[Federal Register Volume 59, Number 40 (Tuesday, March 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4574]
[[Page Unknown]]
[Federal Register: March 1, 1994]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 12
Rules Relating to Reparation Proceedings
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
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SUMMARY: Pursuant to the Futures Trading Practices Act of 1992, the
Commodity Futures Trading Commission (``Commission'' or ``CFTC'')
published for comment a notice of proposed rulemaking setting forth new
regulations (the ``Class Action Proposal''),1 to implement class
action suits against registered persons. The Commission also invited
the public to respond to specific questions. Upon consideration of the
comments received and the Commission's own review of the proposed rule,
it has determined not to adopt the Class Action Proposal.
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\1\58 FR 17369 (April 2, 1993).
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In order to update and streamline Commission procedures in light of
its experience, the Commission published for comment a notice of
proposed rulemaking to amend and correct its rules relating to
reparation proceedings (the ``Reparation Rules Proposal'').2 This
notice sets forth the regulations in final form.
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\2\58 FR 44623 (August 24, 1993).
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Additionally, the Commission has received inquiries about punitive
damages which suggest that the current regulations need to be
clarified. Consequently, the Commission clarified the regulations to
reflect Section 222 of the Futures Trading Practices Act of 1992.
EFFECTIVE DATE: The effective date of the regulations is May 2, 1994
and the revised regulations apply only to cases filed on and after that
date. The Commission will consider comments from the public about the
revisions of the regulations concerning punitive damages until the
effective date.
ADDRESSES: Comments should be sent to Jean A. Webb, Secretary of the
Commission, Commodity Futures Trading Commission, 2033 K Street NW.,
Washington, DC 20581.
FOR FURTHER INFORMATION CONTACT: Merry Lymn, Assistant General Counsel,
Office of the General Counsel, Commodity Futures Trading Commission,
2033 K Street NW., Washington, DC 20581. Telephone: (202) 254-9880.
SUPPLEMENTARY INFORMATION:
I. Background
In reviewing the reparations proposals, the Commission carefully
considered all of the comments and the pertinent regulatory and
legislative history. In addition, the Commission evaluated the
proposals in light of the National Performance Review (``NPR''), which
among other things, requires government agencies to develop a clear
sense of mission, inject competition into the conduct of government
business, and to measure success by customer satisfaction. To further
the goals of NPR, the Commission has engaged in an effort to streamline
its bureaucracy, to cut costs, and serve the public in the best way
possible. As a part of this effort, the Commission identified the
reparations program as one area of review. With the promulgation of
these rules, the Commission's purpose is to improve the rules so as to
facilitate efficient and just deliberations of reparations complaints
in accordance with the Commission's regulatory mission to protect the
public and the markets from price manipulation and fraud.
A. The Class Action Proposal
1. Proposed Rules
Section 224 of the Futures Trading Practices Act of 1992 (102
Cong., 2d Sess., Pub. L. 102-546) authorizes an action in reparations
to be brought by any one or more persons for and in behalf of such
person or persons and other persons similarly situated, if the
Commission permits such actions pursuant to a final rule issued by the
Commission.
The Futures Trading Practices Act does not mandate that the
Commission adopt final rules providing for class actions unless the
Commission decides such a rule should be permitted after considering
``the potential impact of such actions on resources available to the
reparations system * * * and the relative merits of bringing such
actions in Federal court.'' Because the Commission was unsure of the
desirability and need for class action suits in reparations it sought
comments on the Class Action Proposal and raised several questions to
which it requested responses.
2. Comments Received
The Commission received six written comments in response to the
Class Action Proposal. The commenters included futures industry
associations, bar associations, a law firm, and a futures commission
merchant. None of the participants favor the implementation of class
action suits in reparations, although their reasons differ.
Overall, the commenters agree that given the ability to pursue
class actions in federal court, there would be no benefit to the public
by the adoption of procedures to implement class actions before the
Commission. While the parties agree that the Commission has more
expertise in administering the Commodity Exchange Act than do federal
courts, this advantage is considered insignificant compared to the
resources and procedural advantages available in the federal courts.
Some parties point out that the highly individualized, fact-
intensive cases in reparations are the type of case which courts have
often refused to certify for class actions. One commenter notes that
because class action suits settle only liability issues and individual
hearings would still be required for each class member, judicial
economy would not be furthered. Other participants contend that the
procedural and administrative requirements of class action suits would
increase both the costs to the Commission and the time necessary for
resolution of such cases. The parties consider class actions out of
place in the reparation forum because it was designed for quick and
inexpensive resolution of disputes whereas class action litigation must
be conducted with formality and strict attention to procedural issues
and is often lengthy.
3. Disposition
The Commission has carefully considered all the comments received
in response to the Class Action Proposal and the issues involved. The
Commission finds that it should not implement class action suits in
reparations at this time because its resources would be used more
effectively elsewhere and because the Commission cannot offer a useful
alternative to the federal courts. Further, this result is consistent
with the NPR because it appears that class actions would not improve
service to futures customers and would result in unnecessary spending
by the Commission and litigants. Accordingly, the Commission has
decided not to adopt the proposed rules implementing class action suits
against registered persons.
B. The Reparation Rules Proposal
1. Introduction
In light of the passage of the Futures Trading Practices Act of
1992 and its experience with the reparation rules since they were last
amended in 1984, the Commission reexamined the regulations governing
reparation proceedings and found a need for certain corrections. Some
references are outdated and need to be deleted or updated. Commission
practice has disclosed that certain time limits can be compressed and
procedures streamlined. Additionally, the Commission considered raising
jurisdictional and fee levels and whether the voluntary decisional
procedure should be retained. The Commission's notice of proposed
rulemaking set forth the needed corrections and revisions and requested
public comment.
2. Comments Received
The Commission received 14 written comments in response to the
Reparation Rules Proposal. Commenters included futures industry
associations, an investor protection organization, two Commission
Administrative Law Judges, a Commission Judgment Officer, a professor
of law, attorneys representing both claimants and registrants in
reparation cases, and registrants which have participated in reparation
actions as respondents. The Commission has reviewed each of these
comments and, based upon that review, is adopting the rules as proposed
with certain modifications.
The Commission is also modifying its rules to clarify any questions
arising from implementation of section 222 of the Futures Trading
Practices Act of 1992. That section amended Section 14 of the Commodity
Exchange Act to provide for punitive damages in a limited class of
reparation cases.
II. Reparation Rules
A. Corrections to Regulations
The current regulations became applicable to matters filed on or
after April 23, 1984. Since there are no matters pending before the
Commission which date back to April 23, 1984, the date reference is
unnecessary and is being deleted.
The definitional section was not in alphabetical order. The
Commission believes that re-ordering the definitions alphabetically
will make it easier for the user and facilitate adding or deleting
definitions in the future. Consequently, the definitional section is
re-ordered alphabetically.
The Office of Government Ethics established uniform standards of
ethical conduct for officers and employees of the Federal Government
(57 FR 35006, Aug. 7, 1992). These were published as new government-
wide regulations superseding certain individual agency regulations.
Consequently, the reference in Sec. 12.7 to 17 CFR 140.735-3(b)(3) is
updated to 5 CFR 2635.101(b).
Additionally, the current regulations refer to the ``Chief of the
Opinions Section.'' There is no longer an ``Opinions Section.''
Consequently, references to the ``Chief of the Opinions Section'' are
changed to the ``Deputy General Counsel for Opinions'' and references
to ``Opinions Section'' have been changed to ``Office of the General
Counsel.''
There were no comments regarding the proposed corrections.
Accordingly, the Commission is making the corrections as indicated in
its prior notice. Typographical errors also have been corrected.
B. Revision of Rules
1. Response to Complaint
Rule 12.16 affords a respondent 45 days to respond to a reparation
complaint and permits the Director of the Office of Proceedings to
extend the filing deadline for an additional 15 days. In providing such
a lengthy period, the Commission had expected parties to pursue early
settlement discussions. Unfortunately, this has not been the
case.3
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\3\See 41 FR 3994, 3995 (January 27, 1976).
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In contrast to the 45 day period in the Commission rule, Rule 12(a)
of the Federal Rules of Civil Procedure requires that an answer to a
complaint be filed within 20 days after service of the summons and
complaint. The Commission reviewed the relative generosity of the
length of time for filing a response in its rules, and found that
adjudicating reparation claims could be expedited. Thus, to further the
express purpose of the reparation procedures ``to provide a just,
speedy and inexpensive determination of the issues'' (Sec. 12.1(a)),
the Commission proposed to reduce the time for filing the response to
the complaint set forth in Sec. 12.16 to 25 days, and the additional
time that the Director of the Office of Proceedings could extend that
deadline to ten days. The Commission believed that this would reduce
the amount of total time in which to file a response from a maximum of
60 days to about half that time without infringing on the ability of
the parties to present their cases. Moreover, this reduction also would
shorten the total time for adjudicating claims. The Commission proposed
to revise Sec. 12.16 to compress the filing deadlines accordingly.
a. Comments received. Only two parties commented on this issue.
They disagree as to whether reducing the time for response to a
complaint afforded by Rule 12.16 would infringe upon a respondent's
ability to defend an action.
b. Disposition. The Commission has considered the comments and has
determined that since defendants in federal court are required to
respond in 20 days, affording respondents in reparations 25 days to
respond is not onerous, especially since an extension of ten days is
available. Consequently, for the reasons set forth in the Reparation
Rules Proposal, and because it should improve service by compressing
overall time for adjudicating complaints, the Commission has decided to
adopt the time frame proposed.
2. Discovery
Section 12.30(d) provides that all discovery notices and requests
be served within 40 days after the Proceedings Clerk notifies the
parties of the commencement of a proceeding. Because the Commission
believes that the disposition of proceedings can be expedited by
compressing the discovery period, it proposed to amend Sec. 12.30(d) to
reduce the time for serving discovery notices and requests to 20 days
after notification by the Proceedings Clerk of the commencement of a
proceeding.
a. Comments received. Only three persons expressed an opinion. One
contends that the present rules do not cause significant delays and
another points out that extra time is needed when respondents and their
attorneys reside in different states and rely on the postal system. The
parties point out that defendants, who do not know beforehand that a
complaint will be filed, will be disadvantaged if there is too little
time to prepare discovery requests. The third commenter argues that the
reduction in time is too drastic and would invite an increase in
motions for extensions of time and untimely discovery requests. It
suggests reducing the time for serving discovery notices and requests
to 30 days.
b. Disposition. The Commission has reconsidered its proposal to
reduce the time for serving discovery requests from 40 days to 20 days
after notification by the Proceedings Clerk of the commencement of a
proceeding and has decided to amend Rule 12.30(d) to reduce that period
to 30 days. The Commission believes that this compromise responds to
the needs of the public as expressed in the comments and will reduce
the total time to adjudicate a significant number of cases without
inviting an increase in the number of motions for extensions of time.
3. The Voluntary Decisional Procedure
At the time it was instituted, the voluntary procedure was seen as
meeting the desires of customers for an arbitration style forum. In the
Reparation Rules Proposal, the Commission discussed the voluntary
procedure at length. It pointed out the advantages of the voluntary
procedure and compared it to the arbitration programs of NFA, the
exchanges, and other private forums. At the same time, the Commission
questioned the continuing need for the voluntary procedure and sought
public comment as to its usefulness.
The public was encouraged to focus attention on the general nature
of the reparation program as one of the significant antifraud tools and
customer protections created by Congress in the Commodity Exchange Act.
The Commission also invited comment on whether the elimination of
voluntary proceedings as an option in reparations would shift cases
away from the public record to private decisionmakers, and if so, what
the impact would be on the benefits and costs of these proceedings.
a. Comments received. Virtually all of the parties addressed this
issue: about half favor retention of the voluntary procedure and half
are opposed. Several of the parties who favor elimination of the
voluntary procedure also question the continuing need for the entire
reparations program.
Those who favor retention of the program are primarily those who
use it. A respondent with experience in several voluntary proceedings
asserts that proceedings before Judgment Officers compare favorably to
private arbitrations. The parties who favor retention of the program
contend that the voluntary procedure is vital to preserving the
confidence of small investors who harbor doubts about the fairness of
industry-sponsored arbitration. Others note that reparation proceedings
in general as well as voluntary proceedings are an effective tool for
monitoring registrants' behavior and keeping complaints about the
industry in the public eye.
Several parties contend that industry sponsored arbitration is fair
and at least as efficient as the voluntary procedure. These parties
assert that the Commission resources invested in the voluntary
procedure could be put to better use without harming customers. They
point to statistics which, they argue, show that complainants have as
good a chance, if not better, of prevailing before industry arbitration
as before the Commission. These parties also suggest that the
Commission evaluate the continuing need for the entire reparations
program in light of the alternative fora available to customers.
b. Disposition. The Commission reviewed all the comments carefully
and has decided to retain the voluntary procedure. In the Commission's
view retention of the program is consistent with the goals of NPR.
Members of the public who use the voluntary procedure appear pleased
with it and are not in favor of being forced to rely on the private
sector for redress of their complaints. Thus, the goal of customer
satisfaction would be furthered by retention of the voluntary
procedure.
In addition, the Commission's Mission Statement includes oversight
of the commodity futures industry and protection of the public and the
markets from price manipulation and fraud. The reparation program and
the voluntary procedure specifically address fraud committed upon
futures customers. Consequently, retention of the program is important
to carry out this mandate. Moreover, industry proceedings are
confidential whereas complaints brought before the Commission and its
decisions are on the public record. Accordingly, the Commission is able
to influence industry behavior and thereby further its mandate to
oversee the industry. For all of these reasons, the Commission has
determined to retain the voluntary procedure.
4. Filing Fees
Filing fees of $25 for the voluntary decisional procedure, $100 for
the summary decisional procedure, and $200 for the formal decisional
procedure were set in 1984 (49 FR 6602, February 22, 1984). In the
Reparation Rules Proposal, the Commission proposed raising the filing
fees for the voluntary decisional procedure to $50, for the summary
decisional procedure to $125, and to $250 for the formal decisional
procedure and to amend Sec. 12.25 accordingly. Additionally, the
Commission proposed to amend Sec. 12.106 to authorize Judgment Officers
to assess the cost of the filing fee as part of the damage award in
voluntary proceedings.
a. Comments received. Only a few parties addressed this proposal.
These parties contend that the fees should be raised even higher in
order to discourage frivolous claims. One party urges the Commission to
adopt fees more commensurate with the cost of administering the
reparation program.
b. Disposition. The purpose of the reparation program is to provide
a service to commodity futures customers and, at the same time, to
exercise oversight of the industry. Thus, it is in the Commission's
interest to assess fees which reimburse costs to some extent. However,
the Commission recognizes that if fees are too high they may discourage
customers from seeking redress with the Commission, thereby impeding
its important oversight mission. The Commission believes that the
proposed fee structure will address its twin goals of service and
oversight. Accordingly, the Commission is adopting the fees as
proposed.
5. Summary Decisional Procedure
The summary decisional procedure was created by the Commission
based upon the belief that parties with smaller claims should be
entitled to a less expensive, more expeditious procedure which offers a
greater likelihood of an early damage award and recovery. The
Reparation Rules Proposal sets forth a brief history of the ceiling for
damage claims eligible for summary proceedings. In short, the ceiling
was originally $2,500, was raised to $5,000, and is now $10,000.
Upon examination of the workload of the Office of Proceedings, the
Commission proposed raising the ceiling from $10,000 to $30,000 in
order to increase the efficiency of that office. In its notice, the
Commission stated: ``Allowing Judgment Officers to hear a greater
number of cases will free the Administrative Law Judges to concentrate
on enforcement proceedings and cases in which the damages claimed are
greater than $30,000. Should the Judgment Officers become overburdened,
ALJ's can be assigned cases below $30,000.'' 58 FR 44623, 44625.
Cases under the summary decisional procedure are usually decided
based upon the written submissions of the parties. The current rules
allow a Judgment Officer to order a hearing only upon motion of a
party. The Commission proposed modifying the rules to authorize
Judgment Officers to order oral hearings on their own motion. Hearings
are conducted by telephone unless the parties agree to a hearing in
Washington, DC.
Currently, the rules require that the parties be given 60 days
notice prior to a hearing. The proposed rules require that the Judgment
Officers schedule the hearing with consideration for the convenience of
the parties and allow for 15 days notice for telephonic hearings and 30
days notice for in-person hearings. The proposed rules also make it
clear that failure to appear at telephonic and in-person hearings or to
provide correct telephone numbers is subject to sanctions, including
possible default or dismissal.
a. Comments received. Only the proposal to raise the ceiling from
$10,000 to $30,000 inspired comments. Both Administrative Law Judges
object. One party even suggests lowering the ceiling to $2,500.
Some parties express the opinion that raising the ceiling will have
a significant detrimental impact on the ability of a respondent to
adequately defend an action. They argue that parties to a proceeding
are entitled to the greatest procedural protection which includes an
in-person hearing.
On the other hand, one commenter contends that it is unlikely that
there will be any significant negative impact on affected claimants and
respondents because the continued availability of an oral hearing will
safeguard against any infringement on a fair fact-finding process.
b. Disposition. Since there were no objections to the proposal to
improve telephonic hearings under the summary decisional procedure by
authorizing Judgment Officers to order a telephonic hearing on their
own motion, compressing the notice period, and providing for sanctions,
these modifications are adopted as proposed. As explained in the
Reparation Rules Proposal, the modifications will give the Judgment
Officers needed flexibility and accelerate the disposition of
proceedings. Because the new rules provide for telephonic hearings upon
the initiation of the Judgment Officer, the Commission believes that
summary proceedings will provide due process more efficiently than in
the past. The Commission anticipates some cost savings from this.
Further, telephonic hearings save money for the litigants since no one
has to travel to the hearing site. Thus, consistent with NPR, the
Judgment Officers are given enhanced powers, customers are better
served, and efficiency is promoted.
The parties which oppose raising the ceiling do not address the
matter directly. Rather, they generally call into question the adequacy
of the procedural protections available in a summary decisional
proceeding. The Commission determined that telephonic hearings are
consistent with the requirements of fundamental fairness when it
instituted this procedure in 1984. See 49 FR 6602, 6614 (February 22,
1984). As the Commission explained in adopting this regulation (id.):
* * * The Commission is confident that a Judgment Officer will
be able to assess the demeanor of witnesses from listening to their
voices. Because the Judgment Officer can be expected to hold doubts
about the credibility of any telephone witness whose testimony does
not sound genuine, because he has the authority to conduct his own
examination of such witnesses to confirm or dispel those doubts, and
because telephone assertions can be measured against the documentary
evidence of record, the Commission does not believe that the
potential for the coaching of witnesses will have any effect on the
Judgment Officer's ability to discern the truth.
The Commission recognizes that fundamental fairness requires a
process that safeguards the reliability of the fact-finding process.
Telephonic hearings include representation by counsel and cross-
examination. Frequently the presiding officers clarify the factual
record through their examination of witnesses. The Commission's
experience has shown that telephonic hearings provide for fair and
reliable fact-finding and an adequate and appropriate basis for a
credibility determination. Compare, Sterling v. District of Columbia
Department of Social Services, 513 A. 2d 253, 255 (D.C. 1986) (``[W]e
believe that telephone hearings are a reasonable means of conserving
fiscal and administrative resources.''). See also, Casey v. O'Bannon,
536 F. Supp. 350, 353 (E.D. Pa. 1982) (refusing to enjoin a telephonic
hearing program on due process grounds and holding that ``hearing
officers can effectively judge credibility over the phone by noting
voice responses, pauses, levels of irritation and other factors'').
As the Commission said in 1984 (49 FR 6602, 6614 supra):
* * * [T]he Commission believes that its Judgment Officers will
possess the ability to comprehend the often complex factual contexts
of commodity-related disputes, to recognize critical issues of fact
and law in the proceeding, to evaluate oral testimony and to conduct
oral examination, and to render a well-considered initial decision
in the proceeding. Accordingly, the Commission believes that there
is no basis for precluding Judgment Officers from exercising any
functions performed by Administrative Law Judges.
Since the Judgment Officers have demonstrated their competence to
decide cases from the time the summary procedure was instituted,
neither the Commission nor the parties should be deprived of the
savings in both cost and time which will inure to their benefit by
raising the ceiling from $10,000 to $30,000.
Accordingly, in order to increase the efficiency of the Office of
Proceedings, the Commission is raising the ceiling from $10,000 to
$30,000.
C. Clarification
Section 222 of the Futures Trading Practices Act of 1992 amended
Section 14 of the Commodity Exchange Act to provide for punitive
damages in reparation cases. Section 14 of the Commodity Exchange Act,
as amended, provides that any person complaining of any violation of
any provision of this Act or any rule, regulation, or order issued
pursuant to this Act by any person who is registered under this Act
may, at any time within two years after the cause of action accrues,
apply to the Commission for an order awarding--(A) actual damages
proximately caused by such violation. If an award of actual damages is
made against a floor broker in connection with the execution of a
customer order, and the futures commission merchant which selected the
floor broker for the execution of the customer order is held to be
responsible under section 2(a)(1) for the floor broker's violation,
such futures commission merchant may be required to satisfy such award;
and (B) in the case of any action arising from a willful and
intentional violation in the execution of an order on the floor of a
contract market, punitive or exemplary damages equal to no more than
two times the amount of such actual damages. If an award of punitive or
exemplary damages is made against a floor broker in connection with the
execution of a customer order, and the futures commission merchant
which selected the floor broker for the execution of the customer order
is held to be responsible under section 2(a)(1) for the floor broker's
violation, such futures commission merchant may be required to satisfy
such award if the floor broker fails to do so, except that such
requirement shall apply to the futures commission merchant only if it
willfully and intentionally selected the floor broker with the intent
to assist or facilitate the floor broker's violation.
On its face, this statutory provision appears to be self-executing.
However, some questions have arisen regarding its implementation.
Consequently, the Commission has determined that it should clarify its
regulations in order to notify the public as to how it intends to
administer this provision.4
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\4\In this connection, the Commission wishes to make clear that
it does not view this provision as requiring actual execution of an
order before punitive damages may be awarded.
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The first question is whether punitive damages will affect the type
of proceeding accorded under the regulations. For example, in a case
with claimed actual damages of $20,000 and claimed punitive damages of
$40,000, which level of proceeding would be instituted? The Commission
has determined that the governing factor in all cases should be total
damages claimed; therefore, in the example above, the case would be
assigned to the formal decisional procedure. Sections 12.2, 12.13,
12.18, 12.25, 12.204, 12.210, and 12.314 have been revised accordingly.
Second, in order to put a claimant on notice as to the
prerequisites for such an award, and assure that respondents have
requisite notice to defend claims for punitive damages, the Commission
has revised sections 12.2 and 12.13. As a prerequisite to an award of
punitive damages, a complainant must claim actual and punitive damages,
prove actual damages, and demonstrate that punitive damages are
appropriate. Claimants will thus be on notice as to the requirements;
respondents will have requisite notice to defend claims for punitive
damages.
The Administrative Procedure Act, 5 U.S.C. 553(b) requires in most
instances that a notice of proposed rulemaking be published in the
Federal Register and that opportunity for comment be provided when an
agency promulgates new regulations or changes to existing regulations.
Section 553(b) sets forth an exception, however, for rules of agency
organization, procedure, or practice. The Commission has determined
that these revisions to its reparation rules to clarify its
interpretation of the punitive damage provision of the Act constitute
rules of agency practice or procedure and, accordingly, that notice and
comment procedures are not required.
III. Related Matters
Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.
(1988), requires that agencies, in adopting rules, consider the impact
of those rules on small businesses. The Commission has previously
determined that part 12 reparation rules are not subject to the
provisions of RFA because they relate solely to agency organization,
procedure, and practice.5 Nevertheless, because they do not impose
regulatory obligations on commodity professionals and small commodity
firms, and because the corrections and amendments will expedite and
improve the reparation procedures, the Commission does not expect the
rule to have a significant economic impact on a substantial number of
small business entities.
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\5\49 FR 6602, 6621 (February 22, 1984).
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Accordingly, pursuant to Rule 3(a) of the RFA (5 U.S.C. 605(b)),
the Acting Chairman, on behalf of the Commission, certifies that this
rule will not have a significant economic impact on a substantial
number of small entities. The Commission received no comments
concerning its determination in this regard.
List of Subjects in 17 CFR Part 12
Administrative practice and procedure, Commodity exchanges,
Commodity futures, Reparations
PART 12--RULES RELATING TO REPARATIONS
Part 12 of chapter I of title 17 of the Code of Federal Regulations
is amended as follows:
1. The authority citation for part 12 is revised to read as
follows:
Authority: 7 U.S.C. 4a(j), 12(a)(5), and 18.
Sec. 12.1 [Corrected]
2. In the first sentence of Sec. 12.1(c) the comma after
``complaints'' is removed; the comma after ``thereto'' is removed and a
period is added in its place. The rest of the paragraph is removed.
3. Section 12.2 is revised to read as follows:
Sec. 12.2 Definitions.
For purposes of this part:
Act means the Commodity Exchange Act, as amended, 7 U.S.C. 1, et
seq.;
Administrative Law Judge means an administrative law judge
appointed pursuant to the provisions of 5 U.S.C. 3105;
Commission means the Commodity Futures Trading Commission;
Commission decisional employee means an employee or employees of
the Commission who are or may reasonably be expected to be involved in
the decisionmaking process in any proceeding, including, but not
limited to: A Judgment Officer; members of the personal staffs of the
Commissioners, but not the Commissioners themselves; members of the
staffs of the Administrative Law Judges, but not an Administrative Law
Judge; members of the staffs of the Judgment Officers; members of the
Office of the General Counsel; members of the staff of the Office of
Proceedings; and other Commission employees who may be assigned to hear
or to participate in the decision of a particular matter.
Complainant means a person who, individually or jointly with
others, has applied to the Commission for a reparation award pursuant
to section 14(a) of the Act, but shall not include a cross claimant or
any other type of third party claimant. The term ``complainant'' under
these rules applies equally to two or more persons who have applied
jointly for a reparation award;
Complaint means any document which constitutes an application for a
reparation award pursuant to section 14(a) of the Act, regardless of
whether it is denominated as such;
Counterclaim means an application for a reparation award by a
respondent against a complainant which satisfies the requirements of
Sec. 12.19. A counterclaim does not mean a cross claim or other type of
third party claim;
Director of the Office of Proceedings means an employee of the
Commission who serves as the administrative head of that Office, with
responsibility and authority to assure that these part 12 Reparation
Rules are administered in a manner which will effectuate the purposes
of section 14(b) of the Act. The Director is authorized to convene
meetings of all personnel in the Office of Proceedings, including
Administrative Law Judges and their personally assigned law clerks. The
Director shall have the authority to delegate his duties to administer
Secs. 12.15, 12.24, 12.26 and 12.27, and, shall have the authority to
assign and, if necessary, reassign the duties of, and set reasonable
standards for performance for, all personnel in the Office, including
the Judgment Officers, but not including Administrative Law Judges and
their personally assigned law clerks;
Ex parte communication means an oral or written communication not
on the public record with respect to which reasonable prior notice to
all parties is not given, but does not include:
(1) A discussion, after consent has been obtained from all of the
named parties, between a party and a Judgment Officer or Administrative
Law Judge, or the staffs of the foregoing, pertaining solely to the
possibility of settling the case without the need for a decision;
(2) Requests for status reports, including questions relating to
service of the complaint, and the registration status of any persons,
on any matter or proceeding covered by these rules; or
(3) Requests made to the Office of Proceedings or the Office of the
General Counsel for interpretation of these rules.
Formal decisional procedure means, where the amount of total
damages claimed exceeds $30,000, exclusive of interest and costs, a
procedure elected by the complainant or a respondent where the parties
may be granted an oral hearing. A formal decisional proceeding is
governed by subpart E;
Hearing means that part of a proceeding which involves the
submission of proof, either by oral presentation or written submission;
Interested person means any party, and includes any person or
agency permitted limited participation or to state views in a
reparation proceeding, or other person who might be adversely affected
or aggrieved by the outcome of a proceeding (including the officers,
agents, employees, associates, affiliates, attorneys, accountants or
other representatives of such persons), and any other person having a
direct or indirect pecuniary or other interest in the outcome of a
proceeding;
Judgment Officer means an employee of the Commission who is
authorized to conduct the proceeding and render a decision in a summary
decisional proceeding or a voluntary decisional proceeding. In
appropriate circumstances, the functions of a Judgment Officer may be
performed by an Administrative Law Judge;
Office of the General Counsel refers to the members of the
Commission's staff who provide assistance to the Commission in its
direct review of any proceeding conducted pursuant to these rules;
Office of Proceedings means that Office within the Commission
comprised of the Administrative Law Judges, Judgment Officers, the
Director of that Office, the Proceedings Clerk, and members of the
staffs of the foregoing, which administers these part 12 Reparation
Rules, other than the rules authorizing direct review by the
Commission;
Order means the whole or any part of a final procedural or
substantive disposition of a reparation proceeding by the Commission,
an Administrative Law Judge, a Judgment Officer, or the Proceedings
Clerk;
Party means a complainant, respondent or any other person or agency
named or admitted as a party in a reparation matter;
Person means any individual, association, partnership, corporation
or trust;
Pleading means the complaint, the answer to the complaint, any
supplement or amendment thereto, and any reply to the foregoing;
Proceeding means a case in which the pleadings have been forwarded
and in which a procedure has been commenced pursuant to Sec. 12.26;
Proceedings Clerk means that member of the Commission's staff in
the Office of Proceedings who shall maintain the Commission's
reparation docket, assign reparation cases to an appropriate
decisionmaking official, and act as custodian of the records of
proceedings;
Punitive damages means damages awarded (no more than two times the
amount of actual damages) in the case of any action arising from a
willful and intentional violation in the execution of an order on the
floor of a contract market. An order does not have to be actually
executed to render a violation subject to punitive damages. As a
prerequisite to an award of punitive damages, a complainant must claim
actual and punitive damages, prove actual damages, and demonstrate that
punitive damages are appropriate;
Registrant means any person who--
(1) Was registered under the Act at the time of the alleged
violation;
(2) Is subject to reparation proceedings by virtue of section 4m of
the Commodity Exchange Act, regardless of whether such person was ever
registered under the Act; or
(3) Is otherwise subject to reparation proceedings under the Act;
Reparation award means the amount of monetary damages a party may
be ordered to pay;
Respondent means any person or persons against whom a complainant
seeks a reparation award pursuant to section 14(a) of the Act;
Summary decisional procedure means, where the amount of total
damages claimed does not exceed $30,000, exclusive of interest and
costs, a procedure elected by the complainant or the respondent wherein
an oral hearing need not be held and proof in support of each party's
case may be supplied in the form and manner prescribed by Sec. 12.208.
A summary decisional proceeding is governed by subpart D;
Voluntary decisional procedure means, regardless of the amount of
damages claimed, a procedure which the complainant and the respondent
have chosen voluntarily to submit their claims and counterclaims,
allowable under these rules, for an expeditious resolution by a
Judgment Officer. By electing the voluntary decisional procedure,
parties agree that a decision issued by a Judgment Officer shall be
without accompanying findings of fact and shall be final without right
of Commission review or judicial review. A voluntary decisional
proceeding is governed by subpart C of these rules.
Sec. 12.6 [Corrected]
4. In Sec. 12.6(b) the word ``the'' is added between ``expiration
of'' and ``time''.
Sec. 12.7 [Corrected]
5. In Sec. 12.7(b) introductory text, the phrase ``communication
prohibited by paragraph (b)'' is revised to read ``communication
prohibited by paragraph (a)''.
6. In Sec. 12.7(c)(3) the reference to ``17 CFR 140.735-3(b)(3).''
is revised to read ``5 CFR 2635.101(b).''.
Sec. 12.10 [Corrected]
7. In Sec. 12.10(a)(1) add ``a'' between ``course of'' and
``proceeding''.
8. In Sec. 12.10(a)(3) the phrase ``Chief of the Opinions Section''
is revised to read ``Deputy General Counsel for Opinions''.
Sec. 12.13 [Corrected and Amended]
9. In Sec. 12.13(a) the phrase ``(as defined in Sec. 12.2(y))'' is
revised to read ``(as defined in Sec. 12.2)''.
10. Sec. 12.13(b)(1)(v) and (viii) are revised to read as follows:
Sec. 12.13 Complaint; election of procedure.
* * * * *
(b) * * *
(1) * * *
(v) The amount of damages the complainant claims to have suffered
and the method by which those damages have been computed, the amount of
punitive damages (no more than two times the amount of such actual
damages) the complainant claims, if any, and how complainant plans to
demonstrate that punitive damages are appropriate;
* * * * *
(viii) An election of a decisional procedure pursuant to subpart C,
D, or E. (A procedure pursuant to subpart D may be elected only if the
total amount of damages claimed, exclusive of interest and costs, does
not exceed $30,000. A procedure pursuant to subpart E may be elected
only if the total amount claimed as damages, exclusive of interest and
costs, exceeds $30,000); and
* * * * *
11. In Sec. 12.13(b)(2) the phrase ``believes that'' is revised to
read ``believes the''.
12. Sec. 12.16 is revised to read as follows:
Sec. 12.16 Response to complaint.
Within 25 days after the complaint has been served by the Office of
Proceedings on the registrant, or within such additional time (not to
exceed 10 days absent extraordinary circumstances) as the Director of
the Office of Proceedings, or his/her delegee may grant, for good cause
shown, each registrant shall either--
(a) Satisfy the complaint in accordance with Sec. 12.17 of these
rules; or
(b) Answer the complaint in the manner prescribed by Sec. 12.18 of
these rules.
13. Sec. 12.18(a)(7) is revised to read as follows:
Sec. 12.18 Answer; election of procedure.
* * * * *
(a) * * *
(7) An election of an alternative decisional procedure pursuant to
subparts C, D, or E of these rules. (A proceeding pursuant to subpart D
may be elected only if the amount of actual damages claimed in the
complaint or as counterclaims, exclusive of interest, costs, and
punitive damages, does not exceed $30,000. A procedure pursuant to
subpart E may be elected only if the amount of actual damages claimed
in the complaint or as counterclaims, exclusive of interest, costs, and
punitive damages exceeds $30,000;
* * * * *
Sec. 12.25 [Amended]
14. In Sec. 12.25(a)(1) ``$25.00;'' is revised to read ``$50.00;''.
15. In Sec. 12.25(a)(2) ``$10,000,'' is revised to read
``$30,000,'' and ``$100.00.'' is revised to read ``$125.00.''.
16. In Sec. 12.25(a)(3) ``$10,000,'' is revised to read
``$30,000,'' and ``$200.00.'' is revised to read ``$250.00.''
17. In Sec. 12.25(b)(1) ``$10,000'' is revised to read ``$30,000''.
18. In Sec. 12.25(b)(2) ``$10,000'' is revised to read ``$30,000'',
and ``$175.00.'' is revised to read ``$200.00.''.
19. In Sec. 12.25(c) ``$175.00'' is revised to read ``$200.00''.
Sec. 12.26 [Amended]
20. In Sec. 12.26(a) ``within 60 days thereafter.'' is revised to
read ``within 50 days thereafter.''.
21. In Sec. 12.26(b) ``$10,000,'' is revised to read ``$30,000,'',
and ``within 60 days thereafter.'' is revised to read ``within 50 days
thereafter.''.
22. In Sec. 12.26(c) ``$10,000,'' is revised to read ``$30,000'',
``within 60 days thereafter.'' is revised to read ``within 50 days
thereafter.'', and the words ``forward the pleadings and materials of
record to a Proceedings Officer for discovery purposes, and'' are
removed.
Sec. 12.30 [Amended]
23. In Sec. 12.30(d) the phrase ``within forty (40) days (and all
discovery shall be completed within sixty (60) days'' is revised to
read ``within 30 days (and all discovery shall be completed within 50
days)'' and the last sentence is removed.
Sec. 12.106 [Amended]
24. In Sec. 12.106(c) the phrase ``(other than costs assessed as a
sanction for abuse of discovery)'' is revised to read ``(other than the
filing fee and costs assessed as a sanction for abuse of discovery)''.
25. Section 12.201(g) is revised to read as follows:
Sec. 12.201 Functions and responsibilities of the Judgment Officer.
* * * * *
(g) If an oral hearing is ordered, to preside at the hearing, which
shall include the authority to receive relevant evidence, to administer
oaths and affirmations, to examine witnesses, and to rule on offers of
proof;
* * * * *
Sec. 12.204 [Amended]
26. In Sec. 12.204(a) ``$10,000'' is revised to read ``$30,000''.
27. In Sec. 12.204(b) ``$10,000'' is revised to read ``$30,000''.
28. Section 12.208(b) is revised to read as follows:
Sec. 12.208 Submissions of proof.
* * * * *
(b) Oral testimony and examination. The Judgment Officer may order
an oral hearing for the presentation of testimony and examination of
the parties and their witnesses when appropriate and necessary for the
resolution of factual issues, upon motion by either a party or the
Judgment Officer. An oral hearing held under this section will be
convened by conference telephone call as provided in Sec. 12.209(b),
except that an in-person hearing may be held in Washington, D.C., under
the circumstances set forth in Sec. 12.209(c).
29. Sec. 12.209 is revised to read as follows:
Sec. 12.209 Oral testimony.
(a) Generally. When the Judgment Officer determines that an oral
hearing is necessary and appropriate, such oral hearing will be held
either by telephone or in person in Washington, D.C., as set forth
below. The Judgment Officer, in his or her discretion with
consideration for the convenience of the parties and their witnesses,
will determine the time and date of such hearing. During an oral
hearing, in his or her discretion, the Judgment Officer may regulate
appropriately the course and sequence of testimony and examination of
the parties and their witnesses and limit the issues.
(b) Telephonic hearings. When a Judgment Officer has determined to
hold an oral hearing by telephone, an order to that effect will be
issued at least 15 days prior to the hearing notifying the parties of
the date and time of the hearing. The order will direct the parties to
confirm, at least 48 hours in advance of the hearing, that the correct
telephone numbers for the parties and their witnesses are on file with
the Office of Proceedings, and warn that failure to provide correct
telephone numbers may be deemed waiver of that party's right to
participate in the hearing, to present evidence, or to cross-examine
other witnesses. If a party is unavailable by telephone at the
appointed time, any other party in attendance may present testimony,
and the Judgment Officer also may impose any appropriate sanction
listed in Sec. 12.35. All telephonic hearings will be recorded
electronically but will be transcribed only upon direction of the
Judgment Officer (if necessary) or in the event of Commission review.
The parties may secure a copy of the recording of the hearing from the
Proceedings Clerk upon written request and payment of the cost of the
recording.
(c) Washington, D.C. hearings. In exceptional circumstances and
when an in-person hearing is determined to be necessary in resolving
the issues, the Judgment Officer may order an in-person hearing in
Washington, D.C. upon written request by a party and the agreement of
at least one opposing party. The Judgment Officer will issue notice of
the time, date, and location of an in-person hearing to the parties at
least 30 days in advance of the hearing. Except as otherwise provided
herein, an in-person hearing will be held and recorded in the manner
prescribed in Sec. 12.312(c) through (f) of these rules. A party not
agreeing to appear at the hearing in Washington, D.C., may be ordered
to participate by telephone. Any party not appearing in person or by
telephone will be deemed to have waived the right to participate in the
hearing, to present evidence, or to cross-examine other witnesses;
further, that party may be subject to such action under Sec. 12.35 as
the Judgment Officer may find appropriate. The Judgment Officer may
order any party who requests or agrees to appear at a hearing in
Washington, D.C. and fails to appear without good cause, to pay any
reasonable costs unnecessarily incurred by parties appearing at such a
hearing.
(d) Compulsory process. An application for a subpoena requiring a
non-party to participate in a telephonic hearing or to appear at an in-
person hearing in Washington, D.C., may be made in writing to the
Judgment Officer without notice to the other parties. The standards for
issuance or denial of an application for a subpoena, the service and
travel fee requirements, and the method for enforcing such subpoenas
are set forth at Sec. 12.313 of these rules.
Sec. 12.210 [Corrected and Amended]
30. In Sec. 12.210(a) the phrase ``pay reparation award'' is
revised to read ``pay a reparation award''.
31. In Sec. 12.210(b)(4) ``respondent's violations, which'' is
revised to read ``respondent's violations, the amount of punitive
damages, if any, for which respondent is liable to complainant, which''
and ``$10,000,'' is revised to read ``$30,000,'' both times that it
appears.
Sec. 12.314 [Amended]
32. In Sec. 12.314(b)(4) ``violations, and the amount,'' is revised
to read ``violations, the amount of punitive damages if warranted, and
the amount,''
Sec. 12.315 [Amended]
33. In the heading of Sec. 12.315 ``$10,000.'' is revised to read
``$30.000.''.
34. In Sec. 12.315 ``$10,000,'' is revised to read ``$30,000,''
both times that it appears.
Sec. 12.404 [Corrected]
35. In Sec. 12.404 the phrase ``of proceeding on appeal of review
before'' is revised to read ``of proceedings on appeal before''.
Sec. 12.408 [Corrected]
36. The heading of Sec. 12.408 is revised to read ``Delegation of
authority to the Deputy General Counsel for Opinions.''
37. In the first sentence of Sec. 12.408 revise the phrase ``Chief
of the Opinions Section'' to read ``Deputy General Counsel for
Opinions''.
38. In Sec. 12.408(b) revise the phrase ``Chief of the Opinions
Section'' to read ``Deputy General Counsel for Opinions''.
Issued by Order of the Commission.
Dated: February 23, 1994.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 94-4574 Filed 2-28-94; 8:45 am]
BILLING CODE 6351-01-P
