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Commodity Futures Trading Commission 

CEA CASES 

NAME: SY B. GAIBER & CO., SY B. GAIBER, AND MICHAEL R. HEMPEL 

DOCKET NUMBER: 165 

DATE: JULY 20, 1972 

DOCUMENT TYPE: RULING ON PETITION FOR RECONSIDERATION 

UNITED STATES DEPARTMENT OF AGRICULTURE 

BEFORE THE SECRETARY OF AGRICULTURE 

In re: Sy B. Gaiber & Co., Sy B. Gaiber, and Michael R. Hempel, Respondents 

CEA Docket No. 165 

Ruling on Petition for Reconsideration 

The respondents filed a Petition for Reconsideration on June 8, 1972, 

requesting the Judicial Officer to reconsider the administrative sanction 

imposed in this case. However, for the reasons set forth in the Decision and 

Order filed herein on April 12, 1972, the Petition for Reconsideration is 

denied. 

The respondents contend that their violations were not intentional or wilful, 

but for the reasons set forth in the Decision and Order, I adhere to the view 

that the respondents knowingly, intentionally, deliberately, and wilfully 

engaged in serious violations of the Commodity Exchange Act and regulations. 

The respondents state that "[clearly] very serious charges have been filed 

against Respondents" (Petition for Reconsideration, P. 14), but that "it is the 

Hearing Examiner who is in the most advantageous position to view the witnesses, 

weigh the evidence, and mete out an appropriate sanction" (Petition for 

Reconsideration, PP. 13-14). The respondents state that it "is the Hearing 

Examiner who had the opportunity to view the demeanor of the witnesses, and 

to glean the implicit tenor of their testimony" (Petition for Reconsideration, 

p. 14). However, the Hearing Examiner resolved all of the issues of credibility 

against the respondents. She found that the respondents deliberately and 

intentionally violated the Act, as alleged in the complaint. Specifically, the 

Hearing Examiner concluded (Decision and Order, pp. 34-35): 

Our consideration of the entire record evidence leaves us with the opinion 

that the [respondents'] statements set forth in Complainant's Exhibits C-8, C-9, 

C-10, C-18, C-19, C-29, C-30, C-31, C-32, C-34, C-35, and C-36, were both false 

and misleading of material facts effecting Respondents' right to continued 

registration as a futures commission merchant under the Act. Certainly the 

Respondents were aware that such statements were inaccurate as to the source of 

the $ 27,000 in issue, and one can only conclude that they were submitted for 

the purpose of showing proper financial status when, in fact, the Respondents 

were operating below the minimum financial requirements of the Act. Thus, 

Respondents, having full knowledge of the true facts intended, and did, in fact 

perform those acts which constitute the violation of the Act. Goodman v. United 

States, 286 F.2d 896 (7th Cir., 1961); Great Western Food Distributors, Inc. v. 

Brannan, 201 F.2d 476 (7th Cir., 1953), cert denied, 345 U.S. 997 (1953). 

* * * 

We have considered these and all contentions advanced by Respondents, but our 

careful study and review of the entire record compel us to conclude, as set 
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forth above, that the Respondents operated as a registered futures commission 

merchant under the Commodity Exchange Act while failing to meet prescribed 

minimum financial requirements, in violation of section 4 f (2) of the Act and 

section 1.17 of the regulations, and that with a view to furtherance of such 

violation willfully made false and misleading statements of material facts in 

reports filed with the Secretary of Agriculture in violation of section 6(b) of 

the Act, and willfully furnished false and misleading information and reports as 

to the meaning and contents of the Respondents' records of financial 

transactions relating to their business, in violation of section 1.35 of the 

regulations. 

Hence the Hearing Examiner and I are in agreement as to the nature of the 

respondents' deliberate violations -- we differ only as to the sanction. 

An agency may impose a sanction substantially more severe than that 

recommended by the Hearing Examiner if it determines that the recommended 

sanction is inadequate to protect the public interest. Gross v. Securities and 

Exchange Commission, 418 F.2d 103, 107 (C.A. 2); Fink v. Securities and Exchange 

Commission, 417 F.2d 1058, 1059 (C.A. 2). 

I have given little weight to the Hearing Examiner's recommended sanction in 

this case for a number of reasons. 

First, the recommended denial of trading privileges "for the account of 

others" for 60 days would not even be a "slap on the wrist" because the 

respondents are no longer trading for the account of others. The administrative 

officials charged with the responsibility for administering the Commodity 

Exchange Act, on the other hand, recommended a denial of trading privileges for 

two years applicable to the respondents' trading for their own account and for 

the account 

of others. I believe that the administrative officials' recommendation is 

entitled to greater weight in this case than the Hearing Examiner's 

recommendation. As I stated in a Tentative Decision and Order filed on July 14, 

1972, in the case of In re Arthur N. Economou, CEA Docket No. 167, pp. 175-176: 

The recommendation of the officials charged with the responsibility for 

administering a federal regulatory program is entitled to considerable weight in 

determining the sanction that should be imposed against a violator. Such 

administrative officials, during the day-to-day administration of a regulatory 

program, develop a "feel" for the severity of sanctions needed to serve as a 

deterrent to violations that cannot be developed by the Hearing Examiners or the 

Judicial Officer, who come in contact with only a small part of the regulatory 

program. 

The recommendation of the complainant is not, of course, controlling. For 

example, if some of the allegations are not proven or if there are mitigating 

circumstances not taken into consideration by the administrative officials, the 

sanction may be considerably less than that recommended by them. See, e.g., In 

re American Fruit Purveyor's, Inc., 30 Agriculture Decisions 1542. 

In the present case, there are no mitigating circumstances that would warrant 

reducing the sanction recommended by the complainant. The respondents' 

underfinancing reached its peak after they were advised by the complainant that 

they were underfinanced. 

Second, I have given little weight to the Hearing Examiner's recommended 

sanction because, although I regard the Hearing Examiner in this case as one of 

the ablest Hearing Examiners in federal service today, I am not unmindful of the 

fact that this was her first case under the Commodity Exchange Act and, 

therefore, I have given greater weight to her findings and conclusions with 
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respect to the respondents' violations -- which I have adopted verbatim -- than 

I have given to her recommended sanction. 

Third, this case is the first contested case in which a decision has been 

issued under the new minimum financial requirement regulations which became 

effective in March of 1969. Hence there were no precedents directly in point 

with respect to the sanction to be imposed for violations of the minimum 

financial requirement. 

Fourth, the prior decisions under this Act are not particularly helpful in 

determining the sanction to be imposed in this case. The respondents rely in 

their Petition for Reconsideration, pp. 9-10, on seven cases decided under the 

minimum financial protection requirements by consent without a hearing. 

However, I give no weight whatsoever to consent cases in determining the 

sanction to be issued in a contested case. As I stated in the Tentative 

Decision and Order filed on July 14, 1972, in the case of In re Arthur N. 

Economou, supra, p. 174, fn. 80: 

Consent orders issued without a hearing will be given no weight whatsoever in 

determining the sanction to be issued in a litigated case. In a case where a 

consent order is agreed to by the parties, there is no record or argument to 

establish the basis for the sanction. It may seem less severe than appears 

warranted because of problems of proving the allegations of the complaint or 

because of mitigating circumstances not revealed to the Hearing Examiner or to 

the Judicial Officer. Conversely, it may seem more severe than appears 

warranted because of aggravated circumstances not revealed by the complaint. 

The respondents rely in their Petition for Reconsideration, pp. 11-12, on 

four cases involving reporting requirements of the Act and one case involving 

speculative limits, but the factual situations involved in those cases are not 

sufficiently close to the facts in the present case to be helpful in determining 

the sanction to be imposed in this case. The respondents correctly observe in 

their Petition for Reconsideration, pp. 11-12, that the facts in the cases of In 

re Louis Romoff, 31 Agriculture Decisions 158, and In re Douglas Steen, 21 

Agriculture Decisions 1076, cited in the Decision and Order herein, pp. 44-46, 

are distinguishable from the facts in the present case. However, no great 

reliance was placed upon those cases in determining the sanction to be issued in 

this case. The closest prior case relied on was In re Dunbeath-Hagen Corp., et 

al., 26 Agriculture Decisions 465, in which the Judicial Officer suspended the 

firm's trading privileges for one year for its own account and for the 

account of others because it knowingly submitted a false financial statement on 

a single occasion in connection with its application for registration as a 

futures commission merchant. In that case, no warning was given to the 

respondent prior to the institution of the complaint. The violations of the 

respondents in the present case are much more serious than in the Dunbeath-Hagen 

case for the reasons set forth in the Decision and Order herein. n1 

n1 Although it is my intention to impose sanctions as uniform as 

possible for similar violations unless there are adequate reasons for a 

change of policy (see In re American Fruit Purveyor's Inc., 30 Agriculture 

Decisions 1542, 1595-1596), a respondent has no inherent right to a 

sanction no more severe than that applied to others. See Hiller v. 

Securities and Exchange Commission, 429 F.2d 856, 858-859 (C.A. 2); G. H. 

Miller & Co. v. United States, 260 F.2d 286, 296 (C.A. 7), certiorari 

denied, 359 U.S. 907. 

Fifth, I have given little weight to the Hearing Examiner's recommended 

sanction because in this case, as in all -- or at least most -- disciplinary 

cases under the Department's regulatory programs, the record is not particularly 

helpful in determining the sanction that should be issued. I have observed for 

23 years that the Department's administrative agencies go to great lengths to 
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prove that a particular violation occurred but introduce no evidence to aid the 

Hearing Examiners and the Judicial Officer in determining the sanction to be 

issued. The administrative officials are disappointed when they know from their 

expertise that the sanctions imposed in particular cases are too lenient to 

effectuate the purposes 

of the regulatory programs; but when they fall to share the benefit of their 

administrative expertise with the Hearing Examiners and the Judicial Officer, 

they have no one but themselves to blame for their disappointment as to the 

sanction. 

In In re American Fruit Purveyor's, Inc., 30 Agriculture Decisions, 1542, 

1596, fn. 39, filed on October 29, 1971, I stated: 

It would be helpful in determining the sanction in a case if the record 

contained testimony as to how serious or detrimental the particular violation 

involved in the case is to the regulated industry. In addition, testimony as to 

the nature of the respondent's business would also be helpful so that the 

Judicial Officer would have some idea as to how "costly" a particular suspension 

would be to the respondent. For example, in the absence of any evidence as to 

the nature of the respondent's business, the Judicial Officer might not know 

whether a particular suspension order would "cost" the respondent $ 100 or $ 

10,000. 

Similarly, in the Decision in the present case, p. 46, fn. 20, I stated: 

It has not been the general practice in administrative disciplinary cases to 

introduce evidence in support of the sanction recommended by the complainant. I 

believe that such evidence would aid the Hearing Examiners and the Judicial 

Officer in determining the sanction to be imposed. Such evidence could explain, 

e.g., the nature of the regulation or administrative program involved in the 

case, the administrative reasons for the regulation or program, the flagrancy or 

seriousness of the violation, and the effect of a particular sanction on the 

respondent in view of the nature and extent of his business activities. It may 

be appropriate to introduce such evidence at the conclusion of the case so that 

appropriate consideration can be given 

to the respondent's defense. The respondent should also be permitted to 

introduce evidence as to the appropriate sanction to be issued, assuming that 

the complainant prevails in the case. 

On further consideration, I believe such evidence should be introduced by the 

complainant after it has completed presenting its evidence as to the violations, 

rather than at the conclusion of the case. 

Some elaboration on the nature of the evidence that I believe should be 

presented by the administrative officials may be helpful. 

In a case involving failure to meet the minimum financial requirements of the 

Act and regulations, the complainant should explain the administrative necessity 

for the regulations and the damage or potential damage caused by violations of 

the regulatory requirements. Where a particular provision such as the 

proprietary safety factor is involved, an explanation as to the administrative 

reasons for the proprietary safety factor should be given. 

If a case involves failure to file required reports, the administrative 

reasons for requiring the reports should be given. 

In a case under the Perishable Agricultural Commodities Act involving failure 

to pay promptly for produce, the evidence should show whether failure to pay 

promptly is a serious problem in the industry and what damage, if any, it causes 

to the marketing system. 
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In a case involving false weighing under the Packers and Stockyards Act, the 

evidence should show whether false weighing is a serious problem in the 

livestock industry. For example, what damage is being done from false weighing 

and to whom? What is the estimated loss to livestock sellers from false 

weights? What percentage of the livestock markets investigated on a routine 

spot check basis appears to be falsely weighing livestock? n2 Have the 

sanctions imposed in prior proceedings served as a deterrent to false weighing, 

e.g., how does the current percentage of false weighing compare with the 

percentage in the past five years? 

n2 Although such testimony would be subject to reasonable crossexamination as to the basis for the complainant's statistics, e.g., the 

methods and procedures used in determining markets falsely weighing 

livestock, it would not be reasonable to mention the names of particular 

firms that the complainant found falsely weighing livestock, or to prove 

the exact details of violations by persons who are not parties to the 

pending proceeding. 

In cases under all regulatory programs, if the administrative officials 

believe that the sanctions previously imposed for similar violations have not 

been adequate to serve as a deterrent to the regulated industry, the evidence 

should set forth their views in this respect. Similarly, if industry conditions 

change so that a sanction once adequate is no longer deemed adequate by the 

administrative officials, the evidence should establish that fact. 

The foregoing illustrations are not meant to be complete, but merely to serve 

as a guide to the type of background information I believe the agencies should 

introduce in order to aid the Hearing Examiners and the Judicial Officer in 

arriving at an appropriate sanction. Such background information is more 

important than an opinion expressed by an administrative official as to the 

exact number of days that a suspension order should embody. However, an opinion 

by an expert witness, e.g., a Branch Chief or Area Supervisor thoroughly 

familiar with the administrative program, as to the exact sanction necessary to 

effectuate the purposes of the Act, would be proper. Particularly in a 

proceeding in which there is no jury, it is permissible for an expert witness to 

express an opinion on the ultimate issue to be decided. See, e.g., Builders 

Steel Co. v. Commissioner of Internal Rev., 179 F.2d 377, 379-380 (C.A. 8). 

However, no recommendation is made to the administrative officials as to whether 

such an opinion should be given by way of testimony rather than argument. 

In any case in which the Judicial Officer determines that the sanctions 

previously imposed for similar violations are not adequate under present 

circumstances to effectuate the purposes of the regulatory program, a more 

severe sanction will be imposed in that case, rather than merely announcing that 

in future cases the sanction will 

 

be increased. An administrative agency is free to reconsider sanctions 

previously imposed without prior notice (see In re Louis Romoff, 31 Agriculture 

Decisions 158, 186, and cases cited therein), and such practice will be 

routinely followed. Persons who intentionally violate a regulatory program are 

not playing a game under which they are entitled to consider the sanctions 

previously imposed for similar violations and determine whether they want to run 

the risk of detection and the imposition of such a sanction. They run the 

distinct risk that a more severe sanction will be imposed against them. 

Congress enacted the remedial regulatory programs administered by the 

Department because of a need for economic law and order in the marketplace. The 

administrative sanctions imposed against violators of such regulatory programs 

should tend to achieve that purpose. 
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Persons who engage in a regulated business have been granted a privilege. 

Suspension or revocation of the privilege for failure to comply with the 

statutory standards is a necessary power granted to the Secretary to assure a 

proper adherence to the regulatory program (see the cases cited in the Decision 

and Order herein, p. 47). Just as a lawyer may lose his privilege to practice 

law if he embezzles a client's funds or engages in other serious violations, 

 

a futures commission merchant, broker, or trader who manipulates a futures 

market or engages in other serious violations may lose his privilege to engage 

in futures trading. 

The House Report on the 1968 amendments to the Commodity Exchange Act states 

that it is the view of the committee that serious violations "should be subject 

to severe penalties" (H. Rep. No. 743, 90th Cong., 1st Sess., p. 5). The 

administrative sanctions should be severe enough to serve as a deterrent to 

future similar violations by the respondents and by other persons. 

For the foregoing reasons, and for the reasons set forth in the Decision and 

Order herein, the Petition for Reconsideration is denied. The stay order issued 

in this proceeding on May 22, 1972, is vacated, and the denial of trading 

privileges to the respondents specified in the order previously entered on April 

12, 1972, shall become effective on the 30th day after the date of this order. 

A copy of this Decision and Order shall be served on each of the parties and 

each contract market. 

Done at Washington, D. C., 

July 20, 1972 

[SEE SIGNATURE IN ORIGINAL] 

Donald A. Campbell 

Judicial Officer 

Office of the Secretary 

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