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Commodity Futures Trading Commission 

CEA CASES 

NAME: PROFESSIONAL COMMODITY SERVICE, INC., AND THEODORE W. LORD, SR. 

CITATION: 32 Agric. Dec. 585 

DOCKET NUMBER: 193 

DATE: MARCH 16, 1973 

DOCUMENT TYPE: ORDER VACATING RECOMMENDED DECISION AND ORDER 

(No. 15,074) 

In re PROFESSIONAL COMMODITY SERVICE, INC., and THEODORE W. LORD, SR. CEA 

Docket No. 193. Decided March 16, 1973. 

Order Vacating Recommended Decision and Order and Remanding Case for Futher 

Proceedings

This order is issued in accordance with the facts and circumstances as set 

forth herein. 

Darrold A. Dandy, for complainant. 

Garth C. Grisson, Denver, Colorado, for respondents. 

John G. Liebert, Administrative Law Judge. 

Decision by Donald A. Campbell, Judicial Officer.

PRELIMINARY STATEMENT

This is an administrative proceeding under the Commodity Exchange Act (7 

U.S.C. 1 et seq.), in which the Administrative Law Judge, John G. Liebert, filed 

a recommended decision and order on March 8, 1973. The proposed order denied 

the corporate respondent's application for registration as a futures commission 

merchant (1) because respondents did not establish that the corporation met the 

minimum financial requirements for registration, and (2) because the individual 

respondent wilfully omitted material facts from the application for registration 

with the intention of misleading the Commodity Exchange Authority. A cease and 

desist order was also proposed by the Administrative Law Judge. 

Although the Administrative Law Judge rejected the complainant's 

recommendation that the respondent should, in addition, be prohibited from 

trading on contract markets for one year, he refused to allow the complainant to 

offer evidence as to the importance of accurate financial statements, the 

seriousness of the violations, and the nature of the sanction that should be 

imposed (Tr. 100-101). Since all of this evidence is important to a 

determination by the Judicial Officer as to whether the one-year suspension of 

trading privileges should be imposed (in the event that it is ultimately 

concluded that the violations occurred), this matter must be remanded to the 

Administrative Law Judge to receive such evidence. 

The hearing in this case was held on September 7, 1972. In decisions filed 

by the Judicial Officer on October 29, 1971 (In re American Fruit Purveyor's, 

Inc., 30 Agriculture Decisions 1542, 1596, fn. 39), and April 12, 1972 (In re Sy 

B. Gaiber & Co., 31 Agriculture Decisions 474, 505, fn. 20), the policy for the 

Department was established that evidence in support of the sanction recommended 

by the complainant should be introduced in administrative hearings. In a ruling 

on petition for reconsideration in the case of In re Sy B. Gaiber & Co., supra,

the Judicial Officer set forth at length the policy for the Department as to the 
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admissibility of evidence relating to the sanction to be imposed (31 Agriculture 

Decisions 843, 847-850), stating: 

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 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 fail 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. 
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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. 

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 of 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 throughly 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. 

Since the Administrative Law Judge rejected the administrative official's 

recommendation to impose a one-year suspension of trading privileges on the 

respondents, but would not permit the administrative officials to offer evidence 

in support of their recommended sanction, the proceeding should be remanded to 

the Administrative Law Judge to receive such evidence. 

The Administrative Law Judge offered to permit the complainant's attorney to 

make an offer of proof with respect to such excluded evidence (Tr. 101), but the 

complainant's attorney did not make such an offer of proof. The rules of 

practice provide that if the Secretary decides that the referee's ruling in 

excluding evidence 
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was erroneous, the offer of proof shall be considered a part of the transcript 

(17 CFR 0.11(e) (8)). However, even if an offer of proof had been made in this 

case, the Judicial Officer could not have treated it as evidence in this case. 

That would have denied the respondents the right of cross-examination. In the 

circumstances of this case, to have treated such an offer of proof as evidence 

would have violated the fundamental concepts of due process of law. 

Evidence as to the sanction to be imposed if violations are sustained is 

particularly important in view of the decision issued by the Judicial Officer on 

March 8, 1973, in In re George Rex Andrews, CEA Docket 195. In that case, a new 

sanction policy under the Commodity Exchange Act was set forth, and it was held 

therein that all prior sanctions previously imposed under the Commodity Exchange 

Act would no longer be regarded as relevant. It was stated that the new 

sanction policy would apply to pending cases. In these circumstances, the 

administrative officials should reconsider their recommended sanction in the 

light of the criteria in the George Rex Andrews case. Their recommendation on 

remand may or may not be the same as that previously made prior to the George 

Rex Andrews decision. The relevant provisions of the George Rex Andrews

decision are attached as an appendix to this order. 

Inasmuch as the proceeding must be remanded for further proceedings, some 

additional excluded evidence should be received, which might not have otherwise 

warranted a remand. 

The Administrative Law Judge refused to let Richard P. Sargeant, Assistant 

Director of the Commodity Exchange Authority's Registration and Audit Division 

in Washington, D. C., who has been an employee of the agency for over 30 years 

(Tr. 96), express an opinion as to whether the respondent corporation is unfit 

to engage in business as a futures commission merchant and as to whether its 

application for registration should be denied (Tr. 98-100). The Judge rejected 

such testimony primarily because it "asks for an opinion as to * * * one of the 

ultimate determinations in this hearing." (Tr. 98). The Judge stated that he 

would receive testimony only from the Administrator of the Commodity Exchange 

Authority with respect to such matters (Tr. 98-100). This ruling was erroneous. 

Even in a judicial proceeding, where there is no jury it is permissible for an 

expert witness to express an opinion on the ultimate issues to be decided. See, 

e.g., Builders 

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

re Sy B. Gaiber & Co., supra, Ruling on Reconsideration, 31 Agriculture 

Decisions 843, 850). A fortiori such opinions should be permitted by an expert 

witness in an administrative proceeding in which the technical rules of evidence 

applicable in court proceedings are not applicable. See the cases cited in In 

re American Fruit Purveyor's, Inc., supra, 30 Agriculture Decisions 1542, 1575 

(1971). 

It would be unduly disruptive to the administrative process if only the 

administrator of a program who had the ultimate decision making authority were 

permitted to testify as to the policies of the agency or to give opinions on the 

ultimate issues in a proceeding. As a practical matter, any employee of the 

Commodity Exchange Authority who testifies that he is thoroughly familiar with 

the policies and procedures of the agency is probably competent to express an 

opinion as an expert witness relating to the agency's work or testify as to the 

policies of the agency. 

The Commodity Exchange Authority is a small regulatory agency with about 170 

employees. It is involved in only a few hearings each year. It is not likely 

that the Administrator of the agency would send an employee to testify or 

express an opinion as to a matter who did not, in the judgment of the 

Administrator, have a thorough knowledge of the agency's activities, policies, 

and procedures. Based upon 23 years' experience with the Department's 

regulatory agencies, I would be surprised if one of the Department's employees 

were sent to testify as to a matter when he was not sufficiently knowledgeable 

to testify. This does not, of course, mean that I would agree with his 
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testimony. But I cannot reasonably foresee a case arising where it would not be 

an abuse of discretion for an Administrative Law Judge to refuse to permit one 

of the Department's employees to testify as to a matter solely on the ground 

that the particular employee testifying was not a high enough official to 

express the agency's viewpoint. It is theoretically possible that an 

incompetent Department witness may be sent to testify, but highly unlikely. 

Cross-examination as to the witness' knowledge and expertise is, of course, 

available to the private litigant. 

In addition, inasmuch as the proceeding is being remanded for further 

proceedings, although I have not yet determined whether such evidence is 

necessary, the Administrative Law Judge should also receive evidence as to 

whether the respondent corporation 

met the minimum financial requirements on August 4, 1972. The respondents 

attached to their answer a new statement of financial condition as of August 4, 

1972, purporting to show that the corporation met the minimum financial 

requirements as of that date. The complainant attempted to show that its audit 

made as of August 4, 1972, showed that the firm still did not meet the financial 

requirements on that date (Tr. 142-143). In order to obviate the additional 

expense that would be incurred from a further hearing in the event that such 

evidence is ultimately deemed relevant and material, this evidence should be 

received at this hearing. 

The respondents should, of course, be permitted to introduce evidence with 

respect to any of the matters referred to herein. It appears likely that all of 

the evidence referred to herein can be received during a single day's hearing. 

Insofar as practicable, this proceeding should be given priority over other 

matters and should be concluded as soon as practicable inasmuch as an 

application for a license is being held in abeyance pending the completion of 

this proceeding. That is why this order is being issued at this time instead of 

waiting for exceptions to be filed. 

ORDER

The Decision and Order of the Administrative Law Judge filed on March 8, 

1973, in this proceeding is vacated and the proceeding is remanded to the 

Administrative Law Judge with instructions to reopen the hearing to receive 

additional evidence, as set forth herein, and to file a new recommended or 

initial Decision and Order in this proceeding. Insofar as practicable, this 

proceeding is to be given priority over other matters and concluded as soon as 

practicable. 

APPENDIX

This appendix consists of sections II-V from the decision of the Judicial 

Officer in In re George Rex Andrews, CEA Docket 195, 32 Agriculture Decisions -- 

(Decision filed March 8, 1973). 

LOAD-DATE: June 9, 2008 
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