Opinion ID: 75906
Heading Depth: 2
Heading Rank: 1

Heading: CEA's Introducing Broker Registration Requirement

Text: 10 An Introducing Broker, as defined under the CEA, is: 11 any person (except an individual who elects to be and is registered as an associated person of a futures commission merchant) engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market who does not accept any money, securities, or property (or extend credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom. 12 7 U.S.C. § 1a(14) (emphasis added). 13 The CFTC claims that by soliciting and referring prospective investors to Introducing Brokers, Advertisers acted as unregistered Introducing Brokers in violation of the CEA. Advertisers, on the other hand, contend that the plain language of the statute does not cover general solicitation to the public through television advertisements, which neither invite nor accept the placement of an order. R4-133-11. 14 We follow the two-step framework of Chevron, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984), to analyze an agency's interpretation of a statute. The first step in the Chevron analysis requires the court to inquire whether Congress has directly spoken to the precise question at issue. 15 If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue ... the question for the court is whether the agency's answer is based on a permissible construction of the statute. 16 Id. at 842-43, 104 S.Ct. at 2781-82. 17 The district court found the phrase engaged in soliciting or in accepting orders to be ambiguous since the CEA does not define the term soliciting or explain its application. Next, the district court looked to the CFTC's interpretation of the phrase to determine whether it was based on a permissible construction of the CEA. The CFTC explains the phrase as covering customer `solicitation[ ] for compensated referral to other registrants so that a trading relationship can be initiated and the customer's orders executed.' R4-133-13. The CFTC relied on Wisconsin Dept. of Revenue v. William Wrigley, Jr. Co., 505 U.S. 214, 112 S.Ct. 2447, 120 L.Ed.2d 174 (1992), where the Court discussed activities that constitute solicitation of orders. 3 Based on Wrigley, the district court found that a key question in determining whether an activity constitutes `solicitation of orders' is whether the only objective for conducting the activity is to facilitate requests for purchases. If so, the activity is the solicitation of an order. R4-133-14-15. 18 The district court determined that the CFTC's interpretation of the phrase engaged in soliciting or in accepting orders was not a permissible construction of the CEA. It reasoned that Advertisers' primary goal was to obtain leads for Introducing Brokers, not orders for commodity futures. The court found that Advertisers' activities were better characterized as a customer finder rather than an Introducing Broker. Moreover, the CFTC's prior interpretation of the Introducing Broker requirement, which require[s] registration as Introducing Brokers those persons who were formerly agents of FCMs or who performed the types of activities traditionally engaged in by agents, cannot be reconciled with the CFTC's current interpretation. Id. at 17 (quotations omitted). Based on the CFTC's prior interpretation of the Introducing Broker requirement, Advertisers would not be required to register under the CEA. Furthermore, the district court noted that the CEA's legislative history does not reference advertisers or an intent by Congress to regulate as Introducing Brokers persons who neither invite nor accept the placement of an order. 4 19 The district court was correct in concluding that the CFTC's interpretation was impermissible. Advertisers were never involved in the making of an offer to enter into a commodity contract or assisting customers in carrying out such a transaction. Customers were asked to call a toll free number after viewing a commodities advertisement. An answering service operator would give the caller a description of the product or service being offered, and then obtain the caller's name, address and telephone number. These leads were then sold to Introducing Brokers. That Introducing Broker would then contact the prospective customer to discuss investing or placing an order for commodities. As the district court notes, the simple act of referral does not directly jeopardize the interests of the investing public. Id. at 20 (citation omitted). Therefore, Advertisers lack the means and incentive to create a scenario for potential misconduct during the solicitation process that triggered the Congressional enactment of the Introducing Broker registration requirement in 1982. Id. at 19-20.