Commodity Futures Trading Commission 

CEA CASES 

NAME: EDWARD A. COX JR. AND GEORGE F. FREY JR. 

CITATION: Comm. Fut. L. Rep. (CCH) P23,947; [1987-1990 TRANSFER BINDER] 

DOCKET NUMBER: 75-16; 192 

DATE: OCTOBER 6, 1987 

DOCUMENT TYPE: INITIAL DECISION 

NOTE: FORMERLY CEA DOCKET # 192 

[P 23,947] In the Matter of Cox, et al.

Commodity Futures Trading Commission. No. 75-16. October 6, 1987. 

Initial Decision and Order in full text. 

Previous opinions located at P 23,786, 1986 -- 1987 Tr. Binder; P 

22,130, P 21,809, and P 21,767, 1982 -- 1984 Tr. Binder; and P 20,635, 

1977 -- 1980 Tr. Binder. 

Liability -- Commodity Futures Trading Commission -- Attorneys' Fees 

-- Proper Application of Law. -- The Commission's Division of 

Enforcement was liable for the attorneys' fees of a respondent because a 

proper application of the law would not have resulted in the institution 

of the complaint. It had been found that the respondent did not engage 

in price manipulation because the market never reached an artificially 

high price. The Commission also held that the mere fact that the 

Division of Enforcement prevailed on the merits of an initial decision 

did not exempt liability for the respondent's attorneys' fees and costs. 

See P 11,701, "Liabilities -- Prohibitions" division. Volume 1. 

Robert F. Klein, Esq., Susan R. Cornell, Esq., and Rebecca Nyren, 

Esq., Commodity Futures Trading Commission, Washington, DC., for the 

Division of Enforcement. 

Lee A. Freeman, Jr., Esq., Raymond J. Mengler, Esq., and Albert F. 

Ettinger, Esq., Freeman, Freeman & Salzman, P.C., Chicago, Illinois, for 

the respondent, George F. Frey, Jr. 

Opinion of DUNCAN, Administrative Law Judge. 

The Commission's Opinion and Order in this case was filed on July 15, 

1987. On August 14, 1987, Respondent George F. Frey, Jr. ("Frey") filed 

an Application for Award of Fees pursuant to Commission Regulations -- 

Part 148, § 148.27, 17 C.F.R. § 148.27. See also, Equal Access to 

Justice Act, 5 U.S.C. § 504 ("EAJA"). Respondent Edward A. Cox, Jr. 

("Cox") did not file an application for fees under the provisions of 

Commission Regulations -- Part 148, § 148.14, 17 C.F.R. § 148.14. 

Respondent Frey's application seeks to obtain an award of attorney's 

fees and costs in the amount of $ 132,226.22. The Division of 

Enforcement filed an Opposition to Respondent Frey's Application for 

Award of Fees on September 15, 1987. Respondent Frey filed a Reply on 

September 30, 1987. 

ISSUE

Whether Respondent Frey is entitled to recover attorney fees and 

other costs. 

Findings of Fact and Conclusions of Law
The complaint against Respondent Cox and Respondent Frey was filed 

under Sections 6(b) and (6c) of the Commodity Exchange Act ("CEAct") on 

July 6, 1972. n1 The complaint alleged that the Respondents, while both 

individuals 

were floor brokers on the Chicago Board of Trade, manipulated the market 

price of May 1971 wheat futures in an upward direction, in violation of 

the CEAct. 

n1 The complaint was originally filed by the United States 

Department of Agriculture. The proceeding was transferred on April 

21, 1975, to the Commodity Futures Trading Commission pursuant to 

Section 411 of the Commodity Futures Trading Commission Act of 

1974, Pub L No 93-463, 88 Stat 1389 (1974) See, Division of 

Enforcement's Opposition to Award p 3, fn 2 

2. Respondent Cox and Respondent Frey denied any violations of the 

CEAct. 

3. Hearing sessions were held in 1979 and 1980. On January 3, 1983, 

an Initial Decision and Order was issued, holding that the Respondents 

had violated the CEAct by their manipulation of the May 1971 wheat 

futures price. In re Cox and Frey, [1982-1984 Transfer Binder] COMM. 

FUT. L. REP (CCCH) P 21,767 (Administrative Law Judge 1983). 

4. On January 20, 1983, Respondent Frey filed a Notice of Appeal and 

subsequently submitted his appeal brief on August 22, 1983. Division of 

Enforcement's Opposition to Award p. 5. 

5. The Commission reversed the Initial Decision on appeal and 

dismissed the complaint on July 15, 1987, with Commissioner West filing 

a dissenting opinion. 

The Government by commencing this case against Respondent Frey was 

not substantially justified. 

6. It is established, through legislative history and judicial 

interpretation, that the task here is to determine whether the 

Government's position, when the enforcement case was commenced, was 

substantially justified. This standard is a slightly more stringent 

measure than one of reasonableness. Spencer v. NLRB, 712 F.2d 539, 558 

(D.C. Cir. 1983), cert. denied, 446 U.S. 936 (1984). Respondent Frey is 

correct in his argument that the Division of Enforcement has the burden 

of establishing that its actions were substantially justified under the 

EAJA. Respondent Frey's Reply Brief for Award p. 4. The Commission's 

decision is necessarily the dispositive source to evaluate whether there 

exists such substantial justification. The Commission said that the 

"essential elements of unlawful price manipulation have been described 

in a series of federal appellate court decisions * * *." (Commission 

Opinion and Order, p. 6, July 15, 1987). In applying the recognized law 

to the facts the Commission made no concession of a possible validity to 

any portion of the Government's case. No uncertainty is expressed that 

the threshold elements were not established. This is not a close case. 

The Commission held that the Respondents did not engage in price 

manipulation because there was clearly no shortage of deliverable supply 

and the market never reached an artificially high price. The Commission 

went on to say that the cause of the price rise could not be attributed 

to Respondents on the facts of the record. There is no margin of 

reservation or indication of doubt by the Commission in its review of 

the appeal. The Government made a mistake in instituting this action 

against the Respondents and the Commission's Opinion affords no latitude 

to hypothesize that there was any substantially justified grounds to 

conclude otherwise. The Commission's Opinion illustrated the 
unambiguous and inescapable outcome of this case by its holding that 

(Commission Opinion and Order, p. 15, July 15, 1987): 

* * * Frey could not foreclose the shorts delivery option and thus 

lacked the ability to influence market prices. [Frey's] conduct in the 

futures market (i.e., evidence suggesting that [his] trading activity 

created or exploited market congestion) is not dispositive, because 

market congestion cannot exist when deliverable supplies are adequate. 

Indiana Farm Bureau, P 21,796 at 21,283-86. 

7. I find and conclude that the record establishes that the position 

of the Government was not substantially justified. I further find and 

conclude that the proper application of the law set forth in the 

Commission's Opinion to the facts, would not have resulted in the 

institution of a complaint against Respondent Frey, I further find and 

conclude that Respondent Frey was damaged in the amount of $ 132,226.22, 

the allowable amount of attorney's fees and costs under Commission 

Regulations § 148.6(b), 17 C.F.R. § 148.6(b). 

8. The Division of Enforcement argues that its actions concerning 

this case were reasonable, "both factually and legally, in light of 

existing law." Division of Enforcement's Opposition to Award p.8. The 

Division of Enforcement contends that because it prevailed in the 

initial decision on the merits its actions were reasonable. This 

contention is not supported by established law. The Division of 

Enforcement cited the holding in a recent district court decision within 

the Seventh Circuit, which held that "'[the] [district] court is not 

wedded to the underlying judgment on the merits in assessing' an EAJA 

application for costs and attorney's fees . . . 'Only through a fresh 

look occasioned by application of the 'substantially justified' standard 

can the court honor Congress' intent . . .'" Division of Enforcement's 

Opposition to Award p. 7, quoting, Neveaus v. Bowen, 652 F. Supp. 719, 

721 (E. D. Wis. 1987), and referring to Federal Election Commission v. 

Rose, 806 F.2d 1081, 1087 (D.C. Cir. 1986). The mere fact that the 

Division of Enforcement prevailed on the 

merits in the initial decision does not exempt liability for Respondent 

Frey's attorney's fees and costs. Martin v. Heckler, 754 F.2d 1262, 

1264 (Ct. App. 5th Cir. 1985). 

9. The Division of Enforcement stated that the Commission's "majority 

opinion differs from earlier decisions in at least two general areas" 

Division of Enforcement's Opposition to Award p.11. The asserted 

departures are not specifically recognized by the Commission. It is the 

contention of the Division of Enforcement that the Commission has 

applied "new law", or principles, to the "then existing law" at the time 

of the alleged violations by Respondent Frey. The Commission did not 

state that it was establishing new law, amending the CEAct, or otherwise 

departing from the applicable and dispositive principles in its Opinion 

concerning this case. Its decision was reached "[after] reviewing the 

record, the appellate pleadings and the judicial and regulatory 

precedent * * *" (Commission Opinion and Order, p. 1, July 15, 1987). 

The law in existence on May of 1971, is the same law applied by the 

Commission in this case. The Government is charged with the knowledge 

of the law. Simply stated, ignorance of the law on the part of the 

Government is not a valid bar to a claim for an award. 

10. The Division argues that the less clear the governing law on a 

particular issue is, the more likely the Government's position was 

substantially justified. Division of Enforcement's Opposition to Award 

p. 11, in. 4. While the Division's argument is supported by some case 

law, it is not applicable in this matter. As noted, supra. § 6, the 

standard applied to such requests is "one slightly more stringent than 
one of reasonableness." There is no basis in the Commission's Opinion to 

say that the Government's actions met this standard. 

Based upon the foregoing Findings of Fact and Conclusions of Law, I 

make the following: 

ORDER

1. George F. Frey, Jr.'s Application for Award of Fees should be and 

hereby is GRANTED, good cause having been shown. 

2. The Commodity Futures Trading Commission shall pay to George F. 

Frey, Jr., an award of attorney's fees and costs in the statutory amount 

of $ 132,226.22, in accordance with the provisions set forth in 

Commission Regulation § 148.30, 17 C.F.R. § 148.30. 

LOAD-DATE: August 6, 2008