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Commodity Futures Trading Commission 

CEA CASES 

NAME: PATRICK C. DONOVAN 

CITATION: 33 Agric. Dec. 1203 

DOCKET NUMBER: 204 

DATE: SEPTEMBER 13, 1974 

DOCUMENT TYPE: DECISION AND ORDER 

(No. 16,016) 

In re PATRICK C. DONOVAN. CEA Docket No. 204. Decided September 13, 1974. 

Futures commission merchant -- conversion and mishandling of customers' funds 

-- Wilful violations -- Sanction

Where respondent wilfully violated the Act and regulations by improper 

management of and mishandling and converting customers' funds, respondent is 

ordered to cease and desist from such violations. Respondent is denied trading 

privileges on contract markets for a period of 20 years 

Richard W. Davis, Jr., for complainant. 

James L. Fox, Chicago, Ill., for respondent. 

John A. Campbell, Administrative Law Judge. 

Decision by Donald A. Campbell, Judicial Officer. 

DECISION AND ORDER 

This is a disciplinary proceeding under the Commodity Exchange Act (7 U.S.C. 

Chapter 1). An Initial Decision and Order was filed on June 19, 1974, by 

Administrative Law Judge John A. Campbell. An appeal to the Judicial Officer 

was filed by respondent on July 23, 1974. The Judicial Officer has final 

administrative authority to decide cases under the Commodity Exchange Act (37 

F.R. 28475; 38 F.R. 10795). 

* The office of Judicial Officer is a career position established 

pursuant to the Act of April 4, 1940 (7 U.S.C. 450c-450g), and 

Reorganization Plan No. 2 of 1953 (5 U.S.C. 1970 ed., Appendix, p. 550). 

The Department's first Judicial Officer held the office from 1942 to 1972. 

The present Judicial Officer was appointed in January 1971, having been 

involved with the Department's regulatory programs since 1949 (including 3 

years' trial litigation; 10 years' appellate litigation relating to appeals 

from the decisions of the prior Judicial Officer; and 8 years as 

administrator of the Packers and Stockyards Act regulatory program). 

The Administrative Law Judge found that the respondent, who was a registered 

futures commission merchant, mishandled customers' money, and when he closed out 

the segregated bank account of his firm, he transferred funds to Canada, leaving 

customers unpaid approximately $ 9,400. The Administrative Law Judge agreed 

with complainant's view that the "respondent's actions arose from a state of 

mind which constitutes not only willfulness and criminal intent but actual 

malice" (Initial Decision, p. 10). 

The Administrative Law Judge's Order, issued under 7 U.S.C. 9 and 13b, would 

suspend the respondent's trading privileges on contract markets for twenty years 

and for such additional time as may elapse until respondent shows that he has 
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restored to his customers the amounts of money due them. The Judge also ordered 

the respondent to cease and desist from committing such violations in the 

future. 

Upon a consideration of the entire record in this case, the Initial Decision 

and Order is adopted as the final Decision and Order herein, except that the 

effective date is changed in view of the appeal to the Judicial Officer. 

The sanction imposed upon the respondent is consistent with the policy now 

followed in the Department's regulatory programs. Severe sanctions are imposed 

for serious violations so as to serve as an effective deterrent to the 

respondent and to other potential 

violators. This policy has been set forth at length in numerous cases. See, 

e.g., In re George Rex Andrews, 32 Agric. Dec. 553, 563-583 (1973); In re 

American Commodity Brokers, 32 Agric. Dec. 1765, 1799 (1973); In re James J. 

Miller, 33 Agriculture Decisions 53, 64-80 (1974), affirmed sub nom. Miller v. 

Butz, F.2d (C.A. 5), decided August 8, 1974; In re J. A. Speight, 33 

Agriculture Decisions 280, 318 (1974). The Department's sanction policy, with 

relatively minor changes in the language set forth in prior decisions, is set 

forth as Appendix B to this Decision.

ADMINISTRATIVE LAW JUDGE'S DECISION

PRELIMINARY STATEMENT

This is a disciplinary proceeding under the Commodity Exchange Act (7 U.S.C. 

Chapter 1), hereafter referred to as the "Act", which was instituted by a 

complaint issued by the Deputy Assistant Secretary of Agriculture on December 1, 

1972. 

The complaint alleges that the respondent, Patrick C. Donovan, during the 

year 1969, did business as United Commodity Traders and was a registered futures 

commission merchant under the Act. The complaint further alleges that 

respondent received money from his customers to margin their trades in 

commodities for future delivery, that he subsequently converted such funds 

belonging to five of his customers (four accounts) to his own use and that by so 

doing he willfully violated sections 4b, 4d and 9 of the Act (7 U.S.C. 6b, 6d 

and 13), and section 1.20 of the regulations thereunder 

Respondent filed an answer to the complaint on January 2, 1973 which states 

that respondent "admits that he received funds of customers while licensed as a 

futures commission merchant under the Act, but denies that he converted to his 

own use any part of the funds thus received. Respondent further states and 

admits he is currently indebted to: 

Fred K. Werhane in the sum of $ 6,987.00 

Merritt Wassom in the sum of $ 1,008.80 

Leonard Mueller in the sum of $ 258.30 

Robert M. Lansford in the sum of $ 359.00 

and that the funds of said former customers are held in a trust capacity in 

the form of cash and an investment in shares of a private corporation; that said 

individuals are aware of such retention of their funds. Respondent further 

represents and states 

that upon liquidation of the shares he expects to pay the monies due to the 

named individuals." 

The answer denied that respondent violated those sections of the Act cited in 

the complaint. 
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An oral hearing was held before me in Chicago, Illinois on October 17 and 18, 

1973. The respondent was represented by James L. Fox, of the law firm of Moses, 

Gibbons, Abramson, and Fox, Chicago, Illinois. Richard W. Davis, Office of the 

General Counsel, United States Department of Agriculture, appeared as counsel 

for the complainant.' 

FINDINGS OF FACT

1. The respondent, Patrick C. Donovan, is an individual who, at all times 

material herein, did business as United Commodity Traders and was a registered 

futures commission merchant under the Commodity Exchange Act. 

2. During the calendar year 1969, the following named individuals were 

customers of the respondent: Robert M. Lansford, Merritt Wassom, Leonard 

Mueller, Fred K. Werhane (hereafter called "customers"). 

3. At various times during the calendar year 1969 the customers traded in 

commodities for future delivery regulated by the Act. Except for one trade in 

silver which was made for the joint account of Mr. Mueller and Mr. Mitchell, all 

of the trading which respondent did for the accounts of these customers was in 

regulated commodities. 

4. The respondent received from and held for the customers funds to margin 

their trades in commodities for future delivery. The margin money received was 

credited by respondent to an account denominated "non-regulated" maintained in 

the name of the customer. The financial results of the trading in regulated 

commodities was carried in an account denominated "regulated". The customers' 

accounts were finally closed out by transferring the debit balance in the 

"regulated" account to the "non-regulated" account and deducting it from the 

credit balance in the "non-regulated" account. 

5. At the time when he ceased trading in the customer accounts, the 

respondent held funds for such customers in the following amounts: for Lansford, 

$ 359.00; for Wassom, 

$ 1,789.55; for Mueller and Mitchell, $ 258.30; for Werhane $ 6,987.00. * 

* While a precise statement of amounts of respondent's indebtedness to 

his customers is not essential to a resolution of the ultimate issues 

presented by this case, we note however certain problems raised by the 

record evidence with regard to amounts due. 

Regarding the Wassom account, Exhibit CX 3 and the stipulations of 

counsel (Tr. pp. 66-71) support the $ 1,008.80 figure admitted in the 

answer. However testimony of an additional $ 780.75 due Wassom because of 

an error in his corn account (Tr. pp. 39-41, 65, 81-84, CX 8) supports the 

figure cited above. 

Mr. Werhane, another customer of respondent suggests that his entire 

deposit, $ 10,000 is due him. However the $ 6,987.00 figure cited above is 

the one supported by the record evidence. 

6. Respondent invested funds of his customers in shares of a private 

corporation, which funds had been deposited by them to margin trades in 

regulated commodity futures. 

7. Respondent closed out the segregated bank account of his firm and 

transferred funds to Canada, while the funds of his customers which were owing 

to them upon the cessation of trading in their accounts were not returned to 

those customers. 

CONCLUSIONS

Based upon the findings of fact herein it is concluded that respondent 

received funds to margin trading in regulated commodities, but did not record 

such funds in the customers' regulated accounts nor hold such funds in 
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segregation as required by Section 4d(2) of the Act and by Section 1.20 of the 

regulations. Further it is concluded that respondent failed to return to his 

customers credit balances remaining in their accounts (credit balances which 

should have appeared in the customers' regulated accounts had respondent 

properly credited the margin deposits to such accounts) after such trading 

ended, thereby converting such funds to his own use in violation of Sections 4b 

and 9 of the Act. * 

* The pertinent provisions of the Act and Regulations appear in the 

appendix to this decision. [Appendix A] 

The manner in which respondent handled the funds of his customers in 

connection with futures trading is a violation of section 4d(2) of the Act which 

provides that customers funds "shall be separately accounted for and shall not 

be commingled 

with the funds of such commission merchant" and of section 4b(B) of the Act 

which declares it to be unlawful to "enter or cause to be entered for such 

person any false record." 

As disclosed by the findings of fact respondent received money from his 

customers to margin their trades in commodity futures regulated by the Act. 

Respondent however followed a practice of recording the margin deposits of his 

customers in non-regulated accounts and recording the financial results of their 

trading in regulated commodities in accounts denominated "regulated". This was 

done despite the fact that all trades, except one, which respondent executed for 

the accounts of the customers were in regulated commodities. 

The customers' accounts were finally closed out by transferring the debit 

balances in the regulated accounts to the non-regulated accounts. After the two 

accounts were netted there remained zero balances in the regulated accounts and 

credit balances in the unregulated accounts. However, if respondent had 

complied with the Act, all trading activity in regulated commodity futures would 

have been recorded solely in the regulated accounts thereby leaving a credit 

balance in such accounts at respondent's close of business (Tr. pp. 19-20, 130-

131, 166-169). * 

* In view of this conclusion we need not consider respondent's 

jurisdictional argument concerning non-regulated accounts. 

Additionally respondent's investment of customers' funds in stock of a 

private corporation violated section 4d(2) of the Act, which when read in 

conjunction with 17 C.F.R. 1.25, provides that customers' funds may be invested 

only in "obligations of the United States, in general obligations of any State 

or of any political subdivision thereof, or in obligations fully guaranteed as 

to principal and interest by the United States". The failure to repay 

customers' funds and the transfer of such funds from the respondent firm's 

segregated bank account violated section 4d(2) of the Act which requires a 

futures commission merchant to "treat and deal with all money, securities, and 

property received by such person to margin, guarantee, or secure the trades or 

contracts of any customer of such person -- as belonging to such customer". 

Such action also violated section 4b(A) of the Act which makes it unlawful "to 

cheat or defraud or attempt to cheat or defraud" and constitutes conversion in 

violation of section 9(a) of the Act (7 U.S.C. 13). 

We hold respondent's conduct to be willful and flagrant violations of the Act 

which warrant the severe sanctions recommended by the complainant. 

Respondent's defense at the hearing consisted primarily in attacking the 

Commodity Exchange Authority's failure to take earlier action to rectify 

respondent's practices. The brief filed on behalf of respondent is critical 

(page 9) of "parrot-like testimony of the heinous nature of respondent's 
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conduct, viz., carrying the customer balances in non-regulated accounts, a 

continuing, open, unconcealed practice maintained while the witnesses' own 

auditor was aware of it, --". The brief states further: "One word, one 

admonition to respondent -- would have obviated the problems brought to light 

herein". 

These arguments however are not persuasive in the light of the record 

evidence. For example, on or about December 5, 1969 personnel of the C.E.A. 

experienced difficulty in obtaining respondent's books and records in an audit 

to ascertain possible financial difficulties (Tr. pp. 11-12, 32-36). Almost 

simultaneously with such request for records respondent notified the C.E.A. by 

letter dated December 8, 1969 of his intention to relinquish his registration as 

a futures commission merchant (Exhibit CX 13, Tr. pp. 12-13, 36). Investigation 

by the C.E.A. disclosed that as of January 1970 respondent discontinued 

handling trades and no customer funds were on hand. Respondent's records 

disclosed that funds were moved to Canada and the firm's segregated bank account 

had been closed (Tr. pp. 12-13, 36, 278). 

The record discloses too that the respondent's books and records were 

inadequate (Tr. pp. 38-39, 136-142, 260-261), and respondent refused in late 

November 1969 to certify the accuracy of the firm's liabilities that were 

carried on the books as of June 30, 1969 (Tr. pp. 187-188, 193). Further, the 

stock purchased by respondent, (see finding of fact 6) was not carried on 

respondent's books. Auditors for the C.E.A. were informed of its existence by 

respondent during an audit of his books and records in early October 1969, 

conducted to determine whether the firm was under capitalized (Tr. pp. 196-197, 

203-205). 

We are not persuaded by the evidence in the record that the problems brought 

to light in this proceeding would have been obviated by a word of caution from 

the C.E.A. Instead we are inclined to agree with complainant's argument which 

is that: 

"The entire record in this proceeding clearly shows that respondent 

deliberately entered upon and pursued a course of business which was intended to 

and did deny to his customers the protection which Congress intended to provide 

in those sections of the Act which respondent has violated. . . . . 

[R]espondent, at the very moment when he first received his customers' margin 

money, initiated a course of dealing designed to facilitate and cover up in 

advance his conversion of their funds. The respondent's actions arose from a 

state of mind which constitutes not only willfulness and criminal intent but 

actual malice. These serious, flagrant, and continuing violations of the Act 

warrant the imposition of severe sanctions." 

The sanction recommended by complainant is severe but clearly warranted by 

the facts in this case. The complainant recommends that respondent be ordered 

to cease and desist from similar violations in the future and that he be 

prohibited from trading on contract markets for twenty years and for such 

additional time as may elapse until he shows that he has restored to his 

customers the amounts of money due them. 

Such a sanction appears consistent with the views of the Judicial Officer 

regarding the necessity for severe sanctions for serious violations, in order to 

achieve the Congressional purposes, as expressed in In re Sy B. Gaiber & Co.,

(Ruling on Petition for Reconsideration) (31 Agric. Dec. 843, 851-852 (31 A.D. 

843, 851-852)(1972)): 

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. 

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 
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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. 

ORDER

1. The respondent, Patrick C. Donovan, shall cease and desist from: 

(a) cheating and defrauding or attempting to cheat and defraud any person and 

from entering or causing to be entered for any person any false record in or in 

connection with any order to make, or the making of, any contract of sale of any 

commodity for future delivery. 

(b) failing to treat and deal with money, securities, and property of his 

customers as belonging to such customers. 

(c) failing to separately account for money, securities, and property of his 

customers and commingling it with his own funds. 

(d) converting to his own use money, securities, and property of his 

customers. 

2. The respondent, Patrick C. Donovan, is prohibited from trading on or 

subject to the rules of any contract market for a period of twenty years and 

thereafter until such time as he demonstrates that he has made restitution to 

the individuals named in Finding of Fact 2 of all money due to them. When, 

after the expiration of the twenty year period, respondent demonstrates that 

such restitution has been made, a supplemental order will be issued in this 

proceeding terminating this prohibition. All contract markets shall refuse all 

trading privileges to the respondent until such supplemental order is issued. 

Such prohibition and refusal shall apply to all trading done and positions held 

directly by the respondent, either for his own account or as the agent or 

representative of any other person or firm, and also to all trading done and 

positions held indirectly through persons or firms owned or controlled by the 

respondent, or otherwise. 

3. The cease and desist provisions of this Order set forth in paragraph 1, 

above, shall become effective on the date this Decision and Order are served on 

respondent. The period of the prohibition of trading and denial of trading 

privileges to the respondent set forth in paragraph 2, above, shall become 

effective on the thirtieth day after the date this Decision and Order are served 

on respondent. 

4. A copy of this Decision and Order shall be served upon each of the parties 

and on each contract market. 

APPENDIX A 

Pertinent provisions of the Act and regulations read in part as follows: 

Section 4d (7 U.S.C. 6d) 

It shall be unlawful for any person to engage as futures commission merchant 

in soliciting orders or accepting orders for the purchase or sale of any 

commodity for future delivery . . . . unless 

(1) 
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(2) such person shall, . . . . , treat and deal with all money, securities, 

and property received by such person to margin, guarantee, or secure the trades 

or contracts of any customer of such person, or accruing to such customer as the 

result of such trades or contracts, as belonging to such customer. Such money, 

securities, and property shall be separately accounted for and shall not be 

commingled with the funds of such commission merchant or be used to margin or 

guarantee the trades or contracts, or to secure or extend the credit, of any 

customer or person other than the one for whom the same are held: Provided, 

however, That such money, securities, and property of the customers of such 

futures commission merchant may, for convenience, be commingled and deposited in 

the same account or accounts with any bank or trust company or with the clearing 

house organization of such contract market, and that such share thereof as in 

the normal course of business shall be necessary to margin, guarantee, secure, 

transfer, adjust, or settle the contracts or trades of such customers, or 

resulting market positions, with the clearing house organization of such 

contract market or with any member of such contract market, may be withdrawn and 

applied to such purposes, including the payment of commissions, brokerage, 

interest, taxes, storage, and other charges, lawfully accruing in connectton 

with such contracts and trades; Provided further, That such money may be 

invested in obligations of the United States, in general obligations fully 

guaranteed as to principal and interest by the United States, such investments 

to be made in accordance with such rules and regulations and subject to such 

conditions as the Secretary of Agriculture may prescribe. 

It shall be unlawful for any person, including but not limited to any 

clearing agency of a contract market and any depository, that has received any 

money, securities, or property for deposit in a separate account as provided in 

paragraph (2) of this section, to hold, dispose of, or use any such money, 

securities, or property as belonging to the depositing futures commission 

merchant or any person other than the customers of such futures commission 

merchant. * 

* Act as amended February 19, 1968, Public Law 90-258. The Senate 

Report on the 1968 amendments states in connection with the last paragraph 

of Section 4d: Section 6(b) adds a new provision to section 4d of the act 

which makes it unlawful for banks, clearing agencies of contract markets, 

or any other persons with whom futures commission merchants deposit 

customers' funds to treat such funds as belonging to any person other than 

such customers. This is to prohibit expressly customers' funds from being 

used to offset liabilities of the futures commission merchants or otherwise 

being misappropriated, (emphasis added) See 1968 U.S. Code Cong. and Admin. 

News, pp. 1673, 1679. 

 

Section 1.20 of the regulations (17 C.F.R. 1.20) 

(a) All money, securities, and property received by a futures commission 

merchant to margin, guarantee, or secure the trades or contracts of commodity 

customers and all money accruing to such customers as the result of such trades 

or contracts shall be separately accounted for and be segregated as belonging to 

such customers. Such money, securities, and property, when deposited with any 

bank, trust company, clearing organization of a contract market, or another 

futures commission merchant, shall be deposited under an account name which will 

clearly show that they are customers' money, securities, and property, 

segregated as required by the Commodity Exchange Act. Each registrant shall 

obtain and retain in his files for the period provided in § 1.31, an 

acknowledgement from such bank, trust company, clearing organization of a 

contract market, or futures commission merchant, that it was informed that the 

money, securities and property deposited therein are those of commodity 

customers and are being held in accord with the provisions of the Commodity 

Exchange Act. Under no circumstances shall any portion of commodity customers' 

money, securities, or property be obligated to the clearing organization of a 
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contract market, or to any member of a contract market, a futures commission 

merchant, or any depository except to margin, guarantee, secure, transfer, 

adjust, or settle trades and contracts made on behalf of such commodity 

customers. Nor shall any such money, securities, or property be held, disposed 

of, or used as belonging to the depositing futures commission merchant or any 

person other than the customers of such futures commission merchant. 

Section 4b (7 U.S.C. 6b) 

It shall be unlawful . . . . for any person, in or in connection with any 

order to make, or the making of, any contract of sale of any commodity for 

future delivery, made, or to be made, on or subject to the rules of any contract 

market, for or on behalf of any other person . . . . 

(A) to cheat or defraud or attempt to cheat or defraud such other person; 

(B) willfully to make or cause to be made to such other person any false 

report or statement thereof, or willfully to enter or cause to be entered for 

such person any false record thereof; 

(C) willfully to deceive or attempt to deceive such other person by any means 

whatsoever in regard to any such order or contract or the disposition or 

execution of any such order or contract, or in regard to any act of agency 

performed with respect to such order or contract for such person; or . . 

Section 9 (7 U.S.C. 13) 

(a) It shall be a felony punishable by a fine of not more than $ 10,000 or 

imprisonment for not more than five years, or both, together with the costs of 

prosecution, for any futures commission merchant, or any employee or agent 

thereof, to embezzle, steal, purloin, or with criminal intent convert to his own 

use or the use of another, any money, securities, or property having a value in 

excess of $ 100, which was received by such commission merchant to margin, 

guarantee, or secure the trades or contracts of any customer of such commission 

merchant or accruing to such customer as the result of such trades or contracts. 

. . . .

APPENDIX B

U.S.D.A. SANCTION POLICY

It is the policy of the Department to impose severe sanctions upon 

respondents who have engaged in serious or repeated violations of the regulatory 

laws administered by the Department. 

The imposition of a severe, administrative sanction is never a pleasant task. 

A license suspension or revocation order prevents a person from engaging in his 

chosen business for a specified period, or permanently. This can cause great 

hardship, not only to the individual violator, but to his family, employees, and 

customers. 

It is much easier and more pleasant to be "charitable" to the violator, 

putting more emphasis on his needs than the needs of society. The noted German 

philosopher Nietzsche observed almost a century ago: 

There is a point in the history of society when it becomes so pathologically 

soft and tender that among other things it sides even with those who harm it, 

criminals, and does this quite seriously and honestly. Punishing somehow seems 

unfair to it, and it is certain that imagining "punishment" and "being supposed 

to punish" hurts it, arouses fear in it. "Is it not enough to render him 

undangerous? Why still punish? Punishing itself is terrible." n1 

n1. Nietzsche, Beyond Good and Evil (1886; Kaufmann trans., 1966), § 

201, p. 114. 
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Similarly, in administering regulatory programs, there is a danger that the 

agency may become so "pathologically soft and tender" that it fails to achieve 

the purpose of the legislators who enacted the remedial statutes. 

Since the Department of Agriculture administers approximately 50 regulatory 

statutes -- more than any other 

 

agency -- it is important that the Department administer the statutes in a 

manner to achieve the Congressional purposes. 

The sanction policy that has been followed in the Department's 

administrative, disciplinary proceedings decided in the last two years is set 

forth at length below. Most of this language is taken verbatim from prior 

decisions. See, e.g., In re George Rex Andrews, 32 Agric. Dec. 553, 563-583 

(1973); In re American Commodity Brokers, 32 Agric. Dec. 1765, 1799 (1973); In 

re James J. Miller, 33 Agriculture Decisions 53, 64-80 (1974), affirmed sub nom. 

Miller v. Butz, F.2d (C.A. 5), decided August 8, 1974; In re J. A. Speight, 33 

Agriculture Decisions 280, 318 (1974). 

The administrative proceeding in this case does not partake of the essential 

qualities of a criminal proceeding. In permitting a person to engage in a 

Federally regulated business, the Government has, in effect, granted him a 

privilege. Suspension of the privilege for failure to comply with the statutory 

standard "is not primarily punishment for a past offense but is a necessary 

power granted to the Secretary of Agriculture to assure a proper adherence to 

the provisions of the Act:" Nichols & Co. v. Secretary of Agriculture, 131 F.2d 

651, 659 (C.A. 1). Accord: Helvering v. Mitchell, 303 U.S. 391, 399; Kent v. Hardin, 425 F.2d 1346, 1349 (C.A. 5); Blaise D'Antoni & Associates, Inc. v. 

Securities & Exch. Com'n, 289 F.2d 276, 277 (C.A. 5), certiorari denied, 368 

U.S. 899; Eastern Produce Co. v. Benson, 278 F.2d 606, 610 (C.A. 3); Cella v. United States, 208 F.2d 783, 789 (C.A. 7), certiorari denied, 347 U.S. 1016; 

Irving Weis & Co. v. Brannan, 171 F.2d 232, 235 (C.A. 2); Nelson v. Secretary of 

Agriculture, 133 F.2d 453, 456 (C.A. 7); Board of Trade of City of Chicago v. Wallace, 67 F.2d 402, 407 (C.A. 7), certiorari denied, 291 U.S. 680; and 

Farmers' Livestock Commission Co. v. United States, 54 F.2d 375, 378 (E.D. 

Ill.). See, also, Ex Parte Wall, 107 U.S. 265, 287-290; Hawker v. New York, 170 

U.S. 189, 190-200; Steuart & Bro. v. Bowles, 322 U.S. 398, 406-407; Brown v. 

Wilemon, 139 F.2d 730, 731-732 (C.A. 5); Chamberlain, Dowling, and Hays, The 

Judicial Function in Federal Administrative Agencies (1942), pp. 93-95. 

The function of an administrative sanction is "deterrence rather than 

retribution" (Schwenk, "The Administrative Crime, Its Creation and Punishment by 

Administrative Agencies," 42 Mich. L. Rev. (1943) 51, 85). 

Under the foregoing authorities, the sanction should, inter alia, 

 

be adequate to deter the respondents from future violations. 

In Beck v. Securities and Exchange Commission, 430 F.2d 673, 675 (C.A. 6), 

the Court questioned, without deciding, whether a suspension order may also be 

used to deter others in the regulated industry from committing similar 

violations. As far as I know, this is the only case in which the use of an 

administrative sanction to deter others has been questioned. Previously, the 

use of an administrative sanction to deter others had been assumed to be proper. 

See, e.g., American Air Transport and Flight School, Inc., Enforcement 

Proceeding, 2 Pike & Fischer Ad. L. 2d 213, 215 (C.A.B.). See, also, the 

dissenting opinion in Beck v. Securities and Exchange Commission, 413 F.2d 832, 

834 (C.A. 6). 

In cases arising under the Civil Aeronautics Act, it has been expressly held 

that the Civil Aeronautics Board has the power to "impose a suspension as a 

'sanction' against specific conduct or because of its 'deterrence' value -- 
Page 10 

either to the subjec ender or to others similarly situated." Pangburn v. C.A.B.,

311 F.2d 349, 354 (C.A. 1). Accord: Hard v. Civil Aeronautics Board, 248 F.2d 

761, 763-765 (C.A. 7), certiorari denied, 355 U.S. 960; Wilson v. Civil 

Aeronautics Board, 244 F.2d 773, 773-774 (C.A. D.C.), certiorari denied, 355 

U.S. 870. 

The remedial provisions of a regulatory program would be drastically affected 

if the agency could consider the effect of sanctions only on the respondents and 

not on others. It is well recognized that persons regulated by a governmental 

agency keep abreast of administrative proceedings. The actions of potential 

violators could be significantly affected by the sanctions imposed against other 

persons. Eight years' experience in the administration of a regulatory program 

has convinced me that it is necessary to consider, as a major factor, the effect 

of a sanction in a particular case not only on the violator, but on other 

potential violators, as well. 

Socrates recognized that "the proper office of punishment is two-fold: he who 

is rightly punished ought either to become better and profit by it, or he ought 

to be made an example to his fellows, that they may see what he suffers, and 

fear and become better." n2 

n2. Encyclopedia Brittanica, The Great Ideas: A Syntopicon of Great 

Books of the Western World (Vol. II, 1952), pp. 492-493. 

Similarly, Plato said that no man is to be punished "because he did wrong, 

for that which is done can never be undone, but in 

 

 

order that, in the future times, he, and those who see him corrected, may 

utterly hate injustice, or at any rate abate much of their evil-doing." n3 

n3. Id. at 492. 

The deterrent effect of punishment of one violator on potential violators is 

recognized in Deuteronomy 13:10-11 (R.S.V.; see also, Deuteronomy 19:19-20), as 

follows: 

You shall stone him to death with stones * * *. And all Israel shall hear, 

and fear, and never again do any such wickedness as this among you. 

In the field of criminal law, it is settled beyond question that one of the 

primary purposes of the penalty imposed on a particular violator is to deter 

other potential violators. 

* * * punishment, in this context [i.e., "general prevention"], is used not 

to prevent future violations on the part of the criminal, but in order to 

instill lawful behavior in others. n4 

* * * deterrence * * * is aimed at the protection of society. By making a 

certain action a punishable offense, we expect that people will refrain from 

committing the offense through fear of punishment. * * * 

The purpose of punishment as a deterrent * * * is also to demonstrate to the 

potential offender the consequences if he violates the law. n5 

* * * the deterrent value of a correctional system is not restricted to those 

who come into direct contact with it but applies to the whole population. n6 

* * * it is a primarily preventive consideration -- having an eye to what is 

necessary to keep the people reasonably law-abiding -- which today's legislators 

have in mind, too, when they define crimes and stipulate punishments. n7 

* * * police regulations which are such commonplaces in modern times: traffic 

ordinances, building codes, * * * regulations governing commerce, etc. Here 
Page 11 

there is no doubt that punishment for infraction has primarily a generalpreventive function. Here nearly all of us are potential criminals. n8 

The purpose of punishment, be it a criminal sentence, a civil penalty, or 

punitive damages, is not to inflict suffering or to impose a loss on the 

offender. Its object is to act as a deterrent: first to discourage the offender 

himself from repeating his transgression; and, second, to deter others from 

doing likewise. n9 

Sentencing is * * * an exacting task in which the Court undertakes to * * * 

impose a sentence which will best protect society, deter others and punish * * * 

the offender. n10 

More controversial but certainly no less important [than deterrence of the 

individual violator] is the need for deterrence, "general prevention," of 

potential criminals who may be dissuaded from crime by the threat and the 

administration of penalties. n11 

* * * 

Penalties are not provided as punishment for the individual who has gone 

wrong. Their imposition is alone justified for the effect the punishment may 

have upon the convict in preventing him from continuance in crime and in 

teaching him that "the way of the transgressor is hard." But the still greater 

effect to be attained is the deterrent effect the sentence may have upon those 

who may be inclined to follow the criminal course upon which the convict has 

embarked. n12 

* * * deterrence looks primarily at the potential criminal outside the dock 

[of the courtroom] * * * n13 

Punishment can protect society by deterring potential offenders * * * n14 

* * * the greater the penalty, the "higher the costs associated with criminal 

activity," and the higher these costs, the fewer crimes committed. n15 

One of these goals [of law] is deterrence by means of punishment. We punish 

in order to deter people from engaging in the undesirable conduct which we call 

crime. 

* * * deterrence, addresses itself * * * both to the individual himself -- we 

hope he will be deterred in the future -- and to the entire community. n16 

n4. Andenaes, "The General Preventive Effects of Punishment," 114 

University of Pennsylvania Law Review (1966), 949, 982. 

n5. Gardiner, "The Purposes of Criminal Punishment," 21 Modern Law 

Review (1958), 117, 121. 

n6. Gould and Namenwirth, "Contrary Objectives: Crime Control and the 

Rehabilitation of Criminals," in Crime and Justice in American Society

(1971), 237, 246. 

n7. Andenaes, "General Prevention -- Illusion or Reality?," 43 The 

Journal of Criminal Law, Criminology and Police Science(1952), 176, 177. 

n8. Andenaes, "General Prevention -- Illusion or Reality?," 43 The 

Journal of Criminal Law, Criminology and Police Science (1952), 176, 182. 

n9. Collins v. Brown, 268 F. Supp. 198, 201 (D.C.D.C.). 

n10. United States v. Mandracchia, 247 F. Supp. 1, 4 (D.N.H.). 

n11. Tappan, Crime, Justice and Correction (1960), p. 243. 

n12. Id. at 243, fn. 5, quoting from People v. Gowasky, 219 App. Div. 

19, 24, 25, 219 N.Y.S. 373, 380, affirmed, 244 N.Y. 451, 155 N.E. 737. 

n13. Fitzgerald, Salmond on Jurisprudence (12th ed., 1966), § 15, p. 94. 
Page 12 

n14. Ibid.

n15. Berns, "Justified Anger: Just Retribution," Imprimis (Vol. 3, No. 

6, June 1974), p. 3. 

n16. Puttkammer, Administration of Criminal Law (1953), 8. 

Perhaps the most salient authority for the proposition that one of the 

primary ends of punishment is to serve as a deterrent to other potential 

violators is Chief Justice William Howard Taft's 

 

 

statement written in 1928: 

* * * the chief purpose of the prosecution of crime is to punish the criminal 

and to deter others tempted to do the same thing from doing it because of the 

penal consequences. n17 

n17. Menninger, The Crime of Punishment (1968), 194. The original 

statement of Chief Justice Taft's position appeared in his article, "Toward 

a Reform of the Criminal Law," in The Drift of Civilization (1929). 

Johannes Andenaes, a leading authority from the University of Oslo, makes the 

same point, as follows: "From the point of view of sheer logic one must say that 

general prevention -- i.e., assurance that a minimum number of crimes will be 

committed --must have priority over special prevention -- i.e., impeding a 

particular criminal from future offenses." n18 

n18. Andenaes, "The General Preventive Effects of Punishment," 114 

University of Pennsylvania Law Review (1966), 949, 952. 

In other words, it is more important to the general welfare of society to 

consider the effect that a sanction will have on other potential violators than 

to consider the sanction needed to prevent the particular individual from again 

violating the law. In fact, it is not uncommon to have certain types of 

offenses committed where "there will practically never be an individual 

preventive need for punishment" and yet punishment "is necessary for general 

prevention." n19 

n19. Andenaes, "General Prevention -- Illusion or Reality?," 43 The 

Journal of Criminal Law, Criminology and Police Science (1952), 176, 196. 

Whether punishment achieves the objective of deterring others from violating 

the law is questioned by some authorities, n20 but affirmed by many others. 

n20. See, e.g., Menninger, The Crime of Punishment (1968), preface, 

viii, and pp. 9, 108, 113, 206-208. However, even though Menninger 

believes that our present system of punishing criminals is a "crime" (id. 

at 28, 86, 280), he favors "penalties" for violators. He states (id. at 

202-203): 

Certainly the abolition of punishment does not mean the omission or 

curtailment of penalties; quite the contrary. Penalties should be greater 

and surer and quicker in coming. I favor stricter penalties for many 

offenses, and more swift and certain assessment of them. 

But these are not punishments in the sense of long-continued torture -- 

pain inflicted over years for the sake of inflicting pain. If I drive 

through a red light, I will be and should be penalized. 

* * * 
Page 13 

If we disregard traffic signals we are penalized, not punished. If our 

offense was a calculated "necessity" in an emergency, then the fine is the 

"price" of the exception. 

* * * 

All legal sanctions involve penalties for infraction. But the element 

of punishment is an adventitious and indefensible additional penalty; it 

corrupts the legal principle of quid pro quo with a "moral" surcharge. 

Punishment is in part an attitude, a philosophy. It is the deliberate 

infliction of pain in addition to or in lieu of penalty. It is the 

prolonged and excessive infliction of penalty, or penalty out of all 

proportion to the offense. 

Persons with a will to believe in the efficacy of an exclusively 

individualistic and positivistic correctional system often quote the words 

of Warden Kirchwey. His patent oversimplifications of man's behavioral 

motivations should be noted, for this sort of loose thinking and naive 

criminological idealism pervert the ends of correction. 

* * * 

It is true, certainly, that the Classical doctrine of deterrence appears 

crudely oversimple in the light of modern conceptions of human behavior. 

In terms of reasonable goals for today it proposed to accomplish both too 

much and too little. This doctrine of deterrence was substantially more 

sound, however, than the position taken by those who deny any preventive 

effect to criminal sanctions. It is maintained here that the penal law and 

its application do in fact deter; indeed, with the declining efficacy of 

other forms of social control, it must be relied upon increasingly to 

maintain standards of behavior that are essential to the survival and 

security of the community. A complete failure of legal prevention cannot 

be inferred from the serious crimes committed by a small per cent of the 

population any more than can its success by the law obedience of the great 

preponderance of men. The matter is not so simple. <21> 

n21. Tappan, Crime, Justice and Correction (1960), pp. 245, 246. 

As an argument for the abolition of the deterrent doctrine, it is often 

maintained that neither the threat nor application of penalties does prevent 

crime. This position reflects the simplistic notion, too commonly prevailing in 

matters of social action, that nothing has been achieved merely because not 

everything is accomplished that we should like. It is sometimes said that high 

crime rates prove that sanctions do not deter or that penalties actually invite 

the crimes of men who seek punishment to dissolve their feelings of guilt. With 

tiresome frequency the illustration is cited of the pickpockets who actively 

plied their trade in the shadow of the gallows from which their fellow knaves 

were strung. These assertions have a superficial relevance but they do not 

dispose of the issue by any means. 

 

 

 

* * * [as to studies] indicating that the death penalty is ineffective as a 

deterrent to murder, their very broad interpretation has rendered a disservice 

to the more general issue of punishment as a deterrent to all kinds of criminal 

behavior. Such as expansive conclusion is obviously not justified since murder 

is, in many ways, a unique kind of offense often involving very strong emotions. 

n22 

* * * 
Page 14 

It is naive to suppose that punishment exists in a vacuum and is unrelated to 

the specific kinds of acts and the meaning which the punishment has for the 

actor. n23 

n22. Chambliss, "The Deterrent Influence of Punishment," 12 Crime & 

Delinquency (1966), 70, 71. 

n23. Id. at 75. 

That sanctions do in fact, serve as a deterrent to "white-collar" violations 

is evidenced by a number of studies. 

As Sutherland's analysis of white-collar crime has shown, violators of the 

Sherman Antitrust law are relatively free from criminal prosecution, though the 

imposition of punishment would be maximally effective with this type of offense. 

n24 

An intensive study of parking violators indicates that * * * an increase in 

the severity and certainty of punishment does act as a deterrent to further 

violation. These findings suggest the necessity for a reappraisal of current 

thinking. Studies demonstrating the ineffectuality of punishment as a deterrent 

to certain types of offenses should not be interpreted to mean that punishment 

is ineffective in deterring all types of offenses. n25 

n24. Chambliss, "Types of Deviance and the Effectiveness of Legal 

Sanctions," 1967 Wisconsin Law Review 703, 716 (emphasis supplied). 

n25. Chambliss, "The Deterrent Influence of Punishment," 12 Crime & 

Delinquency (1966), 70. 

Since one of the main purposes of a criminal law sentence is to deter other 

potential violators from committing similar violations, it follows, a fortiori,

that one of the main purposes of an administrative law sanction is to deter 

other potential violators. In criminal law, "[r]etribution or social 

retaliation, though persistently criticized by modern advocates of a progressive 

penology, continues to be a major ingredient of our penal law and of our 

correctional system." n26 "The principle of retribution was formulated in the 

lex talionis, the Mosaic doctrine expressed in Deuteronomy, 19:21: 'Thine eye 

shall not pity, but life shall go for life, eye for eye, tooth for tooth, hand 

for hand, foot for foot.'" n27 

 

 

But retribution or social retaliation is not one of the objectives of 

administrative sanctions -- they are to "assure a proper adherence to the 

provisions of the Act" ( Nichols & Co. v. Secretary of Agriculture, supra ).

Hence deterrence -- both as to the individual violator, and as to other 

potential violators -- is the primary, if not the only, objective of an 

administrative sanction. 

n26. Tappan, Crime, Justice and Correction (1960), p. 241. See, also, 

Berns, "Justified Anger: Just Retribution," Imprimis (Vol. 3, No. 6, June 

1974); Encyclopedia Brittannica, The Great Ideas: A Syntopicon of Great 

Books of the Western World (Vol. II, 1952), pp. 488-492. 

n27. Tappan, Crime, Justice and Correction (1960), p. 241, fn. 3. 

To serve as an effective deterrent to potential violators of a regulatory 

statute, I believe that administrative sanctions should be severe; sanctions 

which are too lenient, rather than being a deterrent, will serve as a catalyst 

for violations by others. Not all criminologists, sociologists, or jurists 

share this view; but many noted authorities do. 
Page 15 

Since the power of a legal threat to function as a simple deterrent comes 

from the unpleasantness of the consequences threatened, one natural strategy for 

increasing the deterrent efficacy of threats is to increase the severity of 

threatened consequences. The theory of increased penalties as a marginal 

deterrent is simple and straightforward: all other things being equal, an 

increase in the severity of consequences threatened should reduce the number of 

people willing to run the risk of committing a particular criminal act * * * n28 

* * * 

* * * when penalties for criminal activity that many people find attractive 

are quite low, thereby making crime a reasonable alternative to legitimate means 

of obtaining gratification for many persons, even a high probability of 

apprehension may leave a high rate of the threatened behavior, and increases in 

the severity of threatened consequences can be expected to have a more 

substantial marginal deterrent effect than if the level of consequences 

threatened is already quite high in relation to the benefits obtainable through 

criminal means. n29 

* * * 

* * * if potential offenders believe that their chances of apprehension 

cannot be dismissed, the risk of a high penalty provides more incentive to avoid 

crime than the risk of a low penalty. n30 

* * * 

* * * it is likely that increases in the severity of threatened consequences 

are more or less significant, depending on the relationship between size of 

penalty increase and size of base penalty. n31 

 

If we are hopeful of the curative effects of a threat, we have to make the 

threat unpleasant, which is another way of saying that we have to be severe. n32 

n28. Zimring, Perspectives on Deterrence, Crime and Delinquency Issues, 

A Monograph Series, National Institute of Mental Health -- Center for 

Studies of Crime and Delinquency (1971), 83-84. 

n29. Id. at 84. 

n30. Id. at 85. 

n31. Id. at 89. 

n32. Puttkammer, Administration of Criminal Law (1953), 16-17. 

Dr. Zimring, a noted authority, capsulizes this concept in answering the 

question, "how can the legal system make the best use of variations in severity 

[of sanctions] to achieve social defense?" by stating: n33 

One answer is that, since the goal of all legal threats is to keep the 

population law abiding, the potential effectiveness of variations in severity of 

threatening consequences should be used to create the widest possible 

distinction between criminal and noncriminal behavior by threatening all types 

of serious crime with penalties which are as severe as possible. The aim of 

this strategy is to create a walled fortress around criminal activity by using 

the full power of threatened consequences to keep potential criminals from 

becoming actual criminals. 

Another possible strategy would be to threaten all serious crimes with major 

penalties, but to save a considerable amount of variation in threatened 

penalties to underscore distinctions between types of crime, as well as between 

serious crime and law-abiding behavior. 
Page 16 

n33. Zimring, Perspectives on Deterrence, Crime and Delinquency Issues, 

a Monograph Series, National Institute of Mental Health -- Center for 

Studies of Crime and Delinquency (1971), 90. 

Johannes Andenaes, of the University of Oslo, regarded by many as one of the 

most distinguished of the modern scholars writing about deterrence, states that 

the "simplest way to make people more law-abiding, therefore, is to increase the 

punishment." n34 Mr. Andenaes believes that Feuerbach's formula of psychological 

coercion: "the risk for the lawbreaker must be made so great, the punishment so 

severe, that he knows he has more to lose than he has to gain from his crime" 

has a "certain validity" as to violators of "economic regulations." n35 

"(E)conomic crimes," to utilize his epithet, are clearly within the purview of 

the foregoing severity doctrine, such crimes being violations of "governmental 

regulation of the economy: price violations, rationing violations, unlawful 

foreign exchange transactions, offenses against workers protection, disregard of 

quality standards, and so on." n36 

n34. Andenaes, "General Prevention -- Illusion or Reality?," 43 The 

Journal of Criminal Law, Criminology and Police Science (1952), 176, 191. 

n35. Andenaes, "General Prevention -- Illusion or Reality?," 43 The 

Journal of Criminal Law, Criminology and Police Science (1952), 176, 178-

179, 185. 

n36. Id. at 184. 

 

The applicability of severe sanctions to deter violations of "regulations 

governing commerce" and other "economic" regulations is succinctly treated by 

Andenaes: 

I shall begin with a group of crimes which play a modest role in the 

literature but which have a good deal of practical importance and are good for 

illustration, all these police regulations which are such commonplaces in modern 

times: traffic ordinances, building codes, laws governing the sale of alcoholic 

beverages, regulations governing commerce, etc. Here there is no doubt that 

punishment for infraction has primarily a general-preventive function. Here 

nearly all of us are potential criminals. A public-spirited citizen has, of 

course, certain inhibitions against breaking laws and regulations. But 

experience shows that moral and social inibitions against breaking the law are 

not enough in themselves to insure obedience, where there is conflict with one's 

private interests. Thus the extent to which there can be effective enforcement 

by means of punishment determines to what extent the rules are actually going to 

be observed. n37 

* * * 

A large number of the people who are affected by economic regulations * * * 

feel no strong moral inhibition against infraction. They often find excuses for 

their behavior in political theorizing: they oppose the current government's 

regulative policies; * * *. Yet the matter of obedience or disobedience can 

often have important economic consequences. * * * In this area, at any rate, 

Feuerbach's law of general prevention has a certain validity: it is necessary 

that consideration as to the risk involved in breaking the law should outweigh 

consideration of the advantages to breaking the law. n38 

n37. Andenaes, "General Prevention -- Illusion or Reality?," 43 The 

Journal of Criminal Law, Criminology and Police Science (1952), 176, 182. 

n38. Id. at 185. 

Andenaes is careful to note that severity of punishment has a more salient 

effect on crimes, like economic violations, "committed after careful 

consideration * * * than for crimes which grow out of emotions or drives which 

overpower the individual (e.g. the so-called crimes of passion)." n39 
Page 17 

n39. Id. at 192. 

Isaac Ehrlich, in one of the most sophisticated analyses of criminal activity 

ever made, using a simultaneous equation model for a regression analysis 

involving fourteen variables, found that the "rate of specific crime categories, 

with virtually no exception, varies inversely with estimates of the probability 

of apprehension and punishment by imprisonment * * * and with the average length 

of time served in state prisons * * *." n40 

n40. Ehrlich, "Participation in Illegitimate Activities: A Theoretical 

and Empirical Investigation," Journal of Political Economy, Vol. 81 (MayJune, 1973), p. 545. 

 

My views with respect to the necessity for severe sanctions for serious 

violations, in order to achieve the Congressional purpose of the Department's 

regulatory programs, were set forth in In re Sy B. Gaiber & Co., in a Ruling on 

Petition for Reconsideration, as follows (31 Agriculture Decisions 843, 850-851 

(1972)): 

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. 

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 manipulated a futures market 

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

futures trading. 

It is the general administrative practice under the Department's regulatory 

programs to institute formal actions only as to violations regarded as serious 

or repeated. Many minor violations are disposed of with a warning letter or an 

informal stipulation. Hence it is to be expected that the relatively few formal 

cases which are instituted will generally warrant relatively severe sanctions. 

To summarize, a strong argument can be made in support of any philosophy of 

punishment or sanctions, ranging from extremely light to very severe. There are 

many excellent judges, criminologists, and sociologists at either end of the 

poles of this issue; many others take a position between the poles. For the 

reasons set forth above, where the violation is serious or repeated, I believe 

in severe sanctions to deter future violations by the respondent and others. 

Another principle in determining the sanction to be imposed in a particular 

case is that, in general, there should be a reasonable relationship between the 

sanction and the unlawful practices found to exist. n41 In other words, the 

more serious the violation, 

 

the more severe should be the sanction. Even though punishment for the sake of 

punishment is not a relevant consideration in the field of administrative law, 

the principle of having a reasonable relationship between the violation and the 

sanction still has validity in a case of this nature. This is because in order 

to achieve the major Congressional purposes of the regulatory program, it is 

more important to deter serious violations than minor violations. Hence a 

severe sanction for a serious violation will have a greater deterrent effect 
Page 18 

than a milder sanction for a lesser violation, and thus will tend to effectuate 

the major objectives of the regulatory program. 

n41. Kent v. Hardin, 425 F.2d 1346, 1349-1350 (C.A.5); G. H. Miller & 

Company v. United States, 260 F.2d 286, 295-297 (C.A. 7, en banc) ,

certiorari denied, 359 U.S. 907; Daniels v. United States, 242 F.2d 39, 42 

(C.A. 7), certiorari denied, 354 U.S. 939; Irving Weis & Co. v. Brannan,

171 F.2d 232, 235 (C.A. 2); In re American Fruit Purveyors, Inc., 30 

Agriculture Decisions 1542, 1596 (1971); In re Louis Romoff, 31 Agric. Dec. 

158, 177 (1972). See, also, American Power Co. v. S. E. C., 329 U.S. 90, 

112-118; Phelps Dodge Corp. v. Labor Board, 313 U.S. 177, 194; Great 

Western Food Distributors v. Brannan, 201 F.2d 476, 484 (C.A. 7), 

certiorari denied, 345 U.S. 997; In re Electric Power & Light Corporation,

176 F.2d 687, 692 (C.A. 2); Wright v. Securities and Exchange Commission,

112 F.2d 89, 95 (C.A. 2). 

In addition, in determining sanctions to be imposed under the Act, great 

weight should be given to the recommendation of the officials charged with the 

responsibility for administering the regulatory program. See In re Sy B. Gaiber 

& Co., Ruling on Reconsideration, 31 Agriculture Decisions 843, 845-846 (1972). 

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 

Administrative Law Judges or the Judicial Officer, who come in contact with only 

a small part of the regulatory program. 

The recommendation of the administrative officials as to the sanction 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 Purveyors, Inc., 30 

Agriculture Decisions 1542 (1971). But if the alleged violations are proven, 

and it appears that the administrative officials have fully considered the 

respondent's contentions, the recommendation of the administrative officials as 

to the sanction needed to serve as an effective deterrent to the respondent and 

to other potential violators should be given great weight. Recognizing the 

greater opportunity for such administrative officials to develop 

 

 

expertise in this area, it will be the policy of the Judicial Officer never to 

increase the sanction recommended by the administrative officials. 

Insofar as practicable, the sanctions imposed under a regulatory Act against 

comparable violators for comparable violations should be reasonably uniform. 

n42 From the beginning, the Judicial Officer has recongized that "[d]isciplinary 

action taken under * * * [a regulatory] act should follow some general pattern, 

* * * so that one order will not be entirely out of line with another involving 

similar violations." In re Watkins Commission Company, Inc., 4 Agriculture 

Decisions 395, 400 (1945). See, also, In re Arnold Fairbank, 27 Agriculture 

Decisions 1371, 1384 (1968); In re Nolan E. Poovey, Jr., 27 Agriculture 

Decisions 1512, 1520-1522 (1968); In re Boone Livestock Company, Inc., 27 

Agriculture Decisions 475, 503 (1968); In re Milton Silver, d/b/a Chambersburg 

Livestock Sales, 21 Agriculture Decisions 1438, 1452 (1962); In re American 

Fruit Purveyors, Inc., 30 Agriculture Decisions 1542, 1595-1596 (1971); In re 

Louis Romoff, 31 Agric. Dec. 158, 177 (1972). n43 

n42. Inequality in judicial sentencing occurs "every day, often in 

different courtrooms in the same courthouse. Two boys fail to report for 

military induction -- one is sentenced to five years in prison, the other 

gets probation and never enters a prison. One judge sentences a robber 

convicted for the third time to one year in prison, while another judge on 

the same bench gives a first offender ten years. One man far more capable 
Page 19 

of serious crime than another and convicted of the same offense may get a 

fine, while the less fortunate and less dangerous person is sentenced to 

five years in the state penitentiary." Clark, Crime in America (1970), p. 

224. There is no excuse for such erratic sanctions in administrative 

disciplinary proceedings before a single agency. 

n43. Accordingly, counsel should, in all cases, in their briefs and 

arguments, refer to relevant prior cases under the Act which should be 

considered in determining the appropriate sanction to be imposed in the 

particular case, in the event a violation is found to have occurred. 

In determining whether one case is comparable to another, all of the relevant 

facts and circumstances must be considered, such as the nature of the 

violations, the nature of the respondents' businesses, the respondents' prior 

record as to violations, the deliberateness of the violations, prior warnings 

given to the respondents, etc. 

Also, the goal of uniform sanctions for comparable violations necessarily 

applies only to contested cases. Consent orders issued without a hearing should 

be given no weight whatsoever in determining the sanction to be imposed 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 than appears 

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

because of mitigating circumstances not revealed to the Administrative Law Judge 

or the Judicial Officer. Other circumstances, such as personnel and budget 

considerations and the delay inherent in litigation, may also cause a consent 

order to seem less severe than appropriate. Conversely, a consent order may seem 

more severe than appears warranted because of aggravated circumstances not 

revealed by the complaint. 

In some cases, following the "deterrent policy" set forth above may lead to 

the imposition of a sanction more severe than the sanctions previously imposed 

under the Act for similar violations. If so, uniformity must yield to 

effectiveness. An effective sanction will be issued in such cases even if it is 

more severe than sanctions previously imposed for similar violations. In such 

circumstances, uniformity will be achieved only as to cases subsequent thereto. 

In other words, uniformity is a desirable goal; but it is not an absolute 

requirement. 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 & Company v. United States, 260 

F.2d 286, 296 (C.A. 7), certiorari denied, 359 U.S. 907. As the Court held in 

Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 186: "We read the Court of 

Appeals' opinion to suggest that the sanction was 'unwarranted in law' because 

'uniformity of sanctions for similar violations' is somehow mandated by the Act. 

We search in vain for that requirement in the statute." 

An agency is free to reconsider sanctions previously imposed without prior 

notice. Communications Comm'n v. WOKO, 329 U.S. 223, 228; Continental 

Broadcasting v. Federal Comm. Comm'n., 439 F.2d 580, 582-584 (C.A.D.C.); 

N.L.R.B. v. Majestic Weaving Co., 355 F.2d 854, 860 (C.A. 2); quoted with 

approval in Davis, Administrative Law Treatise (1970 Supp.), § 17.08, p. 604. 

In Communications Comm'n v. WOKO, 329 U.S. 223, 228, the Court held: "Much is 

made in argument of the fact that deceptions of this character have not been 

uncommon and it is claimed that they have not been dealt with so severely as in 

this case. * * * The mild measures to others and the apparently unannounced 

change of policy are considerations appropriate for the Commission 

 
Page 20 

 

in determining whether its action in this case is too drastic, but we cannot say 

that the Commission is bound by anything that appears before us to deal with all 

cases at all times as it has dealt with some that seem comparable." 

Similarly, in Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 187, the 

Court held that the "employment of a sanction within the authority of an 

administrative agency is thus not rendered invalid in a particular case because 

it is more severe than sanctions imposed in other cases." 

As I stated in In re Sy B. Gaiber & Co., Ruling on Reconsideration, 31 

Agriculture Decisions 843, 850 (1972): 

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 Agric. Dec. 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. 

To conclude this extended discussion as to the Department's sanction policy, 

Congress has determined that there is a need for Federal regulation of the 

agricultural marketing system. To achieve the Congressional purposes with 

respect to the various remedial statutes administered by the Department, severe 

sanctions must be imposed for serious violations. We have no reasonable 

alternative. "For whatever our opinion may be on the question of free versus 

controlled economy, there is no denying that ineffective regulation is the worst 

arrangement of them all." n44 

n44. Andenaes, "General Prevention -- Illusion or Reality?," 43 The 

Journal of Criminal Law, Criminology and Police Science (1952), 176, 184. 

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