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Commodity Futures Trading Commission 

CEA CASES 

NAME: GEORGE REX ANDREWS 

CITATION: 32 Agric. Dec. 553 

DOCKET NUMBER: 195 

DATE: MARCH 8, 1973 

DOCUMENT TYPE: DECISION AND ORDER 

(No. 15,073) 

In re GEORGE REX ANDREWS. CEA Docket No. 195. Decided March 8, 1973. 

Unauthorized transfer of funds -- Unauthorized trades resulting in loss of 

funds -- Deceiving customer as to true status of the customer's accounts -- 

Denial of trading privileges

Where respondent, without the knowledge or authorization of the customer, 

John F. Selle, transferred funds from the customer's stock account to the 

customers' regulated and nonregulated commodity accounts, made trades in such 

accounts, resulting in loss of the funds so transferred and deceived said 

customer as to the true status of his account, respondent is denied trading 

privileges as stated in the order herein for a period of five years. 

Darrold A. Dandy, for complaint. 

Respondent pro se.

John A. Campbell, Administrative Law Judge. 

Decision by Donald A. Campbell, Judicial Officer.

DECISION AND ORDER

PRELIMINARY STATEMENT

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

U.S.C. Chapter 1, 1946 ed., as amended, Supp. 

IV, 1969), hereafter referred to as the "Act", instituted by a complaint filed 

August 28, 1972, by the Assistant Secretary of Agriculture. The complaint 

alleges that the respondent violated §§ 4b, 4d, and 9 of the Act (7 U.S.C. 6b, 

6d and 13), and § 1.20 of the Regulations (17 CFR 1.20) by reason of the 

activities set forth therein. 

The complaint alleges that the respondent, a salesman for a brokerage firm 

registered as a futures commission merchant under the Act, acting without the 

knowledge or authorization of a customer, transferred $ 14,000 from the 

customer's stock account to the customer's commodity accounts, and made 

commodity trades with the $ 14,000 "which were closed out at prices which 

resulted in the loss of the entire $ 14,000." The complaint further alleges that 

to further such course of conduct, the respondent, at various times, deceived 

the customer as to the true status of his accounts. 

Copies of the complaint and the rules of practice were served on respondent 

by certified mail on August 31, 1972. Respondent was notified in writing that, 

in accordance with the applicable rules, an answer should be filed within 20 

days following receipt of the complaint, and that failure to file an answer 

denying the specific allegations in the complaint and requesting an oral hearing 
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would constitute admission of such allegations and waiver of an oral hearing. 

Notwithstanding such notice, respondent did not file an answer. 

Complainant filed suggested findings of fact, conclusions and order on 

October 4, 1972, which were served on respondent. The order suggested by the 

complainant would have suspended the respondent's trading privileges on contract 

markets for five years. Complainant recommended that the Referee proceed in 

accordance with § 0.9(c) of the rules of practice (17 CFR 0.9(c)), which 

provides: 

(c) Procedure upon admission of facts. The admission, in the answer or by 

failure to file an answer, of all the material allegations of fact contained in 

the complaint shall constitute a waiver of hearing. Upon such admission of 

facts, the referee, without further investigation or hearing, shall prepare his 

report, in which he shall adopt as his proposed findings of fact the material 

facts alleged in the complaint. 

The Administrative Law Judge to whom the case was assigned, John A. Campbell, 

filed a Recommended Decision on November 1, 

1972, adopting as proposed findings of fact the material allegations set forth 

in the complaint. Except for a change in the denial of trading privileges from 

five to three years, he adopted the proposed conclusions and order submitted by 

the complainant. No exceptions to the Recommended Decision were filed. 

FINDINGS OF FACT

1. The respondent, George Rex Andrews, an individual whose address is 159 

Ponce de Leon Drive, Osmond Beach, Florida, was at all times material herein a 

salesman of duPont Glore Forgan Incorporated, a brokerage firm dealing in 

securities and commodities. At all such times the said firm was a registered 

futures commission merchant under the Commodity Exchange Act and entitled to 

membership privileges on various contract markets. 

2. At all times material herein, John F. Selle, an individual, maintained 

stock and commodity futures trading accounts at duPont Glore Forgan 

Incorporated. 

3. During the period from June 25 through August 14, 1970, the respondent, 

acting without the knowledge or authorization of John F. Selle: (1) transferred 

approximately $ 14,000 from John F. Selle's stock account to the regulated 

commodity account of John F. Selle and thereafter transferred a portion of the 

said amount to the nonregulated commodity account of John F. Selle; and (2) made 

trades in the regulated and nonregulated commodity accounts of John F. Selle. 

To further such course of conduct, the respondent, at various times during 

such period deceived John F. Selle as to the true status of his accounts. The 

trades so made subsequently were closed out at prices which resulted in the loss 

of the entire $ 14,000. 

4. The transactions in commodity futures previously referred to were capable 

of being used for hedging transactions in interstate commerce in such 

commodities or the products or byproducts thereof, or for determining the price 

basis of transactions in interstate commerce in such commodities sold, shipped 

or received in interstate commerce for the fulfillment of such futures 

contracts. 

CONCLUSIONS

I 

Under § 4b of the Commodity Exchange Act (7 U.S.C. 6b), it is unlawful: 
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for any member of a contract market, or for any correspondent, agent or employee 

of any member, 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, * * * for or on behalf of any other person * * * (A) to cheat or defraud 

or attempt to cheat or defraud such other persons; (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 * * *. 

Section 4d of the Commodity Exchange Act (7 U.S.C. 6d) provides that: 

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 -- * * * (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. 

Section 9 of the Commodity Exchange Act provides that it "shall be a felony 

punishable by a fine or not more than $ 10,000 or imprisonment for not more than 

five years, or both, * * * 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" (7 U.S.C. 13(a)). 

The respondent did not answer the complaint. Under the rules of practice, 

his failure to do so constitutes an admission of all the material allegations 

therein (17 CFR 0.9(b) and (c)), and such 

allegations have been adopted as the Findings of Fact herein. Hence it is 

admitted that the respondent, without the knowledge or authorization of John F. 

Selle, (1) transferred $ 14,000 from Mr. Selle's stock account to his regulated 

commodity account; (2) thereafter transferred a portion of the said funds to Mr. 

Selle's nonregulated commodity account; (3) made trades in both the regulated 

and nonregulated accounts, losing the entire $ 14,000; and (4) at various times 

deceived Mr. Selle as to the true status of his accounts. 

Certainly, this conduct on the part of the respondent is a serious and 

substantial violation of the Act. The violations of the respondent were of a 

wilful, deliberate and flagrant nature. Accordingly, the respondent should be 

prohibited from trading on all contract markets for a period of five years and 

all contract markets should be directed to refuse all trading privileges to the 

respondent for this period, and the respondent should be ordered to cease and 

desist from violating the Act in the manner set forth above. 

In reducing the complainant's recommended denial of trading privileges from 

five years to three years, the Administrative Law Judge said: 

Complainant recommended among other things that respondent be prohibited from 

trading on or subject to the rules of any contract market for a period of five

years. While we recognize the agency expertise in matters involving the 

severity of sanctions needed to serve as a deterrent to violations, we 

nevertheless believe that the recommended five year sanction is more severe than 

was imposed for similar past violations. In our limited research of past 

decisions (based upon default, consent and hearing) we find that denials of 

trading privileges range from 60 days to three years. For example, see: In re 

Rodger Harris, 29 AD 1330 (Dec. 1970), Default -- 60 days; In re Khalil Haddad,
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22 AD 137 (Feb. 1963), Default -- 6 months; In re Edward Weitman, 30 AD 600 (May 

1971), Consent -- 90 days; In re William R. Thompson, Jr., 27 AD 335 (March 

1968), Consent -- 2 years; In re Jack C. Flora, 29 AD 1015 (Sept. 1970), Consent 

-- 2 years; In re Marvin Sperling, 31 AD 377 (March 1972), Hearing -- 3 years; 

In re Douglas Steen, 21 AD 1076 (Oct. 1962), Hearing -- 3 years. 

This being a default proceeding, we believe it prudent here to hug the shore 

of past precedent, and impose a three year 

sanction instead of the five years as recommended by complainant. Also because 

the offense by respondent was deliberate, serious, and flagrant, no less than 

three years should be imposed. 

Since the sole issue at this stage of the proceeding relates to the length of 

the denial of trading privileges, it seems appropriate in this case to set forth 

my views at length as to administrative sanctions under the Act, including views 

previously stated in other cases. n1 

n1 Final administrative authority to decide cases under the Commodity 

Exchange Act has been delegated to the Judicial Officer. 36 F.R. 3210; 37 

F.R. 28463, 28475. 

The office of Judical 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). 

II 

In determining the sanction to be imposed under the Commodity Exchange Act 

for a violation of the Act, it is necessary to recognize that futures trading is 

a vital part of the agricultural marketing system in the United States -- of 

great importance to growers, handlers, processors and consumers of agricultural 

commodities. n2 The value of the futures contracts regulated under the Act in 

fiscal 1972 was $ 148 billion. n3 

n2 See Campbell, "Trading in Futures Under the Commodity Exchange Act," 

26 George Washington Law Review (1958), 215, 218-219. 

n3. U.S.D.A. Press Release No. 2315-72 dated July 14, 1972. 

The Congress recognized, in a declaration of policy set forth in the Act (7 

U.S.C. 5), that futures trading is a vital part of the agricultural marketing 

system. The Congress declared that -- 

Transactions in commodit[ies] involving the sale thereof for future delivery 

as commonly conducted on boards of trade and known as "futures" are affected 

with a national public interest; that such transactions are carried on in large 

volume by the public generally and by persons engaged in the business of buying 

and selling commodit[ies] and the products and byproducts thereof in interstate 

commerce; that the prices involved in such transactions are generally quoted and 

disseminated throughout the United States and in foreign countries as a basis 

for determining the prices to the producer 

and the consumer of commodit[ies] and the products and byproducts thereof and to 

facilitate the movements thereof in interstate commerce; that such transactions 

are utilized by shippers, dealers, millers, and others engaged in handling 
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commodit[ies] and the products and byproducts thereof in interstate commerce as 

a means of hedging themselves against possible loss through fluctuations in 

price; that the transactions and prices of commodit[ies] on such boards of trade 

are susceptible to speculation, manipulation; and control, and sudden or 

unreasonable fluctuations in the prices thereof frequently occur as a result of 

such speculation, manipulation, or control, which are detrimental to the 

producer or the consumer and the persons handling commodit[ies] and the products 

and byproducts thereof in interstate commerce, and that such fluctuations in 

prices are an obstruction to and a burden upon interstate commerce in 

commodit[ies] and the products and byproducts thereof and render regulation 

imperative for the protection of such commerce and the national public interest 

therein. 

Futures trading serves a vital function in pricing agricultural commodities 

and, also, in enabling processors, warehousemen, and other handlers of 

agricultural commodities to hedge against disastrous price changes. 

Prices on the futures market record accurately the current balance of market 

opinion. Properly understood, they help the bargaining position of producers, 

small merchants, and small processors even more than would an open and 

competitive merchandising market that recorded only prices on spot transactions. 

* * * 

* * * Today, the fact that futures trading provides central market prices 

established in open competitive bargaining may deserve to be regarded as the 

chief merit of futures markets from the public standpoint. n4 

The vital relationship between futures prices and farm prices, between futures 

trading and farm marketing, was recognized by the Congress more than 30 years 

ago. n5 

Futures market quotations are widely disseminated as is all market 

information pertaining to growing conditions, crop size, storage stocks, rates 

of use, etc. The existence of futures markets increases the knowledge of 

producers about market conditions and thus puts them in a more equal bargaining 

position with purchasers. n6 

The trade in futures contracts is of sufficient magnitude to exercise at all 

times a directing influence upon spot prices in central as well as local 

markets. This price-directing function of futures trading is regarded by many 

as the principal function of organized commodity exchanges. n7 

Because of the importance of proper price levels to growers, dealers, 

processors, and consumers, this function is placed first in spite of the popular 

notion that hedging is the main reason for the existence of futures markets. n8 

n4. Working, "Economic Functions of Futures Markets," in Futures Trading 

in Livestock (1970), p. 47. See, also, Working, "Price Effects of Futures 

Trading," in Food Research Institute Studies (1960), pp. 5-6; Black, 

"Historical Evaluation, Theory and Legal Status," in Futures Trading 

Seminar (1960), Vol. I, p. 47; Teweles, Harlow, and Stone, The Commodity 

Futures Trading Guide (1969), pp. 4, 168; Larson, "Price Predictions on the 

Egg Futures Market," in Food Research Institutes Studies (Supp. to Vol. VII 

(1967)), pp. 50-51. 

n5. Mehl, "The Futures Markets," in Marketing, The Yearbook of 

Agriculture, 1954, p. 324. 

n6. Hieronymus, "Effects of Futures Trading on Prices," in Futures 

Trading Seminar (1960), Vol. I, p. 132. 

n7. United States Department of Agriculture, Trading in Commodity 

Futures, Commodity Exchange Admin. Bulletin No. 14, Washington, D. C. 

(1938), p. 2. 
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n8. Irwin, "Legal Status of Trading in Futures," Ill. Law Rev., Vol. 

XXXII, No. 2 (1937), p. 157. 

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

The speculative activity provides a means of reducing price risks by persons 

handling the actual commodity and thus makes possible higher prices to producers 

and lower prices to consumers. The markets also provide a place for the 

focusing of the worldwide factors of supply and demand with the result that, in 

the absence of artificial or manipulative forces, proper competitive prices are 

established. n9 

n9. H. Rep. No. 743, 90th Cong., 1st Sess., p. 2. 

It is the purpose of the Commodity Exchange Act to prevent manipulations of 

prices and other unfair practices which, if not prevented, could completely 

destroy the usefulness of futures trading. See In re David G. Henner, 30 

Agriculture Decisions 1151, 1241-1249, 1263 (1971). Futures trading is 

valueless as a price indicator if the futures price is a manipulated price. 

No matter how efficient the mechanism is itself in finding prices and 

discovering prices, the price signal is of vaule in decision making only if 

prices are based on all possible information, and only if no technical condition 

or friction develops that would distort the signal. n10 

It is equally important that a futures market should be free of manipulation 

or arbitrary influences if it is to serve as a barometer or indicator of the 

prevailing world prices of a commodity. n11 

n10. Ehrich, "The Role of Market Prices," in Futures Trading in 

Livestock (1970), pp. 83-84. 

n11. United States Department of Agriculture, Trading in Commodity 

Futures, Commodity Exchange Admin. Bulletin No. 14, Washington, D.C. 

(1938), p. 29. 

Similarly, futures trading is valueless as a hedging medium if the futures 

price is a manipulated price. n12 

Futures prices are widely disseminated and utilized in the marketing and 

distribution of agricultural commodities. It is essential that futures prices be 

based on fair and competitive trading, undisturbed by arbitrary or manipulative 

practices on the part of any person or group in the market. A manipulated 

futures market operates to the disadvantage of all legitimate market users. 

Distorted price relationships make effective hedging impossible. Erratic price 

movements, downward or upward, usually work against the interests of both 

producers and consumers. n13 

If hedgers find that they are frequently forced to buy back their short 

contracts at a price far above true supply and demand as dictated by a 

sufficiently powerful holder of long contracts, the market will lose its 

usefulness as a hedging medium. n14 

n12. See Kauffman, Recent Developments in Futures Trading Under the 

Commodity Exchange Act, U.S.D.A. Agriculture Information Bulletin No. 155 

(1956), p. 7; Report [to the Secretary] of the Chief of the Commodity 

Exchange Administration (1938), p. 14; Testimony of Artheur R. Marsh, 

former President of the New York Cotton Exchange, in Cotton Prices, 

Hearings before a Subcommittee of the committee on Agriculture and Forestry

(1928), United States Senate, 70th Cong., 1st Sess., pursuant to S. Res.

142, pp. 208-211; Smith Organised Produce Markets (1922), p. 114, fn. 2. 

n13. Kauffman,Recent Developments in Futures Trading Under the Commodity 

Exchange Act, U.S.D.A. Agriculture Information Bulletin No. 155 (1956), p. 

7. 
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n14. Investigation of the October 1949 Egg Futures Contracts on the 

Chicago Mercantile, Exchange, U. S. Department of Agriculture, Commodity 

Exchange Authority (May 1950), p. 27. 

The "[m]anipulations of * * * futures for speculative profit * * * exert a 

vicious influence and produce abnormal and disturbing 

temporary fluctuations of prices that are not responsive to actual supply and 

demand and discourage not only * * * justifiable hedging but distrub the normal 

flow of actual consignments." Chicage Board of Trade v. Olsen, 262 U.S. 1, 39. 

The major purpose of the Commodity Exchange Act is "to remove burdens on 

interstate commerce caused by manipulation and market control." Board of Trade 

of Kansas City v. Milligan, 90 F.2d 855, 857 (C.A. 8), certiorari denied, 302 

U.S. 710. The House Report on the bill enacted as the Commodity Exchange Act 

states that the purpose of the Act "is to insure fair practice and honest 

dealing on the commodity exchanges and to provide a measure of control over 

those forms of speculative activity which too often demoralize the markets to 

the injury of producers and consumers and the exchanges themselves." H. Rep. No. 

421, 74th Cong., 1st Sess., p. 1. See, also, 62 Cong. Rec. 9414; 79 Cong. Rec. 

8589-8590; 80 Cong. Rec. 6164, 8017. Senator Pope, who was in charge of the bill 

which became the Commodity Exchange Act, stated (80 Cong. Rec. 6164): 

There is a widespread public interest attached to the business of future 

trading. The very nature of the business is such as to make it fraught with 

temptation for those who are disposed to take unfair advantage. In no other 

business is there found the same combination of circumstances and profit 

possibilities to tempt the unscrupulous. 

It is the purpose of this bill to reduce to a minimum the possibility of 

unscrupulous trading and to permit the benefits of such trading to be obtained 

by those entitled to them. 

There can be no defense for such fraudulent practices as have been pointed 

out in transactions in these grain exchanges. The present law does not reach 

them. These markets are extremely sensitive. A false or misleading statement 

or fictitious trading may in a few minutes turn thousands of dollars into the 

pocket of some unscrupulous trader, as illustrated by the example I gave a few 

moments ago. At the same time it may cause millions of dollars in loss to 

farmers and others affected by a fictitious price movement. Large speculators 

may temporarily upset the whole price structure. 

* * * 

At best, with all the safeguards possible to be thrown around transactions in 

futures, these market exchanges possess possibilities of manipulation to the 

advantage of the shrewd and 

 

unscrupulous trader with corresponding loss to the thousands of producers who 

are innocent victims. 

If it be true that there are advantages in commodity exchanges, that the 

price to the farmer is stabilized by bona fide hedging transactions, and other 

proper forms of trading, it certainly cannot be contended that fraudulent, 

fictitious, and cheating practices are justified from any standpoint. The 

farmer has enough difficulties, enough discriminations against him, enough 

suffering as the result of natural obstacles to his industry, without subjecting 

him to manipulations of his commodity markets by unscrupulous and cheating 

operators on the grain exchanges in this country. 

In short, the Congress recognized that futures trading is so essential to the 

agricultural marketing system that price manipulation and other unfair and 

dishonest practices on the commodity markets must be stopped. 
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III 

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

qualities of a criminal proceeding. In permitting the respondent to trade on 

the commodity markets, 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 & Exchange 

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 Farmer's Live Stock 

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 respondent 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 & Fisher 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 -- 

either to the subject offender 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. All futures commission 

merchants are on the complainant's mailing list to receive copies of all 

Decisions and Orders issued under the Act. 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 

 
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a particular case not only on the violator, but on other potential violators, as 

well. 

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 * * * is used not to prevent future violations on the part 

of the criminal alone, but in order to instill lawful behavior in others. n15 

sanctions are * * * also * * * intended to deter others from the performance 

of similar acts * * *. n16 

* * * 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. n17 

* * * 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. n18 

* * * 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 * * * when they define crimes and stipulate punishments. n19 

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

ordinances, building codes * * * 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. n20 

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: * * * to 

discourage the offender himself from repeating his transgression; and * * * to 

deter others from doing likewise. n21 

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

impose a sentence which will best protect society, deter others * * *. n22 

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. n23 

* * * 

Penalties are not provided as a 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 a continuance in crime, and in 

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

object 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. n24 

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

[of the courtroom] * * *. n25 

Punishment can protect society by deterring potential offenders * * *. n26 

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 

* * * and to the entire community. n27 
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n15. Andenaes, "The General Preventive Effect of Punishment." 114 

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

n16. Schwartz & Skolnick, "Two Studies of Legal Stigma," 10 Soc. 

Problems (1962), 133, 138. 

n17. Gardiner, "The Purposes of Punishment," 21 Mod. L. Rev. (1958), 

117, 121. 

n18. Gould and Namenwirth, "Contrary Objectives: Crime Control and the 

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

(1971), 245, 246. 

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

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

n20. Andenaes, "General Prevention -- Illusion or Reality?," 43 Journal 

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

n21. Collins v. Brown, 268 F. Supp. 198, 201 (D.C.D.C.). 

n22. U. S. v. Mandracchia, 247 F. Supp. 1, 4 (D.N.H.). 

n23. Tappan, Crime, Justice and Correction (1960), p. 243. 

n24. Id., at p. 243, fn. 5, quoting from Peaple v. Gowasky, 219 App. 

Div. 19, 219 N.Y.S. 378, 380, affirmed, 244 N.Y. 451, 155 N.E. 737. 

n25. Williams, Salmond on Jurisprudence (12th ed., 1966), § 15, p. 94. 

n26. Id., § 15, p. 94. 

n27. Puttkammer, Administration of Criminal Law (1953), 8. 

Perhaps the most salient authority for the proposition that the primary end 

of punishment is to serve as a deterrent to the general 

 

public is Chief Justice William Howard Taft's statement written in 1928: 

* * * the chief purpose of the prosecution of crime is to * * * deter others 

tmpted to do the same thing from doing it because of the penal consequences. n28 

n28. Menninger, The Crime of Punishment (1968), 190, 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 person from future offenses." n29 

n29. Andenaes, "The General Preventive Effects of Punishment," 144 

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

Whether punishment achieves the objective of deterring others from violating 

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

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 
Page 11 

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. 

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. n30 

n30. Tappan, Crime, Justice and Correction (1960), p. 245. 

 

[Next paragraph continues from same source.] 

* * * 

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. n31 

* * * [as to studies indicating 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 an expansive conclusion is obviously not justified since murder 

is * * * a unique kind of offense often involving very strong emotions. n32 

* * * 

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. n33 

n31. Tappan, Crime, Justice and Correction (1960), p. 246. 

n32. Chambliss, "The Deterrent Influence of Punishment," 12 Crime & 

Delinquency (1966), 70 71. 

n33. Id., at p. 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. 

n34 

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 the punishment is 

ineffective in deterring all types of offenses. n35 
Page 12 

n34. Chambliss, "Types of Deviance and hte Effectivess of Legal 

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

n35. 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 violations 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." n36 "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.'" n37 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" (supra, p. 16). 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. 

n36. Tappan, Crime, Justice and Correction (1960), p. 241. 

n37. Id., at 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. 

* * * 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 * * * act * * *. n38 

* * * 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 

* * * [illegal] means. n39 

* * * the risk of a high penalty provides more incentive to avoid crime than 

the risk of a low penalty. n40 

* * * 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. n41 

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. n42 

Generally speaking * * * deviance decreases as the sanctions become stronger. 

n43 

* * * perhaps the main justification for imposing severe penalties on those 

who violate the law is that such punishments serve as a specific deterrent to 

future violations by the offender and as a general deterrent to violations by 

others who might be tempted to follow his lead. n44 
Page 13 

As long as every one believes in their deterrent effects, severe sanctions 

represent a powerful tool for authorities in meeting their responsibilities, and 

a sign to the broader community that they are taking those responsibilities 

seriously. n45 

n38. Zimring, Perspectives on Deterrence, National Institute of Mental 

Health -- Center for Studies of Crime and Delinquency, Washington, D. C. 

(1971), 83-84. 

n39. Id., at p. 84. 

n40. Id., at p. 85. 

n41. Zimring, Prespectives on Deterrence, National Institute of Mental 

Health -- Center for Studies of Crime and Delinquency, Washington, D. C. 

(1971), at p. 89. 

n42. Puttkammer, Administration of Criminal Law (1953), 16-17. 

n43. Salem and Bowers, "Severity of Formal Sanctions as a Deterrent to 

Deviant Behavior," 5 Law and Society Review (1970), 21, 25. 

n44. Id., at p. 21. 

n45. Id., at 21, 37. 

 

Dr. Zimring, a noted authority, capsulizes this concept in his statement 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 

non-criminal behavior by threatening all types of serious crime with penalties 

which are as severe as possible." n46 

n46. Zimring, Perspectives on Deterrence, National Institute of Mental 

Health -- Center for Studies of Crime and Delinquency, Washington, D.C. 

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, is adamant 

in his contention that the "simplest way to make people more law-abiding, 

therefore, is to increase the punishment." n47 Mr. Andenaes is a firm believer 

in 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." n48 "(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 * * * disregard of quality standards, and so 

on." n49 

n47. Andenaes, "General Prevention -- Illusion or Reality?," 43 Journal 

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

n48. Id., at pp. 178-179. 

n49. Id., at p. 84. 

The applicability of severe sanctions to economic violation is succinctly 

treated by Andenaes: 

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 
Page 14 

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

consideration of the advantages to breaking the law. n50 

n50. Andenaes, "General Prevention -- Illusion or Reality?," 43 Journal 

of Criminal Law, Criminology and Police Science (1952), at p. 185. 

"If we think first of the purely deterrent value of * * * punishment * * * it 

is clear that deterrence depends not simply on the 

 

risk of being punished, but also on the nature and magnitude of punishment." n51 

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." n52 

n51. Id., at p. 191. 

n52. Id., at p. 192. 

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

violations, in order to achieve the Congressional purpose, were set forth in In 

re Sy B. Gaiber & Co., in a Ruling on Petition for Reconsideration, as follows 

(31 Agriculture Decisions 843, 851-852 (1972)): n53 

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 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. 

n53. See, also, In re Arthur N. Economou, 32 Agriculture Decisions 

(1973), CEA Docket 167, appeal pending. 

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. 

Moreover, Congress expressly recognized the need for severe sanctions to 

effectuate the remedial purposes of the Act. The House Report on the 1968 

amendments to the Act states that it "is the view of the committee that serious 

violations, such as manipulation, dissemination of false information, 
Page 15 

embezzlement, and the like should be subject to severe penalties" (H. Rep. No. 

743, 90th Cong., 1st Sess., p. 5). 

IV 

In determining what sanction is appropriate to achieve the purposes of the 

Act by serving as an effective deterrent to the respondent and to other 

potential violators, it is important to recognize that the impact of an order 

suspending a person's trading privileges on futures markets for a specified 

period depends upon his circumstances. 

An order suspending a large commission firm's trading privileges for ten days 

might be much more severe to the firm than an order suspending the trading 

privileges of another firm, which merely used futures trading for an occasional 

speculation, for ten years. 

Many persons and firms derive their sole income from futures trading, such 

as, floor brokers, futures commission merchants, and professional speculators. 

Other firms engaged in handling or processing agricultural commodities could not 

remain in business for an extended period of time without hedging on the futures 

markets. 

Many persons speculate in futures contracts merely as a form of "gambling," 

hoping to augment their income earned in some other manner. A very lengthy 

suspension of trading privileges imposed on such a person is little more than a 

"slap on the wrist" inasmuch as (1) the futures markets are merely used by him 

for "gambling" and are not necessary to his income; (2) mathematically, an order 

denying a speculator the right to gamble on an exchange will save him from 

losing money just as often as it will prevent him from earning money; and (3) 

there are many alternative speculative activities available to the person. This 

is sufficiently important to warrant elaboration as to each point. 

First, the intention of a futures trading speculator is no different from the 

intention of a gambler -- to make a profit by betting 

 

correctly as to a future event. There is, of course, a difference between 

speculating in futures and gambling in that speculators on futures exchanges 

perform a useful function and are essential to provide sufficient trading volume 

to assume the hedging risks. n54 For example, a grain merchant who owns grain 

and does not plan to sell it for some time might wish to hedge himself against a 

price decline by selling grain on the futures market. A grain processor who has 

entered into a fixed price contract to sell grain products at a future date and 

who does not have the grain on hand might wish to hedge himself against the risk 

of an increase in the price of grain by purchasing grain on the futures market. 

Since the buying hedges do not coincide exactly with the selling hedges as to 

timing and quantity, speculators perform a necessary function in providing 

sufficient trading volume to assume the hedging risks. "Speculation supplies 

needed risk capital, increases the volume of trade to allow easy market entry 

and regress, and keeps the various markets in alignment through inter-market 

trading operations." Cargill v. Hardin, 452 F.2d 1154, 1158 (C.A. 8), certiorari 

denied, 406 U.S. 932. 

n54. See Campbell, "Trading in Futures Under the Commodity Exchange 

Act." 26 George Washington Law Review (1958), pp. 219-220; Baer and Saxon, 

Commodity Exchanges and Futures Trading (1949), pp. 53-54, 73; Clark and 

Clark, Principles of Marketing (3d ed. 1942), pp. 533-534; VII Report of 

the Federal Trade Commission on the Grain Trade (1926), pp. 13-15; Hearings 

Before the Subcommittee on Domestic Marketing of the Committee on 

Agriculture, House of Representatives, 85th Cong., 1st Sess., on H.R. 376, 

H.R. 1933, H.R. 1935, H.R. 3418, H.R. 5236, and H.R. 5732 (1957), p. 10; H. 

Rep. No. 743, 90th Cong., 1st Sess., p. 2. 

In considering whether speculation on futures markets should be considered as 

illegal gambling, it is appropriate to recognize that a "gamble involves the 
Page 16 

deliberate creation of a risk in the hope of correctly forecasting the outcome 

of a game or other event to win a wager with an opponent" whereas a 

"speculation, on the contrary, is the assumption of a risk existing in the 

nature of an enterprise" and the "only way to reduce the hazards of such a risk 

is to pass it on to someone else who may specialize in such risk-taking -- or 

speculation." n55 But the distinction between speculation and gambling "doesn't 

depend on the intention of the participant 

 

so much as it does on the classification of risk involved in each" (emphasis in 

original, Belveal, Commodity Speculation with Profits in Mind (1967), p. 1). 

The intention of the futures speculator is the same as the intention of the 

gambler -- to make a quick, large profit from a relatively small investment. 

n55. Commodity Trading Manual, Board of Trade of the City of Chicago

(1966), p. 41. See, also, Baer and Saxon, Commodity Exchange and Futures 

Trading (1949), pp. 58-63; Hubbard, Cotton and the Cotton Market (1928), 

pp. 431-432; Baer and Woodruff, Commodity Exchanges (1929), pp. 124-127; 

Hoffman, Future Trading Upon Organized Commodity Markets in the United 

States (1932), pp. 115-117. Speculation on futures markets is frequently 

distinguished from gambling on the ground that futures speculators intend 

to make or take delivery of the commodity involved, but that distinction is 

not sound. See In re David G. Henner, 30 Agriculture Decisions 1151, 1270-

1280. The "most Common characteristic of these [futures] contracts is that 

not one in a hundred is ever consummated by receipt or delivery of the 

actual physical product" (113 Cong. Rec. 34405). 

The initial margin required for futures trading is about 5 to 10 percent of 

the value of the contract. "There are few other financial situations in which a 

dollar can enjoy such leverage." Belveal, Commodity Speculation with Profits in 

Mind (1967), p. 49. The "objective of professional speculation is that of 

seeking profit. There is -- there can be -- no other economic justification for 

voluntary speculation." Id. at p. 7. See, also, Hoffman, Future Trading Upon 

Organized Commodity Markets in the United States (1932), pp. 115-116. 

Notwithstanding the benefits of speculation, it would be sophistry to 

attribute to speculators altruistic motives. In considering the sanction to be 

imposed against a speculator who has another occupation and who is just trading 

in futures for additional profit, the length of the sanction can be placed in 

better perspective if we ask the question: "How long should he be prohibited 

from gambling on the exchanges because of his violation?" 

The second factor to be considered is that, mathematically, there is as much 

chance of losing on a speculative trade as there is of winning. There is an 

important distinction between a commodity market and a stock market. In the 

case of a stock market, when prices are rising all persons involved can make 

money (except for the few short sellers). But in the case of a commodity 

market, since "markets do not manufacture money, but merely transfer money (or 

values) from the pockets of the losers to the pockets of the winners, it should 

be abundantly clear that for every market profit, there must be a market loss"

(Belveal, Charting Commodity Market Price Behavior (1969), p. 37). Therefore, 

when commissions are considered, mathematically, there is less than a 50 percent 

chance of winning on any speculation. 

Most traders believe that their chances are better than 50 percent because 

they feel that they have peculiar knowledge as to future supply and demand 

conditions with respect to the commodities in which they are trading. Needless 

to say, however, there are undoubtedly just as many experts with peculiar 

knowledge 

 

who are on the other side of the market from them. n56 As stated in one futures 

trading text -- 
Page 17 

If speculators could buy and sell futures contracts in the exclusive frame of 

reference of changing supply/demand balances, the fundamentalists who understand 

price elasticity theory and projective techniques would "own the market" in 

short order. But it doesn't work this way. The market may not be human, but 

its users are -- and they render human judgments. Knowledge, ignorance, fear, 

sagacity, charity and greed are all part of the complex equation that is spelled 

out in the form of "market price." n57 

n56. Belveal, Charting Commodity Market Price Behavior (1969), pp. 125-

201. 

n57. Id., at p. 234. See, also, Hoffman, Future Trading Upon Organized 

Commodity Markets in the United States (1932), p. 259; Converse and Huegy, 

Elements of Marketing (3d rev. ed. 1946), p. 250. 

Hence from a mathematical viewpoint, there is as much chance of saving a 

speculator money by suspending his trading privileges as there is of costing him 

money. A recent futures trading text begins by saying that "Little space has 

been devoted in these pages to the huge winnings and equally monumental losses 

of the 'big time operators.'" Belveal, Commodity Speculation with Profits in 

Mind (1967), pp. ix-x. 

The third factor to be considered is that there are many alternatives for 

speculation available to a respondent whose trading privileges have been 

suspended. For example, he can speculate in nonregulated commodities on the 

futures exchanges; he can speculate on the stock market; or he can speculate in 

numerous other ways. 

Considering the very limited impact of an order denying trading privileges to 

a speculator who is merely "gambling" on the futures markets, if such a person 

violates the Act in a manner serious enough to warrant a formal action (see 

supra, p. 29), seldom if ever should the suspension of trading privileges be 

measured in months rather than in years. There is no substantial deterrent 

effect to such persons (and to other potential violators similarly situated) 

from a suspension order that is not measured in years. 

If a person who uses the futures markets solely for "gambling" deliberately 

manipulates the market price or participates in a manipulative conspiracy, his 

trading privileges should ordinarily be suspended for a sufficient number of 

years to insure that he will never again be able to trade on the regulated 

exchanges. n58 

The futures markets are too valuable to the agricultural marketing system to 

be subjected to manipulation by gamblers whose unlawful action could be 

disastrous to producers, handlers, processors and consumers of agricultural 

commodities. 

n58. Cf. Wright c. Securities and Exchange Commission, 112 F.2d 89, 95 

(C.A. 2). 

The view that a longer suspension order should be imposed for the same 

violation against a speculator who merely uses the futures markets for gambling 

than on a similar violator who uses the futures markets in his business cannot 

be construed by those who understand futures trading as indicating a bias 

against speculators. I recognize the necessary function performed by 

speculators who are merely gambling on the exchanges (see supra, pp. 31-32). As 

I stated 15 years ago (Campbell, "Trading in Futures Under the Commodity 

Exchange Act," 26 George Washington Law Review (1958) 215, 219-220): 

Speculation in commodity futures has, at times, been invectively attacked, 

but without speculators there would not be sufficient traders to assume the 

hedging risks. Mr. Rodger R. Kauffman, Administrator, Commodity Exchange 

Authority, testified at a recent congressional hearing that "speculation, as 

you, of course, well know, is essential to the operation of a futures market. A 
Page 18 

commodity futures market without speculation would be a thing of death; it would 

not amount to anything. It would serve no economic utility. So there must be 

speculation, of course." (footnotes omitted). 

Although the futures markets need speculators, they do not need the few who 

refuse to comply with the law. There is no shortage of speculators willing to 

assume the hedging risks. For example, 108 futures commission merchants 

reported to the Commodity Exchange Administration that in February 1972 they had 

58,194 active customers and 48,322 inactive customers. n59 This was just a 

partial sample (about 25 firms failed to report) at one contract market. Hence 

there are ample law abiding speculators to perform the necessary speculative 

function on the exchanges. 

n59. A Report on the Rules and Practices of the Chicago Board of Trade 

Concerning Minimum Rates of Commission and Brokerage Fees Prepared for The 

United States District Court, Northern District of Illinois, Eastern 

Division, by Administrator, Commodity Exchange Authority, U.S.D.A., 

Washington, D. C., July 1972, Table IV-2, p. 110. 

In short, considering all of the circumstances, a lengthy suspension order 

should ordinarily be imposed on violators who use the futures markets solely for 

"gambling," in order to serve as an 

 

effective deterrent to violations by such speculators and by other potential 

violators similarly situated. 

Similarly, severe sanctions should be imposed on manipulators or other 

serious violators who are engaged full time in futures trading or who need 

futures trading for hedging in their business activities. If such persons 

engage in serious violations which could be extremely disruptive, or disastrous, 

to the futures markets, seriously injuring or theatening injury to producers, 

handlers, processors and consumers of agricultural commodities, they cannot 

legitimately complain about a sanction that could be extremely disruptive, or 

disastrous, to their own business activities. 

However, it must be recognized that the severity of the sanction must be 

measured by its impact on the particular, respondent rather than by the number 

of months or years of the suspension order. A suspension order should be 

sufficiently long to serve as an effective deterrent to the respondent and to 

other potential violators, considering the impact of the suspension order on the 

particular respondent. 

V 

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. n60 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 than a milder sanction for a lesser violation, and thus will 

tend to effectuate the major objectives of the regulatory program. 

n60. Kent v. Hardin, 425 F. 2d 1346, 1349-1350 (C.A. 5); G. H. Miller & 

Co. v. United States, 260 F. 2d 286, 295-297 (C.A. 7, en banc), certiorari 
Page 19 

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 Purveyor's Inc., 30 Agriculture 

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

158, 177 (1972); In re Arthur N. Economou, 32 Agriculture Decisions -- 

(1973), CEA Docket 167, appeal pending. See, also, American Power Co. v. 

Securities and Exchange Commission, 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 Corp., 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); 

In re Arthur N. Economou, 32 Agriculture Decisions -- (1973), CEA Docket 167, 

appeal pending. 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. 

However, in order to aid the Administrative Law Judges and the Judicial 

Officer in determining whether to follow the administrative recommendation as to 

the sanction, the administrative officials should, in addition to proving that a 

violation occurred, develop a hearing record that supports their recommendation 

as to the sanction. See In re Sy B. Gaiber & Co., Ruling on Reconsideration, 31 

Agriculture Decisions 843, 847-850 (1972). After such a record is developed in 

one case and a determination made as to the appropriate sanction for such a 

violation, similar evidence relating to the sanction need not be developed in 

subsequent cases, except to show changed circumstances. n61 

n61. The complainant or the respondent may, of course, introduce 

evidence in any case bearing on the appropriate sanction to be issued. 

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 Purveyor's, 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. 

n62 From the beginning, the Judicial Officer has recognized 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 Purveyor's, Inc., 30 Agriculture Decisions 1542, 1595-1596 (1971); In re 
Page 20 

Louis Romoff, 31 Agriculture Decisions 158, 177 (1972); In re Arthur N. 

Economou, 32 Agriculture Decisions -- (1973), CEA Docket 167, appeal pending. 

n63 

n62. Comparability depends upon many circumstances, such as the nature 

of the violation, the nature of the respondent's business, the respondent's 

prior record as to violations, prior warning given to the respondent, the 

deliberateness of the violation, etc. 

n63. Accordingly, counsel should, in all cases, in their briefs and 

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

considered by the Judical Officer in determining the appropriate sanction 

to be imposed in the particular case. Failure to explain why a different 

order was imposed in a case than had previously been imposed in a somewhat 

similar case was held to be reversible error in Beacon Journal Publishing 

CO. v. N.L.R.B., 401 F.2d 366, 367-368 (C.A. 6); same case, 417 F.2d 1060, 

1061-1062 (C.A. 6). 

This uniformity 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 severe 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. Conversely, it may seem more severe than appears warranted because of 

aggravated circumstances not revealed by the complaint. 

In order to achieve this desired uniformity and also follow the views as to 

sanctions set forth herein, it will be necessary to take a new look at the 

sanction situation under the Commodity Exchange Act. In other words, sanctions 

previously imposed under 

 

the Act may not have been determined in accordance with these views and, 

therefore, sanctions previously imposed under the Commodity Exchange Act will no 

longer be regarded as relevant in determining the sanction to be imposed in any 

case decided hereafter. n64 

n64. In fact, the five-year suspension order in this case will not be 

regarded as relevant in future cases since, as explained below. I do not 

believe that this sancton is sufficiently severe. 

This change in policy, under which sanctions are to be determined under the 

criteria set forth herein without regard to sanctions previously imposed, will 

be applied to pending cases as well as to cases instituted hereafter. Since I 

believe that the policies set forth in this Decision will achieve the purposes 

of the Act by serving as an effective deterrent to future violations, it is not 

administratively desirable to delay this change in policy. 

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 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." 
Page 21 

Although the sanctions to be imposed for similar violations by comparable 

violators in future cases should be as uniform as practicable with each other 

(i.e., without regard to any sanctions issued prior to this decision), changed 

circumstances or new insight gained empirically from the day-to-day 

administration of the regulatory program may demonstrate the need for further 

changes in the level of sanctions to be imposed. In that event, the record 

should adequately explain the reasons for the desirability of a change in the 

sanction level. Any change determined to be desirable will be applied in that 

case rather than merely announcing 

 

that in future cases there will be a change in policy. As I stated in In re 

Arthur N. Economou, 32 Agriculture Decisions -- , fn. 120 (1973), CEA Docket 

167, appeal pending: 

Although it is my intention to impose sanctions as uniform as possible for 

similar violations unless there are adequate reasons for a change of policy (see 

In re American Fruit Purveyor's Inc., 30 Agriculture Decisions 1542, 1595-1596), 

a respondent has no inherent right to a sanction no more severe than that 

applied to others. See Hiller v. Securities and Exchange Commission, 429 F.2d 

856, 858-859 (C.A. 2); G. H. Miller & Co. v. United States, 260 F.2d 286, 296 

(C.A. 7), certiorari denied, 359 U.S. 907. Specifically, in "any case in which 

the Judicial Officer determines that the sanctions previously imposed for 

similar violations are not adequate under present circumstances to effectuate 

the purposes of the regulatory program, a more severe sanction will be imposed 

in that case, rather than merely announcing that in future cases the sanction 

will be increased. An administrative agency is free to reconsider sanctions 

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

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

routinely followed. Persons who intentionally violate a regulatory program are 

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

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

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

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

Sy B. Gaiber & Co., Ruling on Reconsideration, 31 Agriculture Decisions 843, 850 

(1972). 

The decision to change the sanction policy under the Commodity Exchange Act 

and to completely disregard all prior sanctions imposed under the Act in no way 

reflects adversely on the judgment of the prior Judicial Officer. In judicial 

or quasi-judicial decisions involving criminal punishment or administrative 

sanctions, the interests of the public must be balanced against the interests of 

the particular individual involved in the case. 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 intentional, I 

believe in severity rather than lenity to deter future violations by the 

respondent and others. 

VI 

In the present case, the respondent committed very serious violations of the 

Act. Without the knowledge or authorization of a customer, he took $ 14,000 

from the customer's stock account, transferred the money to the customer's 

commodity accounts, and lost the money in commodity futures trades. To further 

his course of conduct, he deceived the customer as to the true status of his 

account. 

Futures commission merchants handle billions of dollars each year belonging 

to customers. It is essential to the continued existence of futures trading 
Page 22 

that this money be handled in trust in accordance with the customers' 

directions. 

The respondent is not a registrant under the Act and, therefore, the notice 

provisions of the Administrative Procedure Act (5 U.S.C. 558 (c)) are not 

applicable to an order suspending his trading privileges. In re Arthur N. 

Economou, 32 Agriculture Decisions -- (1973), CEA Docket 167, appeal pending. 

In any event, the violations were wilful and, therefore, even if the respondent 

were licensed, his license could be suspended or revoked without prior notice (5 

U.S.C. 558(c)). 

Considering the serious nature of the respondent's violations, I believe that 

a suspension of trading privileges for more than five years is warranted. But 

since the administrative officials have recommended a five year suspension of 

trading privileges, the suspension order will not be in excess of that amount 

(see supra, p. 41). 

In addition to preventing the respondent from trading on regulated exchanges 

during the period of the suspension order, the regulations provide (17 CFR 

1.49(a)): 

(a) Denial of trading privileges: During the effective period of any order of 

the Secretary of Agriculture denying trading privileges on contract markets to 

any person for a violation of the Commodity Exchange Act or the regulations 

thereunder involving cheating or fraud or manipulation or attempted manipulation 

of the price of any commodity in interstate 

 

commerce or for future delivery on or subject to the rules of a contract market, 

no futures commission merchant or member of a contract market shall knowingly 

employ such person in any capacity which involves the solicitation, acceptance, 

or execution of orders for the purchase or sale of any commodity for future 

delivery on or subject to the rules of a contract market, the execution of which 

would be prohibited by such order of the Secretary of Agriculture if made for 

the account of such person. 

Under this regulation, the respondent would not be subject to employment by a 

futures commission merchant or member of a contract market during the suspension 

period "in any capacity which involves the solicitation, acceptance, or 

execution of orders" involving commodity transactions on or subject to the rules 

of a contract market. 

Although the sanction imposed in this case is more severe than that 

recommended by the Administrative Law Judge, an agency may impose a sanction 

substantially more severe than that recommended by the Administrative Law Judge 

if it determines that the recommended sanction is inadequate to protect the 

public interest. Gross v. Securities and Exchange Commission, 418 F.2d 103, 107 

(C.A. 2); Fink v. Securities and Exchange Commission, 417 F.2d 1058, 1059 (C.A. 

2). 

This decision in no way reflects adversely on the judgment of the 

Administrative Law Judge. He is required to follow the policy set forth by the 

Judicial Officer. Based upon the existing policy, his decision cannot be 

criticized. 

Similarly, this decision in no way reflects adversely on the judgment of the 

administrative officials in this case. Their recommendation for a five year 

suspension order was reduced to three years by the Administrative Law Judge, who 

cited numerous precedents for his decision. 

Finally, as stated above, this decision in no way reflects adversely on the 

judgment of the prior Judicial Officer. 

In addition to a suspension order, the respondent should, of course, be 

ordered to cease and desist from violating the Act in a similar manner in the 

future. 
Page 23 

ORDER

(a) The respondent, George Rex Andrews, shall cease and desist 

 

from: (1) placing or causing to be placed, in any customer's account, any 

commodity futures transaction without the prior knowledge and consent of such 

customer; (2) transferring funds from any customer's regulated commodity account 

to any other account without the knowledge or authorization of said customer; 

and (3) deceiving or attempting to deceive by any means, or wilfully making or 

causing to be made any false report or statement, or wilfully entering or 

causing to be entered any false record in connection with any order to make, or 

the making of any contract of sale of any commodity for future delivery in 

interstate commerce, made or to be made, on or subject to the rules of any 

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

(b) The respondent, George Rex Andrews, is prohibited from trading on or 

subject to the rules of any contract market for a period of five years, and all 

contract markets shall refuse all trading privileges to him during this period, 

such prohibition and refusal to apply to all trading done and all positions held 

by him, directly or indirectly. 

The cease and desist provisions of this order, set forth in paragraph (a) 

above, shall become effective upon the date of service of this order upon the 

respondent. The period of the denial of trading privileges to the respondent, 

specified in paragraph (b) above, shall become effective on the thirtieth day 

after the date of entry of this order. 

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

on each contract market. 

LOAD-DATE: June 9, 2008 
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