commission will not condone actions which

are subversive of the Act and regulations, The Order tesued

herein shall direct that Respondent's registration as a floor

broker be suspended for a period of six (6) monthe,

ll. Section 6(b) of the Act, 7 U.S.C. §9, authorises

ae 4 sanction — a determination that a person registered

with the Commission hae violated the Act, af assesement against

“euch person [of] a civil penalty of not more than $100,000.00

for each such violation.” Section 6(d) of the Act, 7 U.S.C.

$9a, further provides that;

In determining the amount of the

ae penalty assessed under paragraph (b)

of thie eection, the Commission shall con-

sider, in the case of a person whose primary

business involves the use of the commodity

futures market «« the copespenotences of

such penalty to the eise of the business

of the person charged, the extent of such

person's ability to continue in business,

and the gravity of the violation; and in

the case of a person whose primary business

does not involve the use of the commodity

futures market «- the appropriateness of

euch penalty to the net worth of the person

charged, and the gravity of the violation.

30a

eile

Reapondent's prinery business involves the use of commodity

futures markets (Tr, 346, 347-349), Witnesses from a number

of commodity brokerage firme testified concernt present and

rior business dealings between their firme and Respondent

Tr. 7h=73, 83, 93, 102, 158-159, 174-175, 192-193, 198,

19, 231-242, $00,'422-423). Prior to Respondent's conviction

and during the past several years, Respondent's annual salary

from Presaner Trading Corp., which was based in part upon the

poorsse of the firm, hae in the low eix fi e (Tr, +

ing the firet seven monthe of 1979 Respondent drew a $200.

gf has ay week (Tr. 0 «1 Respondent has net assets of over

(000,00 (Tr. 52, 408-416, 418). Applying the criteria etated

in Section oe of the Act, , in the case of « person

whose primary bueiness invol use of the c ity futures

market, I recognise that Respondent's futures mar*et business

is of substantial eisze and has generated for Res, mdent a eiseable

annual income, that he will be unable to continue in the business

for a specified period of time if the provisions of the Order

desued in thie case become final, however, the amount of money

assessed herein considered independently would not preclude

continuation of business, and the violations of the Act are

of a serious and intensely important nature, Based my

review of these matters, it ie determined that a civi 9

in the amount of $100,000.00 for each of the two violations

alleged in the amended complaint and proven in thie case should

be assessed against Respondent.

12. The Order shall further provide that Respondent

shall cease and desist the violations involved in thie case.

Respondent shall aleo be prohibited from trading on or subject

to the rules of 7-7 contract market for a period of twenty-four

(24) monthe from the date on which thie Order becomes final.

13. All proposed findings and conclusions and contentions

pescenees by the parties for the record have been considered,

t all of these proposed findings and conclusions and con-

tentions have been epecifically mentioned, Any such matters

inconsistent with thie Initial Decision and Order are found

and concluded to be without merit,

Based upon the foregoing Findinge of Fact and Conclusions

of Law, I feeue the following:

Order

The regietration of Reapengent Seeghen M. Sundheimer,

1.

ae a floor broker ie herebd puspencee or a period of six (6)

months from the date on which thie Order becomes final.

Jia

« 12 «

2. Respondent, Stephen M, Sundheimer, is directed

to cease and desist any manipulation or attempt to manipulate

commodity futures prices or fictitious sales or attempted

fictitious ealee of commodity futures contracts on or subject

to the rules of any contract market,

3. Respondent, Stephen M, Sundheimer, te prohibited

from trading on or subject to the rules of any contract

market for a period of twenty-four (24) monthe from the date on which

thie Order becomes final, All contract markets shall refuse

all trading privileges to the Respondent until the expiration

of the es he 24) month period, Such prohibition and

refueal shal apply to all trading done and positions held

directly by the Respondent, either for hie own account or

ae the agent or representative of any other person or firm,

and to all trading done and positions held indirectly through

pereees or firme owned or controlled by the Respondent, or

otherwise,

4, Respondent, Stephen M, Sundheimer, ie assessed

and shall pay to the Commission thirty (30) days after this

Order becomes final a civil penalty in the amount of $100,000.00

for each of the two violations of the Act for a total eivil

penalty ‘= the amount of $200,000.00,

5. The relief requested that Respondent Stephen M.

Sundheimer's registration as a floor broker be revoked is

hereby denied, In all other respects, the amended complaint

ie sustained, Pursuant to the Commission's Rules of Practice,

thie Order shall become final thirty (30) days after service

thereof on all parties to thie proceeding.

6. <A copy of thie Initial Decision and Order shall

be served upon each of the parties and on each contract market,

obert E. ean

Administrative Law Judge

Dated; February 15, *980

Washington, D. C.

la

APPENDIX D

ene

COMMODITY FUTURES TRADING COMMissi@N!3 3 25 PH°T9

2033 K Street, N.W., Washington, 0.C. 20581

In the Matter of: :

STEPHEN M. SUNDHEIMER, : CFTC Docket No. 79-22

Respondent :

VINCENT L. MORGAN, Esquire

DONALD R. LEVINE, Esquire

Division of Enforcement

Commodity Futures Trading Commission

2033 K Street, N.W.

Washington, D. C. 20581

For the Division of Enforcement

PAUL J. CURRAN, Esquire

VINCENT J. SYRACUSE, Esquire

rere, Scholer, Fierman, Hays & Handler

425 Park Avenue

New York, New York 10022

For the Respondent

Before: ROBERT E. DUNCAN

Administrative Law Judge

DECISION AND ORDER

GRANTING, IN PART, SUMMARY DISPOSITION

33a

of

Statement of the Case

This is an administrative proceeding br t against

soogendens, stones M. Sundheimer, a registered floor broker.

On January 16, 1979, a copy of the Commiesion's Complaint and

Notice of Hearing, pursuant to Sections GCb), tw and 8a(3)

of the Commodity Exchange Act, as amended, 7 U.S.C. §§ 1 et

("Act"), was forwarded to Respondent. Respondent 2

counsel, filed an answer to the complaint on February s, 979.

On March 15, 1979, an Order was entered granting a motion to

amend the cquplatae in certain respects and on March 19, 1979,

Respondent filed an answer to the amended complaint. A motion

for summary disposition by the Division of Enforcement was

filed on February 26, 1979. A response in opposiston to the

motion for summary disposition was filed on behalf of Respondent

on March 26, 1979. Oral argument on the motion was held on

May 25, 1979. At the conclusion of the oral argument the

parties were advised that the motion for summary disposition

would be granted, in part, and denied, in part, and that find-

ings of fact, conclusions of law and an order would be issued

concerning the motion. It was further provided that an

evidentiary hearing would be convened on July 9 and 10, 1979,

rescheduled to July 25, July 26 and wt | 27, 1979, on the

issues remaining in the proceeding touching upon any mitigation and

rehabilitation and sanctions, if any, to be applied, such issues

being considered aera for resolution purswant to the

motion for summary disposition (Tr. 40-A, 41). _*/

Issue e s r i

The issues considered here and which are deemed suitable

for findings of fact and conclusions of law and order on the

motion for summary disposition are the following (Tr. 40-A):

I. Whether sufficient showing has been made

by the Division of Enfurcement -- in the

absence of rebutting evidence of mitiga-

tion, rehabilitation or the inappropriate-

ness of any sanction -- that Respondent,

_*/ The record references, i.e., "Tr." followed by a number

or numbers, are to the pages of the transcript of the

oral argument presented by the parties on May 25, 1979.

34a

o9e

because of his conviction of a felony

and his activities involv ——

tion of futures prices and fictitious

sales of futures contracts, is unfit

to remain registered as a floor broker

and may be subject to other sanctions

under the Act; and

II. Whether Respondent's activities

involving manipulation of futures

prices and fictitious sales of futures

contracts all occurred prior to the

effective date of the 1974 amendment

to the Act and are thus outside the

+ of the Commission's jurisdiction;

an

III, Whether Respondent's activities insofar

as they involve manipulation of futures

prices in violation of Section 9(b) of

the Act afford a basis for the Division

of Enforcement to seek imposition of

administrative sanctions.

Based upon the entire record, including the amended

complaint, answer to the amended complaint, motion for summary

disposition and exhibits thereto, response in opposition to

the motion and exhibits and attachments thereto, and the

oral argument submitted by the parties on Ma 25, 1979, I

— = following findings of fact, conclusions of law

and order:

Findings of Fact and Conclusions of Law

1. The parties appear to agree, at least with respect

to the matters which are to be considered here, that there are

no contested genuine issues of material fact. What ise disputed

are essentially legal questions and the proper interpretation

to be placed upon the material facts. I find and conclude,

with respect to the issues under consideration, that there is

no genuine issue as to any material fact, that there is no

necessity that further facts concerning these iseues be developed

35a

ebhe

in the record, and that the Division of Enforcement is entitled

to a decision in its favor on such issues as a matter of law.

2. It is averred, in the amended complaint, that

Respondent, a registered floor broker, is unfit to remain

registered in that, as paragraph 2 of Count I of the amended

epsom states, he has been convicted of a felony violation.

it is specifically stated that (Comp. p. 1):

On or about January 9, 1978, ipeopentant)

was convicted of knowingly ai ing.

assisting, counseling, and advising

the preparation of returns, affidavits,

claims and other documents with respect

to the internal revenue laws which were

false and fraudulent as to material

matters, a felony, in violation of Title

26, United States Code, Section 7206(2).

In Count II of the amended complaint, it is averred that

Respondent violated Section 9(b) of the Act, 7 U.S.C. §13(b),

in that he attempted to and did manipulate the peseee or

ery contracts. It is specifically stated that (Comp.

P- :

From about September 1974 to about October

1976, Ngee «pare pane. violated, or aided and

abetted violations of, Section 9(b) of the

Act, 7 U.S.C. §13(b), in that [Respondent],

singly and in concert, directly and indirectly,

attempted to a and did manipulate

rices of crude oil futures traded on the

etroleum Associates of the New York Cotton

Exchange, Inc. in order to create predetermined

losses and gains in commodity futures accounts.

It is further averred in Count II of the amended Complaint that

Respondent violated Section 4c(a) of the Act, 7 U.S.C. §6c(a),

by engaging in transactions which were fictitious sales of futures

contracts. It is specifically alleged that (Comp. p. 2):

From about Sages 1974 to about October

1976, (Respondent) violated, or aided and

abetted violations of, Section 4c(a) of the

36a

Ǥ-

Act, 7 U.S.C. §6c(a), in that [Respondent],

sirigly and in concert, directly and indirectly,

oifered to enter into, entered into, or con-

firmed the execution of transactions involving

crude oil futures traded on the Petrolew

Associates of the New York Cotton Exchange,

Inc. which transactions were of the character

of, or were commonly known to the trade as,

wash sales, cross trades, accommodation

trades, or fictitious sales, or which were

used to cause prices to be reported, regis-

tered, or recorded which were not true and

bona fide prices, in order to create pre-

determined losses and gains in commodity

futures accounts.

3. The amended complaint provides for the institution

of a public ergccomns to establish the truth of the allega-

tions and, if found to be true, to determine whether sanctions

should be applied in accordance with the terms of the Act.

The sanctions proposed are (A) revocation of Respondent's registration,

(B) imposition of an order directing Respondent to cease

and desist from further violations of Sections 4c(a) and 9(b)

of the Act, (C) prohibition of any trading in connection with

any contract market by Respondent and the direction to all

contract markets to refuse hago trading pssesseeee and

(D) assessment of a civil penalty of not more than $100,000.00

for each violation of the Act.

4. Respondent in his answer to the amended complaint

— mg he is registered as a floor broker and admits that

Ans. p. ¢

[O]n October 27, 1978 ee waived

indictment and pleaded guilty to an

Information which charged a violation of

Title 26, United States Code, §7206(2)

and further admits that he was sentenced

on January 9, 1979.

The remaining allegations of the amended complaint are denied.

Certain affirmative defenses are set forth in the answer.

First, it is stated that representatives of the Commodity

utures Trading Commission in April 1976 "examined the records

37a

of Pressner Trading Corp. ("Pressner") with which [Respondent]

is affiliated and attained full knowledge of the involvement

of Pressner and Mr. Sundheimer in the trading of crude oil

futures on the Petroleum Associates of the New York Cotton

Exchange, Inc. Thereafter [the Commission's staff) monitored

the trading of crude oil futures and, upon information and

belief, [the Commission's staff) assisted state and federal

prosecutors in connection with their investigation of crude

oil futures and alleged use of prearranged trades and neces-

sarily learned of [Respondent's] involvement" (Ans. p. 2).

The Division of Enforcement, it is stated in the answer,

notwithstanding its knowledge of Respondent's activities,

failed to take any action to have administrative sanctions

gresjee to Respondent until the instant proceeding which was

filed on January 16. 1979. Prior to the time Respondent's

registration as a floor broker was to expire, a ~

for renewal was submitted "which specifically disclosed the

guilty plea and annexed a copy of the plea transcript" (Ans.,

p. 4). The Respondent's application for renewal was granted

and the Commission necessariiy has determined that Respondent

is fit to engage in business and no good cause exists to

deprive Respondent of his registration. Second, it is stated

that the activities referred to in the complaint occurred

prior to April 21, 1975, the effective date of the 1974 amend-

ment to the Act and before the Sapte of crude oil futures

contracts was made subject to the provisions of the Act, and,

third, while price manipulation of futures contracts is pro-

ted by Section 9(b) of the Act, administrative sanctions

are not authorized for violations of Section 9(b) because

that Section by its terms provides only for criminal penalties

for a violation thereof.

5. Attached as an exhibit to the Division of Enforce-

ment's motion for summary disposition is a copy of the one-

count Information filed with the United States District Court

fer the Southern District of New York on October 27, 1978. The Information

charges that fron September 1974 until on or about July 19, 1976 (Motion, Ex. II):

In furtherance of the offense charged

in this Information, the defendant

STEPHEN M. SUNDHEIMER (on behalf of

Pressner Trading Corporation, of which

at all times relevant to this Informa-

tion he was vice-president), together

with other persons, fixed, rigged and

38a

-7-«-

fraudulently prearranged trades and

manipulated the movement of prices on

the Crude 0il Market of the New York

Cotton Exchange for the purpose of

creating predetermined losses for an

oil company for the fiscal year ending

October 31, 1974 and for the fiscal

year ending October 31, 1975, and pre-

determined gains for the oil company

in the following fiscal years. As'the

defendant STEPHEN M. SUNDHEIMER well

knew, the aforesaid fraudulent losses

were to be claimed on the United States

corporation income tax returns of the

oil company. And in fact, the aforesaid

fraudulent losses attributed to the oil

company, C. R. Rittenberry & Associates,

Inc., were claimed on the consolidated

United States corporation income tax

returns filed on behalf of the oil

—w and other companies affiliated

with it, by the oil a> parent,

the Deutsche Corporation, for the fiscal

Ses October 31, 1974 and October

® 42.

(Title 26, United States Code, Section

7206(2)).

6. Attached as an exhibit to the Division of Enforce-

ment's motion for’ summary disposition is a copy of the transcript

of the gg before the United States District Court om

27, 1978, in which the Court explained the charges to Respondent

and Respondent entered a plea of guilty to the ormation.

At that hearing the following transpired (Motion, Ex. III,

pp. 4, 9-11):

BY THE COURT:

Q. Mr. Sundheimer, you are charged in

this information with a violation of Section

7206(2) of Title 26. Basically the charges

are that you pros yng o a and

wilfully assisted in the preparation of

39a

dooumente which were fraudulent and

falee with respect to matters arising

under the Internal Revenue laws,

The information ‘charges that you,

as vice president of Pressner Trading

Corporation, together with other persone,

fixed, rigged and fraudulently prearranged

trades and manipulated the movement of

rices on the crude oil market of the

lew York Cotton Exchange for che purpose

of creating predetermined losses for an

oil company for the fiscal pone ending

October 31, 1974, and for the fiscal

year ending October 31, 1975, and pre-

determined gains for that company in

the following years.

The information charges that you knew

that these fraudulent losses were to be

claimed on the tax returne of the oil

company, Rittenberry, and it further

charges that they were in fact claimed,

Do you understand those charges?

A. (By the defendant) Yes, I do, your

Honor,

* « a

Q. Mr. Sundheimer, I want you, in your

own words, to tell me just what it de that

ou did that ie the foundation for your

ecision to plead guilty to the information,

A. Sometime in the fall of 1974,

associate, Mr. Nordlicht, agreed with Mr,

Perlmutter and Mr. Turkish that our firm,

Pressner Trading Corporation, would take

the other eide of certain prearranged com-

modity futures contracts in crude ofl futures

that would ultimately enable an ofl company

to obtain tax benefits that they wouldn't

osherwees be entitled to, had we not done

that.

40a

a

I gave consent to that arrange-

ment ant I was present when it was Bede.

. And your consent was necessary to

the making of that arrangement?

A. Yea, it was, your Honor,

Q. And did you understand that the pur-

pose of that arrangement was to enable the

oil company to take certain tax losses on

ita corporate tax return?

A. Yes, I did, your Honor,

Q. And did you also then give your con-

sent to a eimilar arrangement for the

following year?

A. I_think that it was implicit in the

initial underetanding, There was no addi-

tional consent required,

. _ Are you in good health today, Mr.

undheimer?

A. I hope ao,

THE COURT; Very well, gentlemen, I ehall

accept the plea,

THE CLERK; Are you Stephen Sundheimer?

THE DEFENDANT; Yes sir,

THE CLERK; On an information filed this

day, October 27, 1978, how do you plead

to thie information?

THE DEFENDANT; I plead guilty, sir.

7 On January 9, 1979, the United States District

Court for the Southern District Court of New York entered a

Judgment and Probation/Commitment Order in the criminal case

4la

- 10 «

ogaanes kespondént, The Ju nt (Motion, Ex. I) provides

that there was ey of guilty by Res ondent “and the court

being satisfied t there ie a factual basis for the plea,

** * (che) finding & judgnens [ie that Geopendent! has been

convicted as charged of the offense(s) of unlawful +f wilfully

and knowingly atafing), assiet(ing) and advie[ing) in the

preparesion of false and fraudulent income tax returns (Title

6, U. 8. Code, Section pe ft Respondent was sentenced

to imprisonment for a period of one year and fined $5,000.00

plus cost of prosecution. Execution of the sentence of imprison-

ment was suspended and Respondent was placed on peeetsen for

one year with a special condition that Respondent devote one

ar, ona full t basis, to some community activity. The

urt subsequently approved, ae a special condition of pro-

bation, service by Respondent on a full time basis without

ay, a6 a technical assistant with the Bureau of Environmental

tection of the New York State Attorney General's Office.

It is conceded by Respondent in his peeeieee to the motior

for summary disposition (Response, p. 2), that "Mr. Sundheimer

admits that he has been convicted on a guilty plea to a felony

* * *" and that the “conviction was rooted in certain facts

which were admitted when Mr. Sundheimer pleaded guilty * * *,"

I. The Division of Enforcement has

sufficiently shown-- in the absence

of any dispositive, rebutting evidence

establishing mitigation, rehabilitation

or of any sanction --

that Respondent because of his convic-

tion of a felony and his admitted

Sentpeteniee of futures contract prices

and hie admitted fictitious sales of

futures contracts ise unfit to remain

registered as a floor broker.

8. Te de established by the admissions and exhibits

submitted by the parties and I eo find and conclude that on

January 9, 1979, Respondent was convicted of a felony in

Federal court. It is further established and I so find and

conclude that Respondent admitted to ha acted with others

a pep oe Up - July 19, 7 dn n rani ing P eling!

rigg(ing) and fraudulently prearrang[ing) trades

the movement of prices on the Crude O11 Market of the New Youk

Cotton Exchange for the purpose of creating predetermined

42a

ll «

losses" as charged in the criminal Information, oeegte para-

graph No. 5. Further I adopt as findings and ¢ Usions in

this case the allegations contained in the Information. Section

4c(a) of the Act, 7 U.S.C. §6c(a), provides, in part:

It shall be unlawful for om peveen to

offer to enter into, enter into or confirm

the execution of, any transaction involving

any commodity, which is or may be used for

(1) hedging any transaction in interstate

commerce in such commodity or the products

or byproducts thereof, or (2) a

the price basis of any such transaction

interstate commerce in such es or

(3) delivering any such commodity so 4,

shipped, or received in interstate commerce

for the fulfillment thereof--

(A) if ar transaction is, ie

of the character of, or is commonly

to the trade as, a “wash sale", “cross

trade", or “accommodation trade", or is

a fictitious sale;

The Judicial Officer in the United States artment of

riculture decision, , al... 7 Agr. Dec.

265, 275-276 (1948) rule ati

Section 4c of the act does not stop at

the ptohibition of ‘wash sales.’ It also

prohibits any transaction SY

» dec r-

stoo ra wash sale, or is a

fictitious sale. The Lenguage could hardly

be broader and, together with the other

prohibitions in thie section and other ee

of the act, evinces an intention to out

insofar as possible all schemes —s

that are artificial and are not the resul

of arme-length trad on the basis supply

and demand factors and trading opinion of

these factors. [emphasis in original).

43a

The legislative history of the Commodity Exchange Act shows

that Congress intended that the transactions relating to «

futures contract market be responsive to the economic forces

exerted by the market euch ae supply and demand rather than

the dict sf sf one or & few traders, During the Congressional

debates in 1936 on the bill which amended the Grain Futures Act and

= irs hy he Commodity Exchange Act, it wae etated (80 Cong.

‘ !

There te a widespread public

interest attached to the business of

future berg > The be nature of

the business ie euch ae to make it

fraught with temptation for those who

are disposed to take unfair advantage.

In no other business te there found the

same combination of circumstances and

profit possibilities to tempt the

unscrupulous,

It de the purpose of thie bill to

reduce to a min the possibility of

unscrupulous trading and to permit the

benefite of euch trading to obtained

by those entitled to them,

There can be no defenge for such

fraudulent practices as have been pointed

out in transactions in these greta exchanges.

The present law does not reach them. These

markets are extremely sensitive, A falee or

mislehding statement or fictitious trading

may in a few minutes turn thousands of

dollare into the poms of some unscrupulous

trader, * * *, At the pene oeue it may cause

millions of dollare in lose to farmers and

others affected by a fictitious price move-

ment, Large epeculatore may temporarily upeet

the whole price structure,

. * .

At beet, with all the safeguards possible

to be thrown around transactions in futures,

these market exchanges possess possibilities

44a

of went lation to the antage ©

hrew - "unseruputous Era oeng.of ands of

lose to the ¢

procsecrs who are innocent "wleeins

“The baihat's se ec AA, 1 Att he to Sive # ES" these)

‘ of the Acts’? U-8.0° A300). states

of coe aese ¢ han #1507000" or tap rLacranen fine

for not more than five years, or

sogether with the coste "ot Prosecution,

or any person to manipulate or att

to manipulate the price o commod a

s interstete commerce, or for future

coneves? on or subject to the. rules of

any contract market, or to corner or

actenpe to, cornes ety rvge cause tobe

r cause to

delivered ry svonmdeeiSe Sa thr

maile or in interstate commerce kes

graph, yr? wireless, or o

= atis'te ideation alee or misleading

inaccurate reporte concerning

set os ss? t caseunetios or conditions

fect or tend to affect the price

of any commodity in interstate commerce * * *,

In the case of Hendin. & 452 F.2d 1154,

1163 (8th Cir, a mmTTLS CLTTd @ CLTPTR . 932 (1972);

the Court held:

We think the test of pontou} tion must

ieal one h

A bea poecese ca . on = pespeses

accomplished. methods and cosmpigues

of noni re ove a Hy only by t

lagenuity im must be » oa

to discover whether ti hae been inten-

seoneecy engaged in which has resulted in

a price which does not reflect basic forces

of supply and demand,

45a

«Me

The Commission culed in the case of

~ FOr, CREF. Ni at 21,477 (Commission

Decision and Order, February 6, 1977) that:

[M)anipulation hae been defined general)

ee eqaseet ee engaged in wee t-

n an ar al price rl

that does not reflect’ the babtt forces of

supply and :

A finding of manipulation in violation of

the Act requires a find that the party

e ed in conduct with the intention of

affecting the market peice of 2 commodity

as determined by the forces o

emand) and as « result such o

course of action an artificial price was

created,

Respondent ie an experienced floor broker who hae been trading

in commodity futures on the Bychenges since 1968 (Sentencing

Memorandum on Behalf of Defendant Stephen M, Sundheimer, p. 4).

In otiguisties to the statements contained in the Information,

Respondent clearly established and I eo find and conclude

that he intentionally and wilfully engage’ in fietitious sales

and price mani, ulation of futures contracts which resulted in

artificial prices. I find and conclude on the basis of the

uneontroverted facts that the Division of Enforcement has

sufficiently established, except that there is no evidence

that the violations occurred after es 19, 1976, the avermente

of paragraph 2 of Count I and paragraphs 4 and 5 of Count IL

of the amended complaint,

9. Ie de contended by the Division of Enforcement

that the criminal conviction constitutes estoppel as to the

matters determined the judgment in the criminal case, In

a recent decision relied by the Division of Sateroenens,

the Supreme Court held that under the “contemporary lew of

collateral estoppel,” trial courte have “broad discretion” to

determine whether offensive collateral estoppel should be

applied in a particular case, Offensive collateral estoppel

in thie context “occurs when the plaintiff seeke to foreclose

the defendant from litigating an iesve the defendant has

previously litigated unsuccessfully in an action with another

Aba

party. Defensive use occurs when a defendant seeks to prevent

a plaintiff from asserting a claim the plaintiff has -

viously litigated and lost against another defendant." Barkiene

¥ 5) noes U. 8. 99 8. Ce. 645,

n. &, - 979). feisIve collateral estoppel may be

invoked against a party if no unfair burden would imposed

upon the party and that party “received a ‘full and fair’

opport mity to setae’ his claims in the prior proceeding,

°° S&S. Ct. at 652. Respondent contends that any collateral

ances pertaining to his conviction is limited to hie crime

and his "crime was that he aided and abetted the filing of a

false tax return in 1974 and in admitt his guilt he did not

admit to all of the matters charged: in the information” (Response

to Motion, PP. 0-31). The record, however, does not support

this contention. At the hearing before the District

on October 27, 1978, Respondent without reservation pleaded

guilty to all the facts charged in the Information, supra at

paresra h 6. Respondent sosegely epgues that under

‘general doctrine of estoppel," the “estoppel extends only to

uestions ‘distinctly put seue and directly dete .

nthe criminal prosecution -"- a8 Se es eee e

, 340 U. S. 558, 568-569 (I9SI). ere there is a

g in the information is

paagsced, it v. , 243 F.2d 900, 902 (7th Cir.

957). “(T]n case of a guilty plea collateral estoppel

ow apply by examining the record as to the offense charged

and the

° r tr. er e oway, con-

curring in the result). I find and conclude that Respondent's

judgment of convittion based upon his guilty plea and his

statements concerning his participation in the arrangement

which constitute the factual basis for the guilty nee is

substantive evidence of his violations of the prohibitions

oy fictitious sales of commodity futures contracts and

the manipulation of the prices of commodity futures contracts.

I further find and conclude that Respondent is collaterally

eoteppes from contesting the factual allegations set forth in

the Information filed in the criminal case.

10. Section 8a(3) of the Act, 7 U.S.C. §122(3), pro-

vides that the Commission is authorized to suspend or revoke

the registration of any person registered under the Act:

47a

- 16 -

* * * if cause existe under [Section

8a) (2)(B) or (C) which would warrant

a refusal of registration of such

person * * *,

Section 8a(2)(B) of the Act, 7 U.S.C. §12a(2)(B), provides

that the Commission is authorized to refuse to register any

person:

§») if it is found, after opportunity

or eee that the applicant is unfit

to engage in the business for which the

application for registration is made, (1)

because such applicant * * * at any time

engaged in any practice of the character

prohibited by this Act or was convicted

of a felony any State or Federal court

* * * (14) for other good cause shown;

a a *

The purpose of this Section is to provide a means whereby

the Commission can "'bar from this occupation those persons

who by their past actions have demonstrated that they cannot

be entrusted with customers’ trades and funds’ (H. R. Rep.

No. 93-975, 93d Cong., 2nd Sess. 78 (1974))." Division ¢

Enforce v. Alan H 1975-1977 Transfer Binder

. FUT. L. REP. 6,114 at 20,815 (ALJ Decision

apiirmed. Feb. 3, 1976). "The plain words of §8a(2)(B) (i)

° e Act reflect a Congressional judgment that proof of a

felony conviction, without more, will establish a pr ac

case of an applicant's unfitness." Sav v. Commo

Trading Count gsion, 548 F.2d 192, 19 Cir. . by

proving spondent was convicted of a felony in Federal

court and engaged in the practices of pesee manipulation of

crude oil futures contracts and fictitious sales of crude oil

futures contracts--practices prohibited by Sections 4c(a)

and 9(b) of the Act--the Division of Enforcement established

a prima facie case of unfitness of the Respondent for regis-

tration as a floor broker and a basis for the application

of other sanctions against Respondent.

11. It is contended by Respondent that because of the

awareness of the Commission's staff of Respondent's activities

prior to his plea of guilty to the indictment on October 27, 1978,

48a

and the Commission's action in grensing Respondent 0 applica-

tion for renewal of registration, the Division of Enforcement

is aacenpee and is not entitled to bring or maintain this

proceeding. Clearly, however, the Division of Enforcement

cannot be faulted for watting until after disposition of

the criminal case before seeking to invoke the provisions

of the Act. If a judgment of not guilty had been rendered

in the criminal y reegpen | the instant proceeding would

necessarily have been set e differont. is proceeding was

instituted on January 16, 1979, promptly after Respondent's

conviction on January 9; 1979. d,.of course, one of the

rounds or reasons for this proceeding, the feiony conviction,

id not exist prior to genuey 9, 1979. As to Respondent's

activities concerning the man pulation of futures contract

prices on the exchange and fictitious sales, the terms of

the Act are dispositive of Respondent's contention. Under

Section 8a of the Act, 7 U.S.C. §12a, the Commission has

the choice, on the one hand of renewing the registration of

&@ person and subsequently commencing a procee ing to revoke |

or suspend such registration for violations of the Act and to

impose Cher sanctions

ssion in authorizing the commencement of this proceeding

after having renewed Respondent's application for registration

has acted in accord with the provisions of the Act. No

unfairness or improper treatment of Respondent is apparent.

Generally estoppel cannot be used as a defense against an

enforcement proceeding by a Federal agency, United S

igr dN liza Service v. Hi

; v. National Labor ’

323 U. S. 48, . The defense of es el has

rejected by courts in cases under the sommea ty change Act.

mv. Secre f e, 133 F.2d 453, 455 (7th

r. 1943); nv. F.2d 896, 900 (7th Cir.

1961). In the case of L. Silv

Docket No. 76-18 7 20,410

at 21,641 ( ssion Decision March 14, 1977), affirmed,

562 F.2d 432 (7th Cir. iti f ay terme in a prior pro-

ceeding, had been found to have

Act. ile the prior procsentas was pending before an

Administrative Law Judge, the 19

became effective and:

49a

o 2'<

required for the first time under

Section 4k, 7 U.S.C. §6k (Supp. V,

1975), that associated persons of

futures commission merchants, such

as respondent, be registered with the

ssion to continue to act in that

capessty Respondent filed an appli-

cation for registration as an associated

person, which indicated the existence

of the then pending proceeding .- oe

him. Because no final decision had

been rendered against respondent at

the time he filed his application,

however egggeeretees was granted.

Id. at b1

The Commission ruled that the violations established in the

prior proceeding warranted the subsequent revocation of the

associated person's registration. » Alth the Com-

mission and the Court of Appeals did not expressly | that

the soutecatsen (and subsequent renewal of registration,

562 F.2d at 434) which occurred while the ssion was

aware of allegations against the applicant raised no bar of

estoppel in the later proceeding to revoke his pe rt egy mee

the disposition of that case by the Commission the Court

of Appeals furnishes strong oxeress for the determination

hereir: that the grant of an appl cation for registration will

not preclude a later proceeding to determine whether the

registration should be revoked and other sanctions should be

applied. "(T]he premises implicit” in a decision "are as

authoritativé" as the woop. Murzay v. rts, 103 F.2d

689, 894 (2d Cir. 1939), per Judge Learned Han

anys dteplased ag = to = a pal inf v. a

° ° v. Marylan ualt . °

Se"Big Ce Ee. a¥e” SPEER Rah 6457-2,

Respondent has conceded that at all relevant times, he wes

aware that the Commission and its staff would insist upon

the application of the provisions of the Act. This circum-

stance was reported to the District Court prior to Respondent's

sentencing on January 9, 1979 (Sentencin randum on Behalf

of Defendant Stephen M. Sundheimer, p. 3. There is no basis

here for the application of estoppel, laches or a finding of

an abuse of discretion and these contentions must be rejected.

50a

II. The: price meoteesaties and fictitious

sales transactions underlying the felony

conviction admittedly extended to July

19, 1976, and such transactions were

within the Commission's jurisdiction.

12. It is contended by Respondent that his activities

concerning crude oil futures occurred prior to the time the

Commission assumed jurisdiction over this commodity and there

is no authority to go forward with this proceeding. Prior to

1975, the Act was enforced by the Commodity Exchange Authority

in the United States Department of Agriculture and only

spect Steatiy enumerated agrigsicuse® commodities were within

the coverage of the Act, Section 2(a), 7 U.S.C. §2 (1970 ed.).

The 1974 amendment extendéd coverage to "all other goods and

articles * * * and all services, rights, and interests in

which contracts for future delivery are presently or in the

future dealt in * * *," Section 2(a)(1) of the Act, 7 U.S.C.

apt ed.). The 1974 amendment became effective on April

1,-1975, Section 418 Pub. ‘Law 93-463, 88 Stat. 1415, and

accordingly the term ew) TH as used in Sections 4c(a)

and 9(b)of the Act, 7-U.S.€/-§§6e(e) and-13(b), was extended

on:that date to include.crude o11.° On April 18, 1975, the

Commission entered orders grant provisional designation

to the "Petroleum Associates of the New York Cotton Exchange,

Inc., as a contract market for crude oil and liquified peepene

as," 40 Fed. Reg. 19035 (May 1, 1975). On May 5, 1975,

Eommission extended the provisional designation, 40 Fed. Reg.

21769 (May 19, 1975), and on July 18, 1975, the Commission

issued an order approving the application of the Petroleum

Associates of the'New York Cotton Exchange, Inc., as a con-

tract market for crude oil and pm ane gee -

Transfer Binder 1975-1977 Decisions} COMM. FUT. L. REP. (CCH)

20,062 at 20,679. It is clear that on the effective date

of the 1974 amendments to the Act, it April 21, 1975, the

Commission had and was ——— jurisdiction over crude oil

futures contracts traded on the Petroleum Associates of the

New York Cotton Exchange, Inc.

13. As stated a, Paragraphs 5-6, Respondent admitted

in the criminal case t rom September 1974 until July 19,

976, he, “together with other persons, fixed, rigged and

fraudulently prearranged, traded and manipulated the movement

of prices on the Crude Oil Market of the New York Cotton Exchange

for the purpose of creating predetermined losses * * *,"

5la

Respondent explained to the District Court that under the

terms of the arrangement which began in 1974 and was intended

to extend at least into the foll year, ise. 1975,

Respondent's firm would take "the o side of certain pre-

oremneee commodity futures contracts in crude oil futures."

If and conclude that the uncontested facts show that the

price penteeteslee and fictitious sales violations extended

through 1975 and until July 19, 1976, as stated in the Infor-

mation, and were within the jurisdiction of the Commission

which was effective on April 21, 1975, and conferred by the

1974 amendment to the Act.

III. Section 9(b) of the Act outlaws -

price manipulation or attempted ce

manipulation of any commodity s eo

to the Act and Sections 6(b), 6(c) and

8a(3) of the Act authorize administrative

proceedings seeking corrective action or

the application of sanctions for viole-

tion of any provision of the Act.

14. Respondent states in his opposition to the motion

for summary disposition and in his answer to the amended con-

laint that the averments in the amended complaint concerning

spondent's Cater ig to manipulate and manipulation of the

rices of crude oil futures contracts in violation of Section

(b) of the Act should be dismissed because Section 9(b) makes

price manipulation a felony but does not authorize the Commis-

sion to initiate an administrative proceeding. A consideration

of the terms of the Act and the assertions in the amended con-

plaint establishes that Respondent's contentions on this issue

cannot be adopted.

15. To be sure, Section 9(b) of the Act, 7 U.S.C.

$13(b), declares that any price manipulation or attempted

rice manipulation shall be a felony punishable by fine or

risonment and does not in the same section provide for

administrative proceedings in the event of such violations.

The amended laint in the instant peeneeeans states that

this matter is brought to determine ther, if the allegations

of the complaint are deemed to be true, an order shoul

entered pursuant to Sections 6(b), 6(c} and 8a(3) of the Act,

7 U.S.C. §§9, 13b and 12a(3). These sections authorize the

imposition of sanctions or corrective measures following an

52a

administrative proceeding where facts have been developed

establishing that a person, int lia, "is violating or has

violated any of the provisions o s Act * * *" (Sections

6(b) and 6(c), 7 U.S.C. §§9 and 13b) or "at any time engaged

in any practice of the character prohibited by this Act * * *"

(Section 8a(2)(B), 7 U.S.C. §12a(2)(B), referred to in Section

a(3), 7 U.S.C. §120(3)). In the case of Great Western F

Distributors v. Brannan, 201 F.2d 476, 478 r. 7

certiorari denied, 345 U. S. 997, the Court held:

The order is attacked on several grounds.

The first, that the complaint did not

charge an offense subject to administra-

tive disciplinary action under Section 6(b)

of the Act is, we think, without merit.

Section 6(b) provides for disciplinary

roceedings if a person is violating or

as violated any of the provisions of

this chapter * *'*; Section 9 makes it

unlawful ‘to ‘attempt to manipulate the

price of a cotmodity in interstate commerce;

to attempt to corner a commodity in inter-

state commerce, or to corner any such

commodity. The complaint charged petitioners

with the very conduct prohibited by this

section. There can be no doubt that the

averments constituted an offense under

Section 6(b) of the act.

I find and conclude that there is no basis to dismiss the

averments of the amended complaint which allege that Respondent

violated Section 9(b) of the Act and that, in ogo by reason

of the allegation, Respondent is subject to this proceeding

pursuant to Sections 6(b), 6(c) and 8a(3) of the Act.

Based upon the foregoing, I issue the following:

Order

1. The Division of Enforcement's motion for My

disposition of this proceeding should be and is here

in part, and it is determined that the Division of Enforcement

53a

hae established a sufficient showing--in the absence of rebutting

evidence of mitigation, rehabilitation or the ee he ga

of any sanction~-that Respondent, Stephen M, Sundheimer,

because of his conviction of a ee | and hie activities

involving manipulation of futures prices and fictitious goles

of futures contracts ie unfit to remain registered as a floor

broker and may be es to other sanctions under the Commodity

Exchange Act, ae amended; and

2. The Respondent's manipulation of futures prices

and fictitious sales of futures contracts ie determined to have

continued after the effective date of the 1974 Amendment to

the Commodity Exchange Act and ie within the reach of the

Coumiseion's juriediction; and

3. An administrative proceeding may be maintained and

if otherwise appropriate, administrative sanctions may be

applied for proven violations of Section 9 of the Commodity

Exchange Act, ae amended, 7 U.S.C. §13; and

4. To the extent that the Division of Enforcement's

motion for summary disposition seeks the imposition of sanctions

at Seat time, the motion should be and is hereby DENIED without

pre ce,

5. At the hearing scheduled for July 25, July 26 and

July 27, 1979, the parties will be afforded an copee unity

to offer evidence on the issues remaining for decision, 88

mitigation, rehabilitation and the eppecepecpenses of t

application of any sanction pursuant to the Commodity Exchange

Act, as amended,

E Duncan

Administrative Law Judge

Dated; July 13, 1979

Washington, D. C.

Sda