Rules of Practice; Proposed Amendments

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 10

Rules of Practice; Proposed Amendments

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed amendments.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or

``CFTC'') requests comments on proposed amendments to its Rules of

Practice (``Rules'') which govern most adjudicatory proceedings brought

under the Commodity Exchange Act, as amended (``Act''), other than

reparations actions. The proposed amendments are intended to improve

the overall fairness and efficiency of the administrative process, as

well as to facilitate use of the authority granted to the Commission by

the Futures Trading Practices Act of 1992 (``FTPA'') to require the

payment of restitution by respondents in administrative enforcement

proceedings.

The Commission has not attempted to revisit wholesale its Rules of

Practice. Rather, the proposed amendments focus on a few key areas

where case law and current practice suggest that clarification or

revision may be most useful. Besides restitution, most of the

substantive amendments being proposed relate to prehearing discovery.

The other proposed changes are technical in nature, clarifying or

updating existing rules to reflect recent Commission decisions and

better accord with the current practices being followed by the

Commission's Administrative Law Judges (``ALJs'').

With respect to prehearing discovery, the Commission is proposing,

among other revisions, to: clarify the obligations of its Division of

Enforcement (``Division'') under existing Rule 10.42(b), by requiring

production to respondents of specified information in the Division's

investigative files; obligate all parties to produce prior statements

of any witness whom they intend to call that relate to that witness's

anticipated testimony; and allow all parties to subpoena documents for

production prior to the scheduled hearing date. These and the other

proposed changes regarding discovery will foster a greater exchange of

relevant information between the Division and respondents and clarify

the production obligations of each party, thus bringing about increased

efficiency and fairness in CFTC administrative proceedings.

The Commission is also proposing to put procedures in place to

facilitate the restitution process in adjudicatory proceedings. A new

provision would be added to existing Rule 10.84 that would be

applicable to any proceeding in which an order requiring the payment of

restitution may be entered. Under this provision, if the ALJ decides

that restitution is an appropriate remedy, he or she would issue an

order specifying the violations that form the basis for restitution,

the customers or class of customers entitled to seek restitution and

the method of calculating and, if then determinable, the amount of

restitution to be paid.

The actual administration of an ALJ's restitution order would be

governed by a new subpart in the Rules of Practice that would allow the

Division to recommend to the Commission or, at the Commission's

discretion, to the presiding ALJ a procedure for notifying individual

customers who may be entitled to restitution, receiving and evaluating

customer claims, obtaining funds to be paid as restitution from the

respondent and distributing such funds to qualified claimants. The

respondent would be given notice of the Division's recommendations and

afforded an opportunity to be heard before the procedure is

implemented.

Although largely technical in nature, the remaining changes being

proposed by the Commission reflect matters raised in recent decisions

issued by the Commission or its ALJs in enforcement cases, involving,

for example, commencement of the proceeding, the service of complaints

and other papers, amending complaints, advance rulings on the

admissibility of evidence, the presentation of rebuttal evidence, and

the filing of cross appeals, reply briefs (on appeal), petitions for

reconsideration and stay applications. The Commission is also proposing

to add an appendix to the Rules of Practice, setting forth the

Commission's policy not to accept any offer of settlement in an

administrative or a civil proceeding if the respondent or defendant

wishes to continue to deny the allegations of the Commission's

complaint (although they may continue to state that they neither admit

nor deny the allegations).

The Commission welcomes public comment on the proposed changes to

its Rules of Practice. Suggestions on other changes that would improve

or expedite the adjudicatory process are also invited.

DATES: Comments must be received on or before June 2, 1998.

ADDRESSES: Comments on the proposed amendments should be sent to Jean

A. Webb, Secretary, Commodity Futures Trading Commission, Three

Lafayette Center, 1155 21st Street, N.W., Washington, D.C. 20581.

Comments may be sent by electronic mail to [email protected].

Reference should be made to ``Proposed Amendments to the Rules of

Practice.''

FOR FURTHER INFORMATION CONTACT: Stephen Mihans, Office of Chief

Counsel, Division of Enforcement, at (202) 418-5399 or David Merrill,

Office of the General Counsel, at (202) 418-5120, Commodity Futures

Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W.,

Washington, D.C. 20581.

SUPPLEMENTARY INFORMATION: The Commission is proposing for comment

amendments to its Rules of Practice, 17 CFR 10.1-10.109, which were

promulgated originally in 1976, shortly after the Commission was

established as an independent agency. 41 FR 2508 (Jan. 16, 1976).

Although the Commission's proposals are not intended to be sweeping or

groundbreaking, they do represent the first major revision of the Rules

in more than 20 years. Practices of the

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Commission and its ALJs which evolved over that time are not

necessarily reflected in the existing Rules. Moreover, procedural and

other issues raised by litigants themselves suggest that, in a number

of key areas, the Rules are in need of review and updating.

Most of the substantive amendments to the Rules being proposed by

the Commission relate to issues involving the Commission's procedures

for conducting limited discovery in preparation for a hearing. More

specifically, the Commission is proposing to amend Rule 10.42, which

addresses pretrial materials, investigatory materials and admissions,

and Rule 10.68, which governs subpoenas. The proposed amendments to

these two rules will facilitate the exchange of relevant evidence

between the parties to a proceeding and afford them a ready means for

obtaining needed documents in advance of the scheduled hearing.

The other existing Rules that the Commission proposes to amend, and

the subject areas they cover, are Rule 10.1 (scope and applicability of

rules of practice); Rule 10.12 (service and filing of documents; form

and execution); Rule 10.21 (commencement of the proceeding); Rule 10.22

(complaint and notice of hearing); Rule 10.24 (amendments and

supplemental pleadings); Rule 10.26 (motions and other papers); Rule

10.41 (prehearing conferences; procedural matters); Rule 10.66 (conduct

of the hearing); Rule 10.84 (initial decision); Rule 10.102 (review of

initial decision); and Rule 10.106 (reconsideration). In addition to

these changes, the Commission is proposing to add to the rules a new

subpart (proposed Subpart I) addressing the administration of

restitution orders issued pursuant to Section 6(c) of the Act, 7 U.S.C.

9 (1994), as well as a statement of policy with respect to settling

with respondents and defendants in Commission-instituted administrative

and civil proceedings (proposed Appendix A).

The specific amendments to the Rules of Practice that the

Commission is proposing are as follows.

I. Proposed Rule Changes Related To Discovery

Rule 10.42(a)--Pretrial Materials

As currently written, Rule 10.42(a) authorizes the Commission's

ALJs to require that each party to a proceeding submit any or all of

the following information in the form of a prehearing memorandum or

otherwise: (1) an outline of its case or defense; (2) the legal

theories on which it will rely; (3) the identity of the witnesses who

will testify on its behalf; and (4) copies or a list of documents which

it intends to introduce at the hearing. The Commission proposes to

amend Rule 10.42(a) in three respects.

First, the information required to be included in each party's

prehearing memorandum would be expanded to include the identity, and

the city and state of residence, of each witness (other than an expert

witness) who is expected to testify on the party's behalf, along with a

brief summary of the matters to be covered by the witness's expected

testimony. In practice, prehearing orders issued by the Commission's

ALJs already require the parties to provide much of this information.

As thus revised, Rule 10.42(a) would more fully accord with the current

disclosure requirements found in Rule 26(a)(1) of the Federal Rules of

Civil Procedure.

Second, rather than allow the parties to provide either copies or a

list of documents that they will introduce as evidence at the hearing,

revised Rule 10.42(a) would require that each party furnish a list of

such documents and copies of any documents which the other parties do

not already have in their possession and to which they do not have

reasonably ready access. Although this proposed change imposes a

heavier burden on all parties in preparing their prehearing

submissions, the corresponding benefit of securing, in advance of

trial, copies of documents to be used as evidence by the opposing party

would be significant.

Third, the Commission proposes adding a new provision to Rule

10.42(a) to require the submission of additional information concerning

any expert witness whom a party expects to call at the hearing,

including: (1) a statement of the qualifications of the witness; (2) a

listing of any publications authored by the witness within the

preceding ten years; (3) a listing of all cases in which the witness

has testified as an expert, at trial or in deposition, within the

preceding four years; (4) a complete statement of all opinions to be

expressed and the basis or reasons for those opinions; and (5) a list

of any documents, data or other written information considered by the

witness in forming his or her opinion, along with copies of any such

materials which are not already in the possession of the opposite

parties and to which they do not have reasonably ready access. This

proposed revision to existing Rule 10.42(a) generally accords with the

current requirements of Rule 26(a)(2) of the Federal Rules of Civil

Procedure. It is intended to eliminate unnecessary and inappropriate

surprise from the proceeding and allow for a more rational fact-finding

process.

The proposed version of Rule 10.42(a) also would provide that the

ALJ fashion a remedy which is just and appropriate for any failure to

comply with the rule's requirements, taking into account all of the

facts and circumstances. Thus, a minor, inadvertent failure to provide

all of the required information would presumably require a less onerous

remedy than a more significant, prejudicial failure, which might

require a delay in the proceeding or an exclusion of witnesses or

evidence.

Rule 10.42(b)--Investigatory Materials

Although broadly captioned ``Investigatory Materials,'' Rule

10.42(b), as currently written, requires the Division to produce only

three categories of documents, all relating to witnesses or witness

statements. These are ``transcripts of testimony, signed statements and

substantially verbatim reports of interviews * * * from or concerning

witnesses to be called at the hearing and all exhibits to those

transcripts, statements and reports.''

In practice, besides producing the witness statements referenced in

existing Rule 10.42(b), the Division often provides respondents with

prehearing access to documents obtained during the investigation that

preceded the initiation of the complaint against them. To reflect this

practice, and promote a fairer, more efficient hearing process, the

Commission proposes two amendments to Rule 10.42(b).

First, the existing version of Rule 10.42(b) would be replaced with

a new ``investigatory materials'' provision. As proposed by the

Commission, revised Rule 10.42(b) would obligate the Division of

Enforcement to make available for inspection and copying by the

respondents documents obtained during the investigation that preceded

issuance of the complaint and notice of hearing against them. These

materials would include (1) all documents that were subpoenaed or

otherwise obtained by the Division from persons not employed by the

Commission, and (2) all transcripts of investigative testimony taken by

the Division, together with all exhibits to those transcripts.

Under revised Rule 10.42(b), certain classes of documents would be

exempt from disclosure. These include documents that would (1) reveal

the identity of confidential sources, (2) disclose confidential

investigatory techniques or procedures, or

(3) disclose the business transactions or market positions of any

person other than the respondents, unless such

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information is relevant to the resolution of the proceeding.

Nothing in revised Rule 10.42(b) would require the Division to turn

over any internal memoranda, writings or notes prepared by Commission

employees who will not appear as a Division witness at the hearing. Nor

would the revised rule limit the ability of the Division to withhold

documents or other information on the grounds of privilege or attorney

work-product.

As is now the case, production of investigatory materials under

revised Rule 10.42(b) would occur prior to the scheduled hearing date,

at a time to be fixed by the ALJ. Unless otherwise agreed by the

Division, respondents would be given access to all documents being

produced at the Commission office where they are ordinarily maintained.

If respondents want copies made for themselves, they, and not the

Division, would pay for the cost of reproduction.

In order to prevent undue disruption of the administrative process,

the proposed Rule 10.42(b) provides that, if after hearing or decision

of the matter, it develops that the Division of Enforcement failed to

comply in some manner with the production requirements of the rule,

rehearing or reconsideration of the matter will not be required unless

the respondent can show prejudice.

Rule 10.42(c)--Witness Statements

To address witness statements, the subject matter covered by

existing Rule 10.42(b), the Commission proposes to promulgate a new

Rule 10.42(c).\1\ Under this new rule, all parties to a proceeding,

including the Division, would be obligated to make available to the

other parties any statement of any person whom the party calls, or

expects to call, as a witness that relates to his or her anticipated

testimony. Such statements would include: (1) transcripts of

investigative or trial testimony given by the witness; (2) written

statements signed by the witness; and (3) substantially verbatim notes

of interviews with the witness, and all exhibits to such transcripts,

statements and notes.

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\1\ If, as proposed, a new Rule 10.42(c) is adopted to address

witness statements, existing Rule 10.42(c), which governs

admissions, would be redesignated as Rule 10.42(d).

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Producible statements also would include memoranda and other

writings authored by the witness that contain information directly

relating to his or her anticipated testimony.\2\ The phrase

``substantially verbatim'' requires that the notes fairly record the

witness's exact words, subject to minor, inconsequential deviations. As

now, production of witness statements under the new rule would take

place prior to the scheduled hearing date, at a time designated by the

ALJ.

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\2\ In revising existing Rule 10.42(b), the Commission intends

that notes prepared by a witness which clearly and unambiguously set

forth the views of that witness relating to the subject matter of

his or her testimony, even if not in the nature of a formal

memorandum, would be produced to the other parties. Under the

revised rule, however, fragmentary notes, jottings and other

writings that might be part of the analytical work of a witness

would not have to be turned over. Moreover, the revised rule would

not mandate the production of notes prepared by persons other than

the witness, including, for example, attorney notes (except to the

extent that they are substantially verbatim notes of interviews with

the witness). In addition, both proposed Rule 10.42(b) and Rule

10.42(c) explicitly state that the parties, including the Division

of Enforcement, can invoke privileges and work product to withhold

materials otherwise producible under those rules.

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The Commission's proposed ``witness statement'' provision generally

accords with Rule 26.2 of the Federal Rules of Criminal Procedure,

which places in the Federal Rules the substance of the Jencks Act, 18

U.S.C. 3500. As now written, existing Rule 10.42(b) defines the term

``witness statement'' more broadly than Rule 26.2 or the Jencks Act in

two respects: (1) by seeming to call for the production of statements

by persons other than the witness himself, and (2) by requiring the

Division to make witness statements available regardless of whether the

statements relate to the witness's testimony at trial (as long as they

are ``from or concerning'' the witness). Also unlike Rule 26.2 of the

Federal Rules of Criminal Procedure, existing Rule 10.42(b) only

obligates the Division, rather than all parties, to produce witness

statements.

In the Commission's view, restricting the reach of existing Rule

10.42(b) to prior statements relating to the subject matter of a

witness's anticipated testimony is appropriate. A primary reason for

requiring the production of prior witness statements has been the value

of such statements for impeachment purposes. Statements that are

unrelated to a witness's testimony and statements of persons other than

the witness himself have little, if any, impeachment value.\3\

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\3\ Compliance with the proposed rule will not necessarily

satisfy the Division's obligation to produce exculpatory material.

In re First National Monetary Corp., [1982-1984 Transfer Binder]

Comm. Fut. L. Rep. (CCH) para. 21,853 at 27,581 (CFTC Nov. 13,

1981). The scope of that obligation is not addressed by these

proposed amendments to the Rules of Practice.

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Requiring all parties, instead of only the Division, to produce

prior statements made by the witnesses they intend to call would

benefit the hearing process. Making the prior statements of a party's

witness available to the other parties would likely result in more

meaningful cross-examination. United States v. Nobles, 422 U.S. 225,

231 (1975) (allowing prosecution to call upon court to compel the

production of previously recorded witness statements will strengthen

the truthfinding process and facilitate full disclosure of relevant

facts).

Unlike Rule 26.2 of the Federal Rule of Criminal Procedure or the

Jencks Act, however, the new ``witness statement'' provision being

proposed by the Commission would continue to require the production of

witness statements before the start of the hearing, at a time to be

fixed by the ALJ. This accords with the current practice of the

Division of Enforcement, which generally turns over witness statements

prior to a scheduled hearing either as a part of the Division's

document production under existing Rule 10.42(b) or as part of its

submission of prehearing materials pursuant to existing Rule 10.42(a).

The proposed Rule 10.42(c) contains a provision similar to that

contained in proposed Rule 10.42(b) to avoid undue disruption of the

Commission's administrative process because of the discovery of a

failure to comply with the production requirements of the rule after

hearing or decision. As with proposed Rule 10.42(b), no rehearing or

reconsideration of a matter already heard or decided shall be required,

unless a party demonstrates prejudice.

Rules 10.42(e) and (f)--Admissions

As currently written, existing Rule 10.42(c) permits ``any party

[to] serve upon any other party * * * a written request for admission

of the truth of any facts relevant to the pending proceedings set forth

in the request, including the genuineness of any documents described

therein.'' In addition to redesignating the existing rule as new Rule

10.42(e),\4\ the Commission is proposing to revise and restructure the

provision in order to discourage requests to admit that may be abusive

in number or content.

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\4\ Proposed Rule 10.42(d) would authorize ALJs to modify the

production requirements provided for in subsections (a)-(c) of the

rule under certain circumstances.

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First, the number of admissions that any party to a proceeding may

request from any other party would be limited. As proposed by the

Commission, new Rule 10.42(e) would allow each party to serve 50

requests to admit on any other party. To serve a larger number of

requests, parties would have to obtain

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prior approval from the ALJ; they would not be allowed to evade this

limitation by framing requests for discrete and different admissions as

``subparts'' or ``subparagraphs.'' By revising existing Rule 10.42(c)

in this way, the Commission's aim is not to prevent parties from

seeking appropriate admissions, but rather to provide scrutiny by the

ALJ before the parties make potentially abusive use of this device.

Second, requests to admit would be separated from questions

involving the authenticity and admissibility of documents that the

parties intend to introduce at the hearing. To accomplish this, the

Commission proposes to promulgate a new Rule 10.42(f), modeled on Rule

26(a)(3)(C) of the Federal Rules of Civil Procedure. Under the

proposal, upon order of the ALJ, each party to a proceeding would be

allowed to serve on the other parties a list of documents that it

intends to introduce at the hearing. Upon receipt of the list, the

other parties would have 20 days to file a response, disclosing any

objections that they wish to preserve to the authenticity or

admissibility of the documents thus identified.

Like Rule 26(a)(3)(C) of the Federal Rules of Civil Procedure,

proposed Rule 10.42(f) is intended to expedite the presentation of

evidence at the hearing. It would, for example, eliminate the need to

have witnesses available to provide foundation testimony for most items

of documentary evidence. Moreover, although the ALJ would not be

required to do so, he or she would be permitted to treat as a motion in

limine any list served by a party pursuant to the proposed new rule,

where any other party has filed a response objecting to the

authenticity or the admissibility of any item listed. In that event,

after affording the parties an opportunity to brief the motion, the ALJ

could rule on objections to the authenticity or admissibility of

documents in advance of trial, to the extent appropriate.

Rule 10.68--Subpoenas.

The Commission is proposing three substantive amendments to

existing Rule 10.68, which governs subpoenas. In addition to those

amendments, minor changes are being made to paragraph (e).

With respect to the substantive revisions proposed by the

Commission, existing Rule 10.68(a)(2) would be revised to allow parties

to apply for the issuance of subpoenas compelling the production of

documents at any designated time, including prior to the hearing. Under

the existing rule, ALJs are not permitted to issue subpoenas requiring

documents to be produced before the hearing actually begins. Postponing

compelled document production from the prehearing phase until the

hearing, however, promotes surprise, lack of preparation and delay. By

affording parties an opportunity to subpoena and review relevant

documents before the start of a hearing, revised Rule 10.68(a)(2) will

enable them to prepare questions relating to the information produced

and to determine whether additional information will be needed, thereby

making the hearing process both fairer and more expeditious.

Second, the Commission proposes to amend Rules 10.68(a)(1) and

10.68(a)(2) by requiring that all subpoena requests be submitted in

writing and be served on all other parties, unless (1) the request is

made on the record at the hearing or (2) the requesting party can

demonstrate why, in the interest of fairness or justice, the

requirement of a written submission or service should be waived. In the

Commission's view, generally there is no undue prejudice in requiring

disclosure to other parties of the fact that a subpoena is being sought

or the identity of the person or documents being subpoenaed. On the

contrary, by requiring requests for subpoenas to be served in writing

on all parties, the proposed revision will facilitate the proper

joining of any issue regarding the appropriateness of the requested

subpoena.

Third, the Commission is proposing to revise paragraph (f) of Rule

10.68. Under that provision, if any person fails to comply with a

subpoena issued at the request of a party, the requesting party may

petition the Commission to institute a subpoena enforcement action in

an appropriate United States District Court. As proposed by the

Commission, a sentence would be added to Rule 10.68(f), providing that,

when instituting an action to enforce a subpoena requested by the

Division of Enforcement, the Commission, in its discretion, may

delegate to the Director of the Division or any Commission employee

under the Director's direction that he or she may designate, or to such

other employee as the Commission may designate, authority to serve as

the Commission's counsel in such action.

Finally, the Commission proposes to delete from paragraphs (a)(1)

and (b)(3) of Rule 10.68 references to the Director of the Office of

Proceedings. At the same time, a referencing error in paragraph (e)

would be corrected.

II. Other Proposed Rule Changes

Rule 10.1--Scope and Applicability of Rules of Practice

Rule 10.1 identifies administrative proceedings that are subject to

the Rules and those that are not. The Commission proposes to amend the

list of proceedings governed by the Rules to reference specifically

proceedings for the issuance of restitution orders pursuant Section

6(c) of the Act, 7 U.S.C. 9 (1994), as amended by the FTPA in 1992.

Rule 10.12--Service and Filing of Documents; Form and Execution

As currently written, Rule 10.12 authorizes the service of all

pleadings subsequent to the complaint by personal service or by first-

class mail. The Commission proposes to revise paragraph (a)(2) of Rule

10.12 to also allow service by a commercial package delivery service

similar to the postal service and, provided that certain conditions are

met, by facsimile machine. By referring to such commercial services,

the Commission intends to include intercity package delivery services

such as Federal Express and United Parcel Service. It does not intend

to have this part of the service rule apply to intracity bicycle

messengers and similar services, which would fall within the personal

service part of the rule. As is now the case for service by mail, when

documents are served by a commercial package delivery service similar

to the postal service, an additional three days will be added to the

time within which the party being served may respond to the pleading.

Parties who wish to serve each other by facsimile machine must agree to

do so in writing. The written agreement shall be filed with the

Proceedings Clerk and must, at a minimum, (1) be signed by each party;

and (2) specify the facsimile machine telephone numbers to be used, the

hours during which the facsimile machine is in operation, and when

service will be deemed complete (e.g., when the sender has completed

transmission and his or her facsimile machine has produced a

confirmation report indicating successful transmission).

Rule 10.21--Commencement of the Proceeding

The Commission proposes to amend existing Rule 10.21 to state that

an adjudicatory proceeding is commenced when a complaint is filed with

the Commission's Office of Proceedings. As currently written, the rule

deems the proceeding commenced ``when the Commission authorizes service

of a

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complaint and notice of hearing upon one or more respondents.''

Rule 10.22--Complaint and Notice of Hearing

Existing Rule 10.22 addresses the content and service of the

complaint and notice of hearing in an administrative proceeding before

the Commission. With respect to service, the Commission proposes to add

language to paragraph (b) of Rule 10.22 addressing those instances

where a respondent is not found at his or her last known business or

residence address and no forwarding address is available. Under those

circumstances, additional service may be effected, at the discretion of

the Commission, by publishing the complaint in one or more newspapers

with general circulation where the respondent's last known business or

residence address was located and, if ascertainable, where the

respondent is believed to reside or do business currently. The

complaint would be displayed simultaneously on the Commission's

Internet web site. By adding these additional methods of service, the

Commission does not intend to suggest that service at the respondent's

last known address is not sufficient. Rather, the Commission is

building into the rule the flexibility to provide additional methods of

service where it deems they are warranted under particular

circumstances.

Rule 10.24--Amendments and Supplemental Pleadings

Under existing Rule 10.24, any party to a proceeding may amend his

or her pleading once as a matter of course at any time before a

responsive pleading is served or, if the pleading is one to which no

responsive pleading is permitted, within 20 days after it is served.

Otherwise, a party may amend his or her pleading only by leave of the

ALJ, which ``shall be freely given when justice so requires.'' See 17

CFR 10.24(a). The rule also provides that, upon motion by a party, the

ALJ may permit that party to serve a supplemental pleading ``setting

forth [relevant] transactions or occurrences or events which have

happened since the date of the pleadings sought to be supplemented.''

See 17 CFR 10.24(b).

By definition, the complaint issued by the Commission in an

enforcement proceeding is a ``pleading'' for Part 10 purposes. See 17

CFR 10.2(m). Because existing Rule 10.24 only permits a ``party'' to

amend or supplement a pleading, however, the rule as currently worded

creates some ambiguity as to whether the Commission has retained the

authority to amend or supplement a complaint once the proceeding has

commenced. To allay any confusion on this issue, the Commission is

proposing to revise and restructure Rule 10.24.

As revised, Rule 10.24 would grant the Commission exclusive and

unlimited authority to amend a complaint. The only exception to this

rule would be a proviso permitting the Division of Enforcement, upon

motion to the ALJ and the other parties and with notice to the

Commission, to correct typographical and clerical errors or to make

similar technical, non-substantive revisions to the complaint.

Otherwise, amendments to complaints could only be made by the

Commission itself. The Rule also would make explicit the ALJ's

authority, if the Commission exercises its authority to amend the

complaint, to adjust the hearing and/or pre-hearing schedule so as to

avoid any prejudice to any of the parties that might otherwise be

caused by the filing of an amended complaint.

Consistent with this proposed change, paragraph (b) of existing

Rule 10.24, which deals with supplemental pleadings, would be deleted.

In its place, the Commission proposes to insert a new paragraph (b),

addressing (1) amendments to answers to complaints; and (2) any replies

to such answers that may be permitted. The wording of this proposed

paragraph generally tracks the current language of Rule 10.24(a). As a

consequence of this revision, references to supplemental pleadings now

found in paragraph (c) of Rule 10.24 also would be deleted.

Rule 10.26--Motions and Other Papers

Existing Rule 10.26 governs motion practice before the Commission.

As now written, paragraph (b) of the rule permits any party who is

served with a motion to file a response within 10 days of service or

within such other period as may be established by the ALJ or the

Commission. The Commission proposes to delete the last sentence now

found in paragraph (b), which requires that any party who does not file

a response to a motion shall be deemed to have consented to the relief

sought by the motion. The Commission believes that the failure to file

a response should be considered by the ALJ in ruling on the motion, but

should not automatically be treated as an affirmative consent to the

relief being sought. Thus, the deleted sentence would be replaced with

language allowing the ALJ or the Commission to consider a party's

decision not to file a response when deciding whether or not to grant

the relief requested in the motion.

Rule 10.41--Prehearing Conferences; Procedural Matters

As currently written, Rule 10.41 authorizes the ALJ presiding over

an administrative proceeding to hold prehearing conferences for a

number of specific purposes set forth in the rule. Consistent with the

proposed changes involving the discovery provisions of the Rules, the

Commission is proposing to revise Rule 10.41 to allow its ALJs to hold

prehearing conferences to consider objections to the introduction of

documentary evidence and the testimony of witnesses identified in

prehearing materials submitted by the parties. This proposed revision

accords with Rule 16(c) of the Federal Rules of Civil Procedure, which

was intended, among other purposes, to encourage better planning and

management of litigation.

Rule 10.66--Conduct of Hearing

As currently written, Rule 10.66, which governs the conduct of

hearings, does not explicitly allow the Division, as plaintiff, to put

on a rebuttal case, although it often is permitted to do so. The

Commission is proposing to amend the rule to recognize this established

practice, by adding language to paragraph (b) of Rule 10.66 expressly

permitting the presentation of rebuttal evidence.

In addition, the Commission is proposing adding language to

paragraph (b) of Rule 10.66 to note explicitly the Commission's and the

ALJ's existing authority to enforce the requirement that evidence

presented in the proceeding be relevant and to limit cross-examination

to the subject matter of direct examination and matters affecting

credibility. See Fed. R. Evid. 611(b). Of course, the ALJ may also

exercise his or her discretion to permit inquiry during cross-

examination into additional matters as if on direct examination if the

circumstances so warrant, such as to avoid having to have a witness

return to provide direct testimony during the cross-examining party's

case-in-chief or rebuttal. See id.

Rule 10.84--Initial Decision

The Commission is proposing two amendments to existing Rule 10.84,

which deals with initial decisions. First, the rule would no longer

require that the ALJ render his or her initial decision within 30 days

after the parties file their posthearing submissions. The 30-day time

limit is unrealistic in many cases and does not accord with the

practice of other federal regulatory agencies.

Second, a new provision would be added to paragraph (b), requiring

that,

[[Page 16458]]

in any proceeding in which an order requiring restitution may be

entered, the ALJ shall determine, as part of his initial decision,

whether restitution is appropriate. In the event that it is, the

initial decision would include an order of restitution specifying: (1)

the violations that form the basis for restitution; (2) the particular

persons, or class of persons, who suffered damages proximately caused

by such violations; and

(3) the method of calculating and, if then determinable, the amount

of damages to be paid as restitution.

In deciding whether or not restitution is an appropriate remedy,

the ALJ would be given broad latitude. Under revised Rule 10.84(b), the

ALJ would be able to consider: (1) the degree of complexity likely to

be involved in establishing individual claims; (2) the likelihood that

such claimants can obtain compensation through their own efforts; (3)

the ability of the respondent to pay claimants damages that his

violations have caused; (4) the availability of resources to administer

restitution; and (5) any other matters that justice may require.

In most cases, the ALJ's Initial Decision would not address how or

when restitution would be paid. Instead, the Commission proposes adding

to the Rules a new and separate Subpart I, which would govern the

implementation of required restitution. Under this proposal, after an

order requiring restitution becomes effective (i.e., becomes final and

is not stayed), the Commission would direct the Division of Enforcement

to recommend to the Commission or, at the Commission's discretion, the

ALJ a procedure for implementing restitution. Each respondent who will

be required to pay restitution will be afforded notice of the

Division's recommendations and an opportunity to be heard.

Based on the Division's recommendations, the Commission or, at the

Commission's discretion, the ALJ would establish a procedure for: (1)

identifying and notifying individual claimants who may be entitled to

restitution; (2) receiving and evaluating claims; (3) obtaining funds

to be paid as restitution from the respondent; and (4) distributing

such funds to qualified claimants. If appropriate, the Commission or

the ALJ would be permitted to appoint any person, including a

Commission employee, to administer, or assist in administering,

restitution. Unless otherwise ordered by the Commission, all fees and

other costs incurred in administering an order of restitution will be

paid from the restitution funds obtained from the respondent. If the

administrator is a Commission employee, however, no fee shall be

charged for his or her services or for services performed by other

Commission employees working under his or her direction.

Finally, any order issued by an ALJ directing or authorizing

payment of restitution to individual claimants would be deemed to be a

final order for appeal purposes and thus be subject to review by the

Commission pursuant to Sec. 10.102(a).

The Commission expects that this bifurcated procedure would be

followed in most proceedings. However, the proposed amendments would

allow the bifurcated proceedings to be combined into one proceeding

under limited circumstances, upon motion of the Division of Enforcement

or where the resolution of the issues regarding implementation of the

restitution would not materially delay the resolution by the ALJ of the

rest of the proceeding. The Commission anticipates that this

alternative procedure would be used only where the issues relating to

the implementation of restitution were sufficiently simple--for

instance, where there are only a handful of potential recipients of

restitution and the calculation of each individual's claim is not

complex--that combining the proceedings would not add much time either

to the hearing of the matter or to the rendering of the Initial

Decision.

Rule 10.101--Interlocutory Appeals

Rule 10.101 addresses the circumstances under which interlocutory

appeals may be taken from rulings of the Administrative Law Judges and

the procedures to be followed in doing so. Paragraph (a) sets forth the

circumstances under which the Commission may permit interlocutory

appeals. Subparagraphs (1)-(4) of that paragraph identify particular

circumstances which, if present, would allow a party to ask the

Commission directly to consider interlocutory review. Subparagraph (5)

provides for interlocutory appeal based upon certification by the

Administrative Law Judge that certain circumstances are presented by

the issue on which review is to be sought.

Subparagraph (b) sets the time deadlines for the filing of an

Application for review with the Commission. It provides that an

application is to be filed within five days of notice of the

Administrative Law Judge's ruling on which review is to be sought under

subparagraphs (a)(1)-(4), or within five days of the Judge's ruling on

a certification request made under subparagraph (a)(5).

As currently worded, paragraph (b) creates an ambiguity as to the

applicable deadlines if a party believes that it may have a basis to

seek interlocutory review under subparagraphs (a)(1)-(4), but is also

seeking certification from the Administrative Law Judge under

subparagraph (a)(5). The Commission proposes to revise subparagraph (b)

to eliminate that ambiguity. Under the revised rule, if a party seeks

certification under subparagraph (a)(5) within five days of the

Administrative Law Judge's ruling on which review will be sought, that

party would have five days after the Judge's ruling on the request for

certification to file an application for review under any of the

subparagraphs of paragraph (a).

Rule 10.102--Review of Initial Decisions

Existing Rule 10.102 gives any party to an administrative

proceeding the right to appeal an ALJ's initial decision to the

Commission. The appeal is initiated by filing a notice of appeal within

15 days after service of the initial decision. The appeal then must be

perfected through the filing of an appeal brief within 30 days after

the notice of appeal is filed. Within 30 days after being served with

an appeal brief, the opposite party may file an answering brief. No

further briefs are permitted.

The Commission proposes to amend Rule 10.102 in two respects.

First, a new provision allowing for cross appeals would be added to

paragraph (a) of Rule 10.102. Pursuant to this provision, if a timely

notice of appeal is filed by one party, any other party would be

permitted to file a notice of appeal within 15 days after service of

the first notice or within 15 days after service of the initial

decision or other order terminating the proceeding, whichever is later.

In the event that a notice of cross appeal were to be filed, the

Commission, to the extent practicable, would adjust the briefing

schedule and any page limitations otherwise applicable to allow for

consolidated briefing by all parties.

Second, paragraph (b) of existing Rule 10.102 would be revised to

permit reply briefs, which would have to be filed within 14 days after

service of an answering brief. Under the Commission's proposal, reply

briefs would be strictly confined to matters raised in the answering

brief and be limited to 15 pages in length.

Rule 10.106--Reconsideration

Rule 10.106 deals with petitions for reconsideration of Commission

opinions and orders. Although the rule specifically provides that the

filing of a petition for reconsideration shall not

[[Page 16459]]

operate to stay the effectiveness of the Commission's opinion or order,

it does not otherwise address stay applications. In the past, when

considering requests to stay the effective date of its opinions and

orders pending judicial review, the Commission has generally relied on

standards developed by federal courts. Under those standards, a

respondent seeking to stay governmental action pending appeal must

establish, along with irreparable injury, that he or she is likely to

succeed on the merits of his or her appeal and that neither the public

interest nor the interest of any other party would be adversely

affected if a stay is granted.

The Commission proposes to add a new paragraph to Rule 10.106

codifying the standards it has relied upon in considering stay

applications, as described above. In addition, the Commission proposes

to require any respondent seeking to stay the imposition of a civil

monetary penalty to post a surety bond with the Commission in the

amount of any penalty imposed plus interest. If neither the public

interest nor the interest of any other party would be adversely

affected, imposition of the civil monetary penalty would be stayed once

the bond is posted. The bond requirement would assure that, should the

Commission prevail on appeal, the civil monetary penalty would be paid.

In this way, the proposed rule would reduce the harm to the public

interest which otherwise could result from the granting of a stay.

Additionally, the Commission proposes to add a new paragraph (c) to

existing Rule 10.106, dealing with responses to petitions for

reconsideration or stay applications. Under the proposed provision, no

response would be filed unless requested by the Commission. Based on

the Commission's experience, petitions for reconsideration and stay

applications normally do not necessitate a response in order for the

Commission to rule.

Appendix A--Commission Policy Relating to the Acceptance of

Settlements in Administrative and Civil Proceedings

The Commission proposes to add to the Rules an appendix setting

forth the policy of the Commission not to accept any offer of

settlement submitted by any respondent or defendant in an

administrative or civil proceeding if the settling respondent or

defendant wishes to continue to deny the allegations of the complaint.

In accepting a settlement and entering an order finding violations of

the Act and/or regulations promulgated under the Act, the Commission

makes uncontested findings of fact and conclusions of law. The

Commission does not believe it would be appropriate for it to be making

such uncontested findings of violations if the party against whom the

findings and conclusions are to be entered is continuing to deny the

alleged misconduct.

The refusal of a settling respondent or defendant to admit the

allegations in a Commission-instituted complaint shall be treated as a

denial, unless the party states that he neither admits nor denies the

allegations. In that event, the offer of settlement, consent or consent

order submitted to the Commission shall include a provision stating

that, by neither admitting nor denying the allegations, the settling

respondent or defendant agrees that neither he nor any of his agents or

employees under his authority or control shall take any action or make

any public statement denying, directly or indirectly, any allegation in

the complaint or creating, or tending to create, the impression that

the complaint is without a factual basis; provided, however, that

nothing in such provision shall affect the settling respondent's or

defendant's testimonial obligation, or right to take legal positions,

in other proceedings to which the Commission is not a party.

This policy reflects the current practice of the Commission.

III. Related Matters

The proposed rules relate solely to agency organization, procedure

and practice. Therefore, the provisions of the Administrative Procedure

Act, 5 U.S.C. 553, generally requiring notice of proposed rulemaking

and opportunity for public comment, are not applicable to them.

However, because these proposed amendments represent significant

changes in the Commission's current rules of practice, the Commission

is inviting public comment on the rules as proposed and suggestions for

any other changes that would improve the procedures used in

adjudicatory administrative proceedings instituted by the Commission.

The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611 (1994),

requires that agencies, in proposing rules, consider the impact of

those rules on small businesses. Section 3(a) of the RFA defines the

term ``rule'' to mean ``any rule for which the agency publishes a

general notice of proposed rulemaking pursuant to section 553(b) of

this title * * * for which the agency provides an opportunity for

notice and public comment.'' 5 U.S.C. 601(2). Since the proposed rules

are not being effected pursuant to section 553(b), they are not

``rules'' as defined in the RFA, and the analysis and certification

process certified in that statute do not apply. In any event, the

Chairperson certifies, on behalf of the Commission, that the proposed

rules, which seek to improve the overall efficiency and fairness of the

administrative process, will not have a significant economic impact on

a substantial number of small entities.

List of Subjects in 17 CFR Part 10

Administrative practice and procedure, Commodity futures.

In consideration of the foregoing, the Commission proposes to amend

Chapter I of Title 17 of the Code of Federal Regulations as follows:

PART 10--RULES OF PRACTICE

1. The authority citation for part 10 continues to read as follows:

Authority: Pub. L. 93-463, sec. 101(a)(11), 88 Stat. 1391; 7

U.S.C. 4a(j), unless otherwise noted.

2. Section 10.1 is amended by deleting the third ``and'' from

paragraph (d), redesignating paragraphs (e), (f), (g) and (h) as

paragraphs (f), (g), (h) and (i), respectively, and adding a new

paragraph (e), to read as follows.

10.1 Scope and applicability of rules of practice.

* * * * *

(e) The issuance of restitution orders pursuant to section 6(c) of

the Act, 7 U.S.C. 9; and

* * * * *

3. Section 10.12 is amended by revising paragraph (a)(2) to read as

follows:

Sec. 10.12 Service and filing of documents; form and execution.

(a) Service by a party or other participant in a proceeding. * * *

(2) How service is made. Service shall be made by:

(i) Personal service;

(ii) Delivering the documents by first-class United States mail or

a similar commercial package delivery service; or

(iii) Transmitting the documents via facsimile machine.

Service shall be complete at the time of personal service or upon

deposit in the mails or with a similar commercial package delivery

service of a properly addressed document for which all postage or fees

have been paid to the mail or delivery service. Where a party effects

service by mail or similar package delivery service, the time within

which the party being served may respond shall be extended by three

days. Service by facsimile machine shall

[[Page 16460]]

be permitted only if all parties to the proceeding have agreed to such

an arrangement in writing and a copy of the written agreement, signed

by each party, has been filed with the Proceedings Clerk. The agreement

must specify the facsimile machine telephone numbers to be used, the

hours during which the facsimile machine is in operation, and when

service will be deemed complete.

* * * * *

4. Section 10.21 is revised to read as follows:

Sec. 10.21 Commencement of the proceeding.

An adjudicatory proceeding is commenced when a complaint and notice

of hearing is filed with the Office of Proceedings.

5. Section 10.22 is amended by adding a new sentence at the end of

paragraph (b) and adding new paragraphs (b)(1) and (b)(2) to read as

follows:

Sec. 10.22 Complaint and notice of hearing.

* * * * *

(b) Service. * * * If a respondent is not found at his last known

business or residence address and no forwarding address is available,

additional service may be made, at the discretion of the Commission, as

follows:

(1) By publishing a notice of the filing of the proceeding and a

summary of the complaint, approved by the Commission or the

Administrative Law Judge, once a week for three consecutive weeks in

one or more newspapers having a general circulation where the

respondent's last known business or residence address was located and,

if ascertainable, where the respondent is believed to reside or be

doing business currently; and

(2) By continuously displaying the complaint on the Commission's

Internet web site during the period referred to in paragraph (b)(1) of

this section.

6. Section 10.24 is amended by revising paragraphs (a), (b) and (c)

to read as follows.

Sec. 10.24 Amendments and supplemental pleadings.

(a) Complaint and notice of hearing. The Commission may, at any

time, amend the complaint and notice of hearing in any proceeding. If

the Commission so amends the complaint and notice of hearing, the

Administrative Law Judge may, at his discretion, adjust the scheduling

of the proceeding so as to avoid any prejudice to any of the parties to

the proceeding. Upon motion to the Administrative Law Judge and with

notice to all other parties and the Commission, the Division of

Enforcement may amend a complaint to correct typographical and clerical

errors or to make other technical, non-substantive revisions within the

scope of the original complaint.

(b) Other pleadings. Except for the complaint and notice of

hearing, a party may amend any pleading once as a matter of course at

any time before a responsive pleading is served or, if the pleading is

one to which no responsive pleading is permitted, he may amend it

within 20 days after it is served. Otherwise a party may amend a

pleading only by leave of the Administrative Law Judge, which shall be

freely given when justice so requires.

(c) Response to amended pleadings. Any party may file a response to

any amendment to any pleading, including the complaint, within ten days

after the date of service upon him of the amendment or within the time

provided to respond to the original pleading, whichever is later.

* * * * *

7. Section 10.26 is amended by revising the last sentence in

paragraph (b) to read as follows:

Sec. 10.26 Motions and other papers.

* * * * *

(b) Answers to motions. * * * The absence of a response to a motion

may be considered by the Administrative Law Judge or the Commission in

deciding whether to grant the requested relief.

* * * * *

8. Section 10.41 is amended by redesignating paragraphs (f) and (g)

as paragraphs (g) and (h), respectively, and by adding a new paragraph

(f) to read as follows.

Sec. 10.41 Prehearing conferences; procedural matters.

* * * * *

(f) Considering objections to the introduction of documentary

evidence and the testimony of witnesses identified in prehearing

materials filed or otherwise furnished by the parties pursuant to

Sec. 10.42;

* * * * *

9. Section 10.42 is amended by revising paragraph (a); by

redesignating paragraphs (b) and (c) as paragraphs (c) and (e); by

revising newly redesignated paragraphs (c) and (e)(1); and by adding a

new paragraph (b), a new paragraph (d) and a new paragraph (f), to read

as follows.

Sec. 10.42 Discovery.

(a) Pretrial Materials.--(1) In general. Unless otherwise ordered

by an Administrative Law Judge, the parties to a proceeding shall

furnish to all other parties to the proceeding on or before a date set

by the Administrative Law Judge in the form of a prehearing memorandum

or otherwise:

(i) An outline of its case or defense;

(ii) The legal theories upon which it will rely;

(iii) The identity, and the city and state of residence, of each

witness, other than an expert witness, who is expected to testify on

its behalf, along with a brief summary of the matters to be covered by

the witness's expected testimony;

(iv) A list of documents which it intends to introduce at the

hearing, along with copies of any such documents which the other

parties do not already have in their possession and to which they do

not have reasonably ready access.

(2) Expert witnesses. Unless otherwise ordered by the

Administrative Law Judge, in addition to the information described in

paragraph (a)(1) of this section, any party who intends to call an

expert witness shall furnish to all other parties to the proceeding on

or before a date set by the Administrative Law Judge:

(i) A statement identifying the witness and setting forth his

qualifications;

(ii) A list of any publications authored by the witness within the

preceding ten years;

(iii) A list of all cases in which the witness has testified as an

expert, at trial or in deposition, within the preceding four years;

(iv) A complete statement of all opinions to be expressed by the

witness and the basis or reasons for those opinions; and

(v) A list of any documents, data or other written information

which were considered by the witness in forming his opinions, along

with copies of any such documents, data or information which the other

parties do not already have in their possession and to which they do

not have reasonably ready access.

(3) The foregoing procedures shall not be deemed applicable to

rebuttal evidence submitted by any party at the hearing.

(4) In any action in which a party fails to comply with the

requirements of this paragraph (a), the Administrative Law Judge may

make such orders in regard to the failure as are just, taking into

account all of the relevant facts and circumstances of the failure to

comply.

(b) Investigatory materials. (1) In general. Unless otherwise

ordered by the Commission or the Administrative Law Judge, the Division

of Enforcement shall make available for inspection and copying by the

respondents prior to the

[[Page 16461]]

scheduled hearing date any of the following documents that were

obtained by the Division prior to the institution of proceedings in

connection with the investigation that led to the complaint and notice

of hearing:

(i) All documents that were produced pursuant to subpoenas issued

by the Division or were otherwise obtained from persons not employed by

the Commission; and

(ii) All transcripts of investigative testimony and all exhibits to

those transcripts.

(2) Documents that may be withheld. The Division of Enforcement may

withhold any document which would:

(i) Reveal the identity of a confidential source;

(ii) Disclose confidential investigatory techniques or procedures;

or

(iii) Separately disclose the market positions, business

transactions, trade secrets or names of customers of any persons other

than the respondents, unless such information is relevant to the

resolution of the proceeding.

(3) Nothing in paragraphs (b)(1) and (b)(2) of this section shall

limit the ability of the Division of Enforcement to withhold documents

or other information on the grounds of privilege or work product.

(4) Index of withheld documents. The Administrative Law Judge may,

at the request of any respondent or upon his own motion, require the

Division of Enforcement to submit for review an index of documents

withheld pursuant to paragraphs (b)(2) or (b)(3) of this section.

(5) Arrangements for inspection and copying. Documents subject to

inspection and copying pursuant to this section shall be made available

to the respondents at the Commission office where they are ordinarily

maintained or any other location agreed upon by the parties in writing.

Upon payment of the appropriate fees set forth in appendix B to part

145 of this chapter, any respondent may obtain a photocopy of any

document made available for inspection. Without the prior written

consent of the Division of Enforcement, no respondent shall have the

right to take custody of any documents that are made available for

inspection and copying, or to remove them from Commission premises.

(6) Failure to make documents available. In the event that the

Division of Enforcement fails to make available documents subject to

inspection and copying pursuant to this section, no rehearing or

reconsideration of a matter already heard or decided shall be required,

unless the respondent demonstrates prejudice caused by the failure to

make the documents available.

(7) Requests for confidential treatment; protective orders. If a

person has requested confidential treatment of information submitted by

him or her, either pursuant to rules adopted by the Commission under

the Freedom of Information Act (part 145 of this chapter) or under the

Commission's Rules Relating To Investigations (part 11 of this

chapter), the Division of Enforcement shall notify him or her, if

possible, that the information is to be disclosed to parties to the

proceeding and he or she may apply to the Administrative Law Judge for

an order protecting the information from disclosure. In considering

whether to issue a protective order, the Administrative Law Judge shall

weigh the burden on the person requesting the order if no order is

granted against the burden on the public interest and any party to the

proceeding if the order is granted. No protective order shall be

granted which will prevent the introduction of material evidence by the

Division of Enforcement or impair a respondent's ability to defend

adequately.

(c) Witness statements. (1) In general. Each party to an

adjudicatory proceeding shall make available to the other parties any

statement of any person whom the party calls, or expects to call, as a

witness that relates to the witness's anticipated testimony and is in

the party's possession. Such statements shall include the following:

(i) Transcripts of investigative deposition, trial or similar

testimony given by the witness,

(ii) Written statements signed by the witness, and

(iii) Substantially verbatim notes of interviews with the witness,

and all exhibits to such transcripts, statements and notes. For

purposes of this paragraph (c), ``substantially verbatim notes'' means

notes that fairly record the witnesses exact words, subject to minor,

inconsequential deviations. Such statements shall include memoranda and

other writings authored by the witness that contain information

directly relating to his anticipated testimony. The production of

witness statements pursuant to this paragraph shall take place prior to

the scheduled hearing date, at a time to be designated by the

Administrative Law Judge.

(2) Nothing in paragraph (c)(1) of this section shall limit the

ability of a party to withhold documents or other information on the

grounds of privilege or work product.

(3) Index of withheld documents. The Administrative Law Judge may,

at the request of any party or upon his own motion, require a party to

submit for review an index of documents withheld pursuant to paragraph

(c)(2) of this section.

(4) Failure to produce witness statements. In the event that a

party fails to make available witness statements subject to production

pursuant to this section, no rehearing or reconsideration of a matter

already heard or decided shall be required, unless another party

demonstrates prejudice caused by the failure to make the witness

statements available.

(d) Modification of Production Requirements. The Administrative Law

Judge shall modify any of the requirements of paragraphs (a) through

(c) of this section that any party can show is unduly burdensome or is

otherwise inappropriate under all the circumstances.

(e) Admissions. (1) Request for admissions. Any party may serve

upon any other party, with a copy to the Proceedings Clerk, a written

request for admission of the truth of any facts relevant to the pending

proceeding set forth in the request. Each matter of which an admission

is requested shall be separately set forth. Unless prior written

approval is obtained from the Administrative Law Judge, the number of

requests shall not exceed 50 in number including all discrete parts and

subparts.

* * * * *

(f) Objections to authenticity or admissibility of documents. (1)

Identification of documents. Upon order of the Administrative Law

Judge, any party may serve upon the other parties, with a copy to the

Proceedings Clerk, a list identifying the documents that it intends to

introduce at the hearing and requesting the other parties to file and

serve a response disclosing any objection, together with the factual or

legal grounds therefor, to the authenticity or admissibility of each

document identified on the list. A copy of each document identified on

the list shall be served with the request, unless the party being

served already has the document in his possession or has reasonably

ready access to it.

(2) Objections to authenticity or admissibility. Within 20 days

after service of the list described in paragraph (f)(1) of this

section, each party upon whom it was served shall file a response

disclosing any objection, together with the factual or legal grounds

therefor, to the authenticity or admissibility of each document

identified on the list. All objections not raised may be deemed waived.

[[Page 16462]]

(3) Rulings on objections. In his or her discretion, the

Administrative Law Judge may treat as a motion in limine any list

served by a party pursuant to paragraph (f)(1) of this section, where

any other party has filed a response objecting to the authenticity or

the admissibility on any item listed. In that event, after affording

the parties an opportunity to file briefs containing arguments on the

motion, the ALJ may rule on any objection to the authenticity or

admissibility of any document identified on the list in advance of

trial, to the extent appropriate.

10. Section 10.66 is amended by revising paragraph (b) to read as

follows:

Sec. 10.66 Conduct of the hearing.

* * * * *

(b) Rights of parties. Every party shall be entitled to due notice

of hearings, the right to be represented by counsel, and the right to

cross-examine witnesses, present oral and documentary evidence, submit

rebuttal evidence, raise objections, make arguments and move for

appropriate relief. Nothing in this paragraph limits the authority of

the Commission or the Administrative Law Judge to exercise authority

under other provisions of the Commission's rules, to enforce the

requirement that evidence presented be relevant to the proceeding, or

to limit cross-examination to the subject matter of the direct

examination and matters affecting the credibility of the witness.

* * * * *

11. Section 10.68 is amended by revising paragraphs(a)(1), (a)(2)

and (b)(3); by revising the second sentence in paragraph (e)(1); and by

adding a new sentence to the end of paragraph (f), to read as follows.

Sec. 10.68 Subpoenas.

(a) Application for and issuance of subpoenas.--(1) Application for

and issuance of subpoena ad testificandum. Any party may apply to the

Administrative Law Judge for the issuance of a subpoena requiring a

person to appear and testify (subpoena ad testificandum) at the

hearing. All requests for the issuance of a subpoena ad testificandum

shall be submitted in duplicate and in writing and shall be served upon

all other parties to the proceeding, unless the request is made on the

record at the hearing or the requesting party can demonstrate why, in

the interest of fairness or justice, the requirement of a written

submission or service on one or more of the other parties is not

appropriate. A subpoena ad testificandum shall be issued upon a showing

by the requesting party of the general relevance of the testimony being

sought and the tender of an original and two copies of the subpoena

being requested, except in those situations described in Sec. 10.68(b),

where additional requirements are set forth.

(2) Application for subpoena duces tecum. An application for a

subpoena requiring a person to produce specified documentary or

tangible evidence (subpoena duces tecum) at any designated time or

place may be made by any party to the Administrative Law Judge. All

requests for the issuance of a subpoena ad testificandum shall be

submitted in duplicate and in writing and shall be served upon all

other parties to the proceeding, unless the request is made on the

record at the hearing or the requesting party can demonstrate why, in

the interest of fairness or justice, the requirement of a written

submission or service on one or more of the other parties is not

appropriate. Except in those situations described in Sec. 10.68(b),

where additional requirements are set forth, each application for the

issuance of a subpoena duces tecum shall contain a statement or showing

of general relevance and reasonable scope of the evidence being sought

and be accompanied by an original and two copies of the subpoena being

requested, which shall describe the documentary or tangible evidence to

be subpoenaed with as much particularity as is feasible.

* * * * *

(b) Special requirements relating to application for and issuance

of subpoenas for Commission records and for the appearance of

Commission employees or employees of other agencies. * * *

(3) Rulings. The motion shall be decided by the Administrative Law

Judge and shall provide such terms or conditions for the production of

the material, the disclosure of the information, or the appearance of

the witness as may appear necessary and appropriate for the protection

of the public interest.

* * * * *

(e) Service of subpoenas. (1) How effected. * * * Service of a

subpoena upon any other person shall be made by delivering a copy of

the subpoena to him as provided in paragraph (e)(2) or (e)(3) of this

section, as applicable, and by tendering to him the fees for one day's

attendance. * * *

(f) Enforcement of subpoenas. * * * When instituting an action to

enforce a subpoena requested by the Division of Enforcement, the

Commission in its discretion may delegate to the Director of the

Division or any Commission employee designated by the Director and

acting under his or her direction, or to any other employee of the

Commission, authority to serve as the Commission's counsel in such

subpoena enforcement action.

12. Section 10.84 is amended by revising paragraph (b) to read as

follows:

Sec. 10.84 Initial decision.

* * * * *

(b) Filing of initial decision. (1) In general. After the parties

have been afforded an opportunity to file their proposed findings of

fact, proposed conclusions of law and supporting briefs pursuant to

Sec. 10.82, the Administrative Law Judge shall prepare upon the basis

of the record in the proceeding and shall file with the Proceedings

Clerk his decision, a copy of which shall be served by the Proceedings

Clerk upon each of the parties.

(2) Restitution. In any proceeding in which an order requiring

restitution may be entered, the Administrative Law Judge shall, as part

of his initial decision, determine whether restitution is appropriate.

If it is, the ALJ shall issue an order specifying: all violations that

form the basis for restitution; the particular persons, or class of

persons, who suffered damages proximately caused by each such

violation; and the method of calculating and, if then determinable, the

amount of damages to be paid as restitution.

(3) In deciding whether restitution is appropriate, the

Administrative Law Judge, in his discretion, may consider: the degree

of complexity likely to be involved in establishing claims; the

likelihood that claimants can obtain compensation through their own

efforts; the ability of the respondent to pay claimants damages that

his violations have caused; the availability of resources to administer

restitution; and any other matters that justice may require.

* * * * *

13. Section 10.101 is amended by revising paragraph (b)(1) to read

as follows.

Sec. 10.101 Interlocutory appeals

* * * * *

(b) Procedure to obtain interlocutory review. (1) In general. An

Application for interlocutory review may be filed within five days

after notice of the Administrative Law Judge's ruling on a matter

described in paragraph (a)(1), (a)(2), (a)(3) or (a)(4) of this

section, except if a request for certification under paragraph (a)(5)

of this section has been filed with the Administrative Law Judge within

five days after notice of the Administrative Law Judge's ruling

[[Page 16463]]

on the matter. If such a request has been filed, an Application for

interlocutory review under paragraphs (a)(1) through (a)(5) of this

section may be filed within five days after notification of the

Administrative Law Judge's ruling on the request for certification.

* * * * *

14. Section 10.102 is amended by revising paragraphs (a), (d)(2)

and the first sentence of paragraph (e)(2); by redesignating paragraph

(b)(3) as paragraph (b)(4) and revising it; by adding a new sentence

between the third and fourth full sentences of paragraph (e)(1); and by

adding a new paragraph (b)(3) and a new paragraph (b)(5), to read as

follows.

Sec. 10.102 Review of initial decision.

(a) Notice of appeal. (1) In general. Any party to a proceeding may

appeal to the Commission an initial decision or a dismissal or other

final disposition of the proceeding by the Administrative Law Judge as

to any party. The appeal shall be initiated by serving and filing with

the Proceedings Clerk a notice of appeal within 15 days after service

of the initial decision or other order terminating the proceeding;

where service of the initial decision or other order terminating the

proceeding is effected by mail or commercial carrier, the time within

which the party served may file a notice of appeal shall be increased

by three days.

(2) Cross appeals. If a timely notice of appeal is filed by one

party, any other party may file a notice of appeal within 15 days after

service of the first notice or within 15 days after service of the

initial decision or other order terminating the proceeding, whichever

is later.

(3) Confirmation of filing. The Proceedings Clerk shall confirm the

filing of a notice of appeal by mailing a copy thereof to each other

party.

(b) Briefs: time for filing. * * *

(3) Reply brief. Within 14 days after service of an answering

brief, the party that filed the first brief may file a reply brief.

(4) No further briefs shall be permitted, unless so ordered by the

Commission on its own motion.

(5) Cross appeals. In the event that any party files a notice of

cross appeal pursuant to paragraph (a)(2) of this section, the

Commission shall, to the extent practicable, adjust the briefing

schedule and any page limitations otherwise applicable under this

section, so as to accommodate consolidated briefing by the parties.

* * * * *

(d) Briefs: content and form. * * *

(2) The answering brief generally shall follow the same style as

prescribed for the appeal brief but may omit a statement of the issues

or of the case if the party does not dispute the issues and statement

of the case contained in the appeal brief. Any reply brief shall be

confined to matters raised in the answering brief and shall be limited

to 15 pages in length.

* * * * *

(e) Appendix to briefs. (1) Designation of contents of appendix. *

* * Any reply brief filed by the appellant may, if necessary,

supplement the appellant's previous designation. * * *

(2) Preparation of the appendix. Within 15 days after the last

answering brief or reply brief of a party was due to be filed, the

Office of Proceedings shall prepare an appendix to the briefs which

will contain a list of the relevant docket entries filed in the

proceedings before the Administrative Law Judge, the initial decision

and order of the Administrative Law Judge, the pleadings filed on

behalf of the parties who are participating in the appeal and such

other parts of the record designated by the parties to the appeal in

accordance with the procedures set forth in paragraph (e)(1) of this

section. * * *

* * * * *

15. Section 10.106 is amended by revising the section heading; by

designating the existing text as paragraph (a) and adding a paragraph

heading to it; and by adding a new paragraph (b) and a new paragraph

(c) to read as follows.

Sec. 10.106 Reconsideration; stay pending judicial review.

(a) Reconsideration. * * *

(b) Stay pending judicial appeal. (1) Application for stay. Within

15 days after service of a Commission opinion and order imposing upon

any party any of the sanctions listed in Secs. 10.1(a) through 10.1(e),

that party may file an application with the Commission requesting that

the effective date of the order be stayed pending judicial review. The

application shall state the reasons why a stay is warranted and the

facts relied upon in support of the stay. Any averments contained in

the application must be supported by affidavits or other sworn

statements or verified statements made under penalty of perjury in

accordance with the provisions of 28 U.S.C. 1746.

(2) Standards for issuance of stay. The Commission may grant an

application for a stay pending judicial appeal upon a showing that:

(i) The applicant is likely to succeed on the merits of his appeal;

(ii) Denial of the stay would cause irreparable harm to the

applicant; and

(iii) Neither the public interest nor the interest of any other

party will be adversely affected if the stay is granted.

(3) If neither the public interest nor the interest of any other

party will be adversely affected, the Commission shall grant any

application to stay the imposition of a civil monetary penalty if the

applicant has filed with the Proceedings Clerk a surety bond

guaranteeing payment of the penalty plus interest, in the event that

the Commission's opinion and order is sustained or the applicant's

appeal is not perfected or is dismissed for any reason. This bond shall

be in the form of an undertaking by a surety company on the approved

list of sureties issued by the Treasury Department of the United

States, and the amount of interest shall be calculated in accordance

with 28 U.S.C. 1961(a) and (b), beginning on the date 30 days after the

Commission's opinion and order was served on the applicant.

(c) Response. Unless otherwise requested by the Commission, no

response to a petition for reconsideration pursuant to Sec. 10.106(a)

or an application for a stay pursuant to Sec. 10.106(b) shall be filed.

The Commission shall set the time for filing any response at the time

it asks for a response. The Commission shall not grant any such

petition or application without providing other parties to the

proceeding with an opportunity to respond.

15. A new subpart I is added to part 10, to read as follows.

Subpart I--Administration of Restitution Orders

Sec.

10.110 Recommendation of procedure for implementing restitution.

10.111 Administration of restitution.

10.112 Right to challenge distribution of funds to customers.

10.113 Accelaration of establishment of restitution procedure.

Sec. 10.110 Recommendation of procedure for implementing restitution.

Except as provided in Sec. 10.113, after such time as any order

requiring restitution becomes effective (i.e., becomes final and is not

stayed), the Division of Enforcement shall petition the Commission for

an order directing the Division of Enforcement to recommend to the

Commission or, in its discretion, the Administrative Law Judge a

procedure for implementing restitution. Each party that has been

ordered to pay restitution shall be afforded an opportunity to review

the

[[Page 16464]]

Division of Enforcement's recommendations and be heard.

Sec. 10.111 Administration of restitution.

Based on the recommendations submitted by the Division of

Enforcement pursuant to Sec. 10.110, the Commission or the

Administrative Law Judge, as applicable, shall establish, in writing, a

procedure for identifying and notifying individual persons who may be

entitled to restitution, receiving and evaluating claims, obtaining

funds to be paid as restitution from the party and distributing such

funds to qualified claimants. As necessary or appropriate, the

Commission or the Administrative Law Judge may appoint any person,

including an employee of the Commission, to administer, or assist in

administering, such restitution procedure. Unless otherwise ordered by

the Commission, all costs incurred in administering an order of

restitution shall be paid from the restitution funds obtained from the

party who was so sanctioned; provided, however, that if the

administrator is a Commission employee, no fee shall be charged for his

or her services or for services performed by any other Commission

employee working under his or her direction.

Sec. 10.112 Right to challenge distribution of funds to customers.

Any order of an Administrative Law Judge directing or authorizing

the distribution of funds paid as restitution to individual customers

shall be considered a final order for appeal purposes and be subject to

Commission review under Sec. 10.102.

Sec. 10.113 Acceleration of establishment of restitution procedure.

The procedures provided for by Secs. 10.110 through 10.112 may be

initiated prior to the issuance of an Initial Decision in a proceeding,

and may be combined with the hearing in the proceeding, upon motion of

the Division of Enforcement or if presentation, consideration and

resolution of the issues relating to the restitution procedure will not

materially delay the conclusion of the hearing or the issuance of an

Initial Decision in the proceeding.

16. A new appendix A is added to part 10, to read as follows.

Appendix A--Commission Policy Relating to the Acceptance of

Settlements in Administrative and Civil Proceedings

It is the policy of the Commission not to accept any offer of

settlement submitted by any respondent or defendant in an

administrative or civil proceeding, if the settling respondent or

defendant wishes to continue to deny the allegations of the

complaint. In accepting a settlement and entering an order finding

violations of the Act and/or regulations promulgated under the Act,

the Commission makes uncontested findings of fact and conclusions of

law. The Commission does not believe it would be appropriate for it

to be making such uncontested findings of violations if the party

against whom the findings and conclusions are to be entered is

continuing to deny the alleged misconduct.

The refusal of a settling respondent or defendant to admit the

allegations in a Commission-instituted complaint shall be treated as

a denial, unless the party states that he or she neither admits nor

denies the allegations. In that event, the proposed offer of

settlement, consent or consent order must include a provision

stating that, by neither admitting nor denying the allegations, the

settling respondent or defendant agrees that neither he or she nor

any of his or her agents or employees under his authority or control

shall take any action or make any public statement denying, directly

or indirectly, any allegation in the complaint or creating, or

tending to create, the impression that the complaint is without a

factual basis; provided, however, that nothing in this provision

shall affect the settling respondent's or defendant's testimonial

obligation, or right to take legal positions, in other proceedings

to which the Commission is not a party.

Issued in Washington, D.C., on March 16, 1998 by the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 98-8687 Filed 4-2-98; 8:45 am]

BILLING CODE 6351-01-P