JCC, Inc. v. Commodity Futures Trading Commission

United States Court of Appeals,

Eleventh Circuit.

No. 94-4561.

JCC, INC., Ellis K. Kahn, Paul Richard Bell, Petitioners,

v.

COMMODITY FUTURES TRADING COMMISSION, Respondent.

Sept. 15, 1995.

Petition for Review of an Order of the Commodity Futures Trading
Commission.

Before COX, Circuit Judge, RONEY and WOOD*, JR., Senior Circuit
Judges.

HARLINGTON WOOD, JR., Circuit Judge:

JCC, Inc. ("JCC"), Ellis K. Kahn, and Paul Richard Bell

petition this court to review the final opinion and order of the

Commodity Futures Trading Commission ("Commission" or "CFTC"). The

Commission upheld the sanctions imposed by the Administrative Law

Judge ("ALJ") for violations of the antifraud, record keeping, and

supervisory provisions of the Commodity Exchange Act ("Act"), and

for violations of certain regulations of the Commission. In

reaching this result, however, the Commission conducted a de novo

review of the factual record as it felt that deference to the ALJ's

factual findings would not be appropriate. The petitioners raise

several challenges to the Commission's opinion, including its

decision to review the factual record de novo, its finding that the

evidence supports Kahn's conviction as a "controlling person" under

the Act, and its decision to affirm the large monetary sanctions

*
Honorable Harlington Wood, Jr., Senior U.S. Circuit Judge
for the Seventh Circuit, sitting by designation.
imposed by the ALJ.

I. BACKGROUND

The factual background and procedural history of this case

have already been well-documented in the opinions of the ALJ and

the Commission. Accordingly, we need only summarize that

information here. In March 1989, the Commodity Futures Trading

Commission initiated an administrative enforcement proceeding by

issuing a complaint, pursuant to information it received from its

Division of Enforcement ("Division"), which charged that the JCC,1

EDCO Management Corporation ("EDCO"),2 Kahn,3 Bell, 4 and Edward

1
At all times relevant to this matter, JCC was a registered
futures commission merchant as required by 7 U.S.C. §§ 6d and 6f.
The term "futures commission merchant" is defined in the
Commission's regulations to mean:

(1) Individuals, associations, partnerships,
corporations, and trusts 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 and that, in or in
connection with such solicitation or acceptance of
orders, accepts any money, securities, or property (or
extends credit in lieu thereof) to margin, guarantee or
secure any trades or contracts that result or may
result therefrom; and

(2) Shall include any person required to register
as a futures commission merchant under the Act by
virtue of part 32 or part 33 of this chapter.

17 C.F.R. § 1.3(p).
2
EDCO initially acted as a branch office of JCC. EDCO was
later registered as an introducing broker which was guaranteed by
JCC. The Commission's regulations define the term "introducing
broker" to mean:

(1) Any person who, for compensation or profit,
whether direct or indirect, is engaged in soliciting or
in accepting orders (other than in a clerical capacity)
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; and

(2) Includes any person required to register as an
introducing broker by virtue of part 33 of this
chapter: Provided, That the term "introducing broker"
shall not include:

(i) Any futures commission merchant, floor broker,
or associated person, acting in its capacity as such,
regardless of whether that futures commission merchant,
floor broker, or associated person is registered or
exempt from registration in such capacity;

(ii) Any commodity trading advisor, which, acting
in its capacity as a commodity trading advisor, is not
compensated on a per-trade basis or which solely
manages discretionary accounts pursuant to a power of
attorney, regardless of whether that commodity trading
advisor is registered or exempt from registration in
such capacity; and

(iii) Any commodity pool operator which, acting in
its capacity as a commodity pool operator, solely
operates commodity pools, regardless of whether that
commodity pool operator is registered or exempt from
registration in such capacity.

17 C.F.R. § 1.3(mm).
3
Kahn was the president and a principal of JCC. Kahn was
also registered as a floor broker and as an associated person
("AP") of JCC as required by 7 U.S.C. §§ 6e and 6k. The term
"floor broker" is defined in the Commission's regulations to
mean:

any person who, in or surrounding any pit, ring, post
or other place provided by a contract market for the
meeting of persons similarly engaged, shall purchase or
sell for any other person any commodity for future
delivery on or subject to the rules of any contract
market and shall include any person required to
register as a floor broker under the Act by virtue of
part 33 of this chapter.

17 C.F.R. § 1.3(n). The Commission's regulations define, in
pertinent part, the term "associated person" to mean:

any natural person who is associated in any of the
following capacities with:
Lerner5 had violated certain provisions of the Commodity Exchange

Act, 7 U.S.C. § 1, et seq.,6 and the Commission's regulations.

The conduct questioned in the Commission's complaint centers

around the solicitation activities of the employees of JCC and EDCO

in connection with a managed commodity futures trading program
7
which was coined the "Futures Long Term Account" ("FLT"). The

employees of JCC and EDCO enlisted participants in the FLT program

through telephone solicitations. These solicitations were based on

scripts written by Kahn, with assistance provided by Bell and

(1) A futures commission merchant as a partner,
officer, or employee (or any natural person occupying a
similar status or performing similar functions), in any
capacity which involves (i) the solicitation or
acceptance of customers' or options customers' orders
(other than in a clerical capacity) or (ii) the
supervision of any person or persons so engaged;

(2) An introducing broker as partner, officer,
employee, or agent (or any natural person occupying a
similar status or performing similar functions), in any
capacity which involves (i) the solicitation or
acceptance of customers' or option customers' orders
(other than in a clerical capacity) or (ii) the
supervision of any person or persons so engaged....

17 C.F.R. § 1.3(aa)(1)-(2).
4
Bell was a vice-president and a principal of JCC. Bell was
also registered as an AP of JCC.
5
Lerner was the president and a principal of EDCO. Lerner
was also registered as an AP of EDCO. Prior to his involvement
with EDCO, Lerner had been an AP and branch manager of JCC.
6
The Act was amended, subsequent to the ALJ's initial
decision, by the Futures Trading Practices Act of 1992 ("FTPA").
The FTPA renumbered certain provisions of the Act. When
referring to provisions of the Act, this opinion will utilize
their post-FTPA designations.
7
JCC operated the FLT program from July 1984 through the
summer of 1988. EDCO operated it from February 1986 until late
1987.
others.

Under the FLT program, FLT units were generally offered to the

public for $6000. Of this amount, $2500 was kept by JCC as a

nonrefundable, nonamortized fee. This fee entitled program

participants to the benefit of JCC's management services for one

year regarding the remaining $3500 which JCC used to margin the

purchase and sale of futures contracts. The customers chose which

market they wished their money to be invested in and were led to

expect frequent trading in their designated market. At the end of
the one-year period, JCC ceased trading the customer's account

unless the customer paid a renewal fee.

In Count I of the underlying complaint, the Commission charged

that JCC, EDCO, Kahn, Bell, and Lerner had violated § 4b(A) of the

Act, 7 U.S.C. § 6b(a),8 by fraudulently soliciting customers to

8
Section 4b(A) provides:

It shall be unlawful (1) 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 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, or (2)
for any person, in or in connection with any order to
make, or the making of, any contract of sale of any
commodity for future delivery, made, or to be made, for
or on behalf of any other person if such contract for
future delivery is or may be used for (A) hedging any
transaction in interstate commerce in such commodity or
the products or by-products thereof, or (B) determining
the price basis of any transaction in interstate
commerce in such commodity, or (C) delivering any such
commodity sold, shipped, or received in interstate
commerce for the fulfillment thereof—

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

(ii) willfully to make or cause to be made to such
participate in the FLT program. This count primarily addressed

alleged misrepresentations concerning the likelihood of profit and

the possibility of loss. Among other allegations, the associated

persons ("AP's") of JCC and EDCO were also charged with misstating

their role in the trading of FLT accounts and with understating the

import and applicability of the Risk Disclosure Statement that they

were required to provide to prospective customers pursuant to §

1.55 of the Commission's regulations, 17 C.F.R. § 1.55. 9 The

complaint alleged that JCC and EDCO were liable both as primary

other person any false report or statement thereof, or
willfully to enter or cause to be entered for such
person any false record thereof;

(iii) 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....
9
Section 1.55 provides:

(a)(1) Except as provided in § 1.65, no futures
commission merchant, or in the case of an introduced
account no introducing broker, may open a commodity
futures account for a customer unless the futures
commission merchant or introducing broker first:

(i) Furnishes the customer with a separate written
disclosure statement containing only the language set
forth in paragraph (b) of this section (except for
nonsubstantive additions such as captions) or as
otherwise approved under paragraph (c) of this section;
Provided, however, that the disclosure statement may be
attached to other documents as the cover page or the
first page of such documents and as the only material
on such page; and

(ii) Receives from the customer an acknowledgement
signed and dated by the customer that he received and
understood the disclosure statement.

See subsection (b) for the required language of the risk
disclosure statement.
violators and as principals for the acts of their agents under §

2(a)(1)(A) of the Act, 7 U.S.C. § 4,10 and § 1.2 of the Commission's
regulations, 17 C.F.R. § 1.2. As EDCO was acting as an agent and

guaranteed introducing broker for JCC at all relevant times, the

complaint also alleged that JCC was liable as a principal for the

acts of EDCO under § 2(a)(1)(A) of the Act and § 1.2 of the

Commission's regulations. The complaint alleged that Kahn, Bell,

and Lerner were liable as aiders and abetters and as controlling

persons under §§ 13(a) and 13(b) of the Act, 7 U.S.C. §§ 13c(a) and

13c(b).11

10
Section 2(a)(1)(A) states:

For the purposes of this chapter the act,
omission, or failure any official, agent, or other
person acting for any individual, association,
partnership, corporation, or trust within the scope of
his employment or office shall be deemed the act,
omission, or failure of such individual, association,
partnership, corporation, or trust, as well as of such
official, agent, or other person.

The language of § 1.2 of the Commission's regulations is
substantially identical.
11
Sections 13(a) and 13(b) provide:

(a) Any person who commits, or who willfully aids,
abets, counsels, commands, induces, or procures the
commission of, a violation of any of the provisions of
this chapter, or any of the rules, regulations, or
orders issued pursuant to this chapter, or who acts in
combination or concert with any other person in any
such violation, or who willfully causes an act to be
done or omitted which if directly performed or omitted
by him or another would be a violation of the
provisions of this chapter or any of such rules,
regulations, or orders may be held responsible for such
violation as a principal.

(b) Any person who, directly or indirectly,
controls any person who has violated any provision of
this chapter or any of the rules, regulations, or
orders issued pursuant to this chapter may be held
 Count II of the complaint charged that JCC and Kahn had

violated § 4g of the Act, 7 U.S.C. § 6g,12 and §§ 1.31 and 1.35(a)

liable for such violation in any action brought by the
Commission to the same extent as such controlled
person. In such action, the Commission has the burden
of proving that the controlling person did not act in
good faith or knowingly induced, directly or
indirectly, the act or acts constituting the violation.

12
Section 4g provides:

(a) In general

Every person registered hereunder as futures
commission merchant, introducing broker, floor broker,
or floor trader shall make such reports as are required
by the Commission regarding the transactions and
positions of such person, and the transactions and
positions of the customer thereof, in commodities for
future delivery on any board of trade in the United
States or elsewhere; shall keep books and records
pertaining to such transactions and positions in such
form and manner and for such period as may be required
by the Commission; and shall keep such books and
records open to inspection by any representative of the
Commission or the United States Department of Justice.

(b) Daily trading records: clearinghouses and contract
markets

Every clearinghouse and contract market shall
maintain daily trading records. The daily trading
records shall include such information as the
Commission shall prescribe by rule.

(c) Daily trading records: floor brokers, introducing
brokers, and futures commission merchants

Floor brokers, introducing brokers, and futures
commission merchants shall maintain daily trading
records for each customer in such manner and form as to
be identifiable with the trades referred to in
subsection (b) of this section.

(d) Daily trading records: form and reports

Daily trading records shall be maintained in a
form suitable to the Commission for such period as may
be required by the Commission. Reports shall be made
from the records maintained at such times and at such
of the Commission's regulations, 17 C.F.R. §§ 1.3113 and 1.35(a)14,

places and in such form as the Commission may prescribe
by rule, order, or regulation in order to protect the
public interest and the interest of persons trading in
commodity futures.
13
Section 1.31 provides:

(a)(1) All books and records required to be kept
by the Act or by these regulations shall be kept for a
period of five years from the date thereof and shall be
readily accessible during the first 2 years of the 5-
year period. All such books and records shall be open
to inspection by any representative of the Commission
or the United States Department of Justice.

(2) A copy of any book or record required to be
kept by the Act or by these regulations shall be
provided, at the expense of the person required to keep
the book or record, to a Commission representative upon
the representative's request. Instead of furnishing a
copy, such person may provide the original book or
record for reproduction, which the representative may
temporarily remove from such person's premises for this
purpose. All copies or originals shall be provided
promptly....

(b) Reproductions on microfilm, microfiche and
optical disk may be substituted for hard copy as
follows:

(1) Computer, accounting machine or business
machine generated records may be immediately produced
or reproduced on microfilm or microfiche and kept in
that form. Computer generated records may be
immediately produced on optical disk in conformity with
the requirements of paragraph (d) of this section and
kept in that form.

(2) Except as provided herein, for all other books
and records, microfilm or microfiche reproductions
thereof may be substituted for the hard copies for the
final three years of the 5 year period. Trading cards
and written customer orders, required to be kept
pursuant to § 1.35(a-1)(1), (a-1)(2) and (d), must be
retained in hard-copy form for the full five-year
period.

(c) If microfilm, microfiche or optical disk
substitution for hard copy is made, the persons
required to keep such records shall:
 (1) At all times have on their premises and make
available upon request to representatives of the
Commission or the Department of Justice:

(i) Facilities for easily readable projection of
the microfilm or microfiche, or display of information
stored on optical disk, that allow immediate
examination of their records;

(ii) If the records are preserved on microfilm or
microfiche, facilities for immediately producing
complete, accurate and easily readable facsimile
enlargements of the records; and

(iii) If the records are preserved on optical
disk, facilities for immediately producing complete,
accurate and easily readable hard copies of the records
and the means to provide, immediately upon request, any
Commission or Department of Justice representative with
copies of the records on Commission compatible
machine-readable media, as defined in § 15.00(l )(1)
and (2).
14
Section 1.35(a) provides:

(a) Futures commission merchants, introducing
brokers, and members of contract markets. Each futures
commission merchant, introducing broker, and member of
a contract market shall keep full, complete, and
systematic records, together with all pertinent data
and memoranda, of all transactions relating to its
business of dealing in commodity futures, commodity
options, and cash commodities. Each futures commission
merchant, introducing broker, and member of a contract
market shall retain the required records, data, and
memoranda in accordance with the requirements of §
1.31, and produce them for inspection and furnish true
and correct information and reports as to the contents
or the meaning thereof, when and as requested by an
authorized representative of the Commission or the
United States Department of Justice. Included among
such records shall be all orders (filled, unfilled, or
canceled), trading cards, signature cards, street
books, journals, ledgers, canceled checks, copies of
confirmations, copies of statements of purchase and
sale, and all other records, data and memoranda, which
have been prepared in the course of its business of
dealing in commodity futures, commodity options, and
cash commodities. Among such records each member of a
contract market must retain and produce for inspection
are all documents on which trade information is
originally recorded, whether or not such documents must
by allegedly failing to keep complete and systematic records of the

FLT program. Kahn was further charged under this count as an aider

and abetter and as a controlling person under §§ 13(a) and 13(b) of

the Act.

Count III of the complaint charged that JCC, EDCO, Kahn, Bell,

and Lerner had violated § 166.3 of the Commission's regulations, 17

C.F.R. § 166.3,15 by allegedly failing to diligently supervise their

employees.

During the sixteen days of hearings before the ALJ,

dissatisfied customers and former AP's testified for the Division,

and satisfied customers and current AP's testified for the

respondents. Although the ALJ conceded that the Division had not

established a "slam dunk" case, he nonetheless found against JCC,

EDCO, Kahn, Bell, and Lerner on every count brought against them.

In re JCC, Inc., [1990-1992 Transfer Binder] Comm.Fut.L.Rep. (CCH)

¶ 25,184 (Initial Decision Dec. 13, 1991) ("Initial Decision" or

"I.D."). As sanctions, the ALJ ordered the respondents to cease

and desist from violating the antifraud provisions of the Act. The

be prepared pursuant to the rules or regulations of
either the Commission or the contract market.
15
Section 166.3 provides

Each Commission registrant, except an associated
person who has no supervisory duties, must diligently
supervise the handling by its partners, officers,
employees and agents (or persons occupying a similar
status or performing a similar function) of all
commodity interest accounts carried, operated, advised
or introduced by the registrant and all other
activities of its partners, officers, employees and
agents (or persons occupying a similar status or
performing a similar function) relating to its business
as a Commission registrant.
ALJ also revoked the futures commission merchant or associated

person registrations of JCC, Kahn, Bell, and Lerner.16 In order to

prevent the respondents from "walk[ing] away with ill-gained

finances," the ALJ also imposed the following civil monetary

penalties: JCC $50,000, Kahn $510,000, Bell $100,000, and Lerner

$50,000.17 As EDCO was no longer operating, the ALJ did not impose

a monetary penalty against it.

Kahn and Lerner then challenged the appropriateness of their

monetary penalties in relation to their net worth. After further

hearing and briefing, the ALJ subsequently vacated Lerner's

monetary penalty, but he affirmed Kahn's penalty. In re JCC, Inc.,

[1990-1992 Transfer Binder] Comm.Fut.L.Rep. (CCH) ¶ 25,320 (Initial

Decision on Monetary Sanctions June 29, 1992).

JCC, Kahn, and Bell subsequently filed a timely appeal to the
18
Commission for a review of the ALJ's initial decision. In

reviewing this matter, the Commission conducted a de novo review of

the factual record19 as it agreed with the petitioners' argument

that the ALJ's opinion was somewhat ambiguous. Although the ALJ

began his discussion with a recitation of the correct

16
The ALJ did not, however, revoke Kahn's floor broker
registration as he found that the wrongful acts committed by Kahn
did not extend to his activities as a floor broker.
17
In regard to JCC and Kahn's fines, however, $10,000 was
imposed in light of record-keeping violations found under count
II.
18
Neither EDCO nor Lerner appealed from the ALJ's initial
decision.
19
The Commission did not remand the matter for clarification
because the presiding ALJ was no longer available to the
Commission.
"preponderance of the evidence" burden facing the Division, he went

on to state that the "difficult, concealed, or cleverly twisted"

nature of the evidence in this case would allow the burden of proof

to be met upon a "lesser showing" by the Division. I.D. at 38,467
20
and 38,468. The ambiguity created by this statement was

compounded by the ALJ's decision to compare the credibility of the

parties' witnesses en masse, thereby hampering an effective review,

for example, of the "several" Division witnesses whom the ALJ found

"weak or inconclusive." I.D. at 38,467.

Upon its independent review of the record, the Commission

largely upheld the ALJ's liability findings as well as the ALJ's

imposition of sanctions. In re JCC, [1992-1994 Transfer Binder]

Comm.Fut.L.Rep. (CCH) ¶ 26,080 (CFTC May 12, 1994) ("Commission's

Decision" or "C.D"). The Commission found that the testimony of

all of the Division's customer witnesses was credible as it was

largely uncontroverted. Despite the possibility that ulterior

motives might have fueled their testimony, the Commission also

found several former AP's21 that had testified for the Division to

be credible as their testimony was consistent with that of the

other AP's and with the testimony of the Division's customer

witnesses.

20
The petitioners interpreted this statement as establishing
a burden of proof which is less than the weight of evidence,
whereas the Division interpreted it as requiring a less strict
showing—but still no less than the weight of the evidence—than
might be expected in a more simple case. While the Commission
was more inclined to agree with the Division's interpretation, it
decided to resolve the ambiguity in the petitioners' favor.
21
In particular, the Commission found credible the testimony
of Kevin Moran, Stanley Strother, Paul Snyder, and William Cordo.
 Although the Commission's—albeit more

particularized—credibility conclusions did agree with those reached

by the ALJ, the Commission nonetheless vacated the ALJ's findings

of aiding and abetting liability under § 13(a) of the Act and

failure to supervise liability under § 166.3 of the Commission's

regulations. The Commission felt that these charges unnecessarily

duplicated the ALJ's finding of "knowing inducement" liability

pursuant to § 13(b) of the Act. In addition, the Commission

disagreed with the ALJ's decision to not revoke Kahn's floor broker

registration; the Commission found that representations regarding

Kahn's floor broker registration were an element of the fraudulent

activity at JCC and EDCO and, further, that "Kahn's illegal

activities render[ed] him unfit for registration in any capacity."

C.D. at 41,581 n. 38.

The petitioners then filed a timely petition before this court

pursuant to 7 U.S.C. § 9 seeking review of the Commission's final

decision and order.

II. STANDARD OF REVIEW

In our review of this matter, we shall deem the Commission's

factual findings to be "conclusive" if we determine that those

findings are supported by "the weight of evidence." 7 U.S.C. § 9.

This standard requires that the factual findings be supported by

the preponderance, or greater weight, of the evidence. E.g.,

Haltmier v. CFTC, 554 F.2d 556, 560 (2d Cir.1977) (citations

omitted). Our task in this regard is to " "determin[e] whether the

finder of fact was justified, i.e., acted reasonably, in concluding

that the evidence, including the demeanor of the witnesses, the
reasonable inferences drawn therefrom and other pertinent

circumstances, supported [the] findings.' " Clayton Brokerage Co.

of St. Louis v. CFTC, 794 F.2d 573, 579 (11th Cir.1986) (per

curiam) (quoting Myron v. Hauser, 673 F.2d 994, 1005 n. 17 (8th

Cir.1982) (citations omitted)).

The scope of our review of the Commission's legal

interpretations depends on the nature of the legal question

involved. If the legal issue implicates the Commission's

expertise, we will defer to the Commission's interpretation of the

law so long as it is reasonable. Monieson v. CFTC, 996 F.2d 852,

858 (7th Cir.1993) (citations omitted). If, on the other hand, the

legal issue is of the type that courts commonly address—such as

constitutional matters—a de novo review is appropriate. Id.

If a sanction imposed by the Commission falls within

statutory limits, we will overturn it only if we find that it

represents an abuse of discretion. Haltmier, 554 F.2d at 563

(citations omitted). As we have previously stated in this regard,

[t]he function of a court in reviewing administrative
imposition of sanctions is not to determine the wisdom of
imposing them or the hardship they impose, but rather to see
if they bear a reasonable relation to the practices which
invoked them and if they evidence such relation, to approve
them.

Kent v. Hardin, 425 F.2d 1346, 1349-50 (5th Cir.1970) (citations

omitted).

III. DISCUSSION

A. The Commission's De Novo Review of the Factual Record

The petitioners first argue that the Commission erred by

conducting a de novo review of the factual record, instead of

remanding for a new hearing. In particular, the petitioners object
to the Commission's independent assessment of the credibility of

the witnesses that testified before the ALJ.

1.

We must first resolve the Commission's argument that the

petitioners have waived their right to challenge the de novo review

of the record as they failed to properly raise this argument below.

It is true that, while the petitioners did contest the ALJ's group

credibility analysis, they did not challenge the Commission's

authority to independently resolve credibility issues nor did they

specifically request a new hearing. However, we find that this

issue is properly before us as the petitioners did not need

to—indeed could not—raise a challenge to the Commission's authority

to independently review the factual record until the Commission had

performed the challenged act. See, e.g., Clayton Brokerage v.

CFTC, 794 F.2d at 583 ("[I]t would be unreasonable to require

Clayton to have learned of the decision and raised the issue it

creates before the CFTC prior to the CFTC's denial of review in

this case....").

2.

Turning now to the merits, it is our view that the Commission

did not actually determine credibility from the ground-up in this

case.22 The Commission did not simply decide to credit the crucial

testimony of the Division's customer witnesses after reading the

cold transcription of the record—as the petitioners would have us

believe—instead, the Commission credited this testimony only after

22
We explicitly reject the petitioners' contention that the
ambiguities present in the ALJ's initial decision rendered it
"the functional equivalent of no decision at all."
noting that the petitioners had not substantially objected to it.23
Thus, the Commission's decision to credit the testimony of the

Division's witnesses may ultimately be viewed as resulting more

from a waiver on the part of the petitioners than as a true de novo

review by the Commission. This was, in short, a situation where "

"it fairly could be said that a credibility evaluation from hearing

and seeing the witnesses testify was unnecessary' " on the part of

the Commission. New England Coalition on Nuclear Pollution v.

United States Nuclear Regulatory Comm'n, 582 F.2d 87, 100 (1st

Cir.1978) (quoting Gamble-Skogmo, Inc. v. FTC, 211 F.2d 106, 115

(8th Cir.1954)).

Moreover, the other testimony credited by the Commission—that

of the former AP's who testified for the Division—was given weight,

23
The petitioners argue that the testimony of the Division's
customer witnesses contradicts their claims of fraud, and is thus
unreliable, as certain customers admitted on cross-examination
that they understood the risks inherent in commodity trading.
This factor, however, goes to causation and while relevant in a
reparations case, it is not an element of an enforcement
proceeding brought by the Division. The Division need only
establish that the JCC and EDCO AP's made misleading
statements—whether these statements were actually relied upon is
immaterial.

Congress intended in Section 4b(A) and (C) of the Act
to forbid attempts to deceive or to defraud. Requiring
proof of reliance would be at odds with the plain
language of the statute, for attempted frauds by
definition do not involve a completed act, and
therefore reliance cannot be an element of attempted
fraud.

In re GNP Commodities, Inc., [1990-1992 Transfer Binder]
Comm.Fut.L.Rep. (CCH) ¶ 25,360 at 39,218 (CFTC Aug. 11,
1992), aff'd in part and modified sub nom., Monieson v.
CFTC, 996 F.2d 852 (7th Cir.1993). Moreover, as discussed
below, the fact that the customers were provided with the
Risk Disclosure Statement required by 17 C.F.R. § 1.55 is
not necessarily enough to absolve the petitioners of
liability either.
in large part, because it concurred with that of the Division's

customer witnesses. Then, once the Commission had credited the

Division's testimony, it naturally discredited the testimony which

contradicted it—that offered by the petitioners. The main impact

of the Commission's decision to review the record de novo was that

the Commission did not feel as bound to the ALJ's factual findings

as it would have otherwise; this was of little practical

significance, however, as the Commission did not deviate from the

general conclusions reached by the ALJ.

3.

Furthermore, the Commission is empowered by the

Administrative Procedure Act, 5 U.S.C. § 551, et seq. ("APA"), to

conduct an independent review of the factual record before it. "On

appeal from or review of the initial decision, the agency has all

the powers which it would have in making the initial decision

except as it may limit the issues on notice or by rule." 5 U.S.C.

§ 557(b). The Commission's regulations are in accord with the APA:

"On review, the Commission may affirm, reverse, modify, set aside

or remand for further proceedings, in whole or in part, the initial

decision by the Administrative Law Judge and make any findings or

conclusions which in its judgment are proper based on the record in

the proceeding." 17 C.F.R. § 10.104(b).

We have previously held that agencies have the authority to

make independent credibility determinations without the admitted

advantage presented by the opportunity to view witnesses firsthand.

In reviewing the decision of the Social Security Administration's

Appeals Council, for example, we stated: "[T]he Appeals Council is
not bound by the ALJ's credibility findings, but when it rejects

such findings, it should ordinarily do so expressly, articulating

the reasons for its conclusion." Parker v. Bowen, 788 F.2d 1512,

1520 (11th Cir.1986) (en banc). The reason behind Parker 's

express and articulated rejection requirement, as well as the

documentation requirements of 5 U.S.C. § 557(c),24 is to support a

meaningful review. In this case, we find that the Commission has

satisfied the Parker standards: The Commission expressly rejected

the ALJ's fact findings and it sufficiently articulated its reason

for doing so.25 Moreover, the "special problem," Parker, 788 F.2d

at 1520, presented when an agency overturns an ALJ's credibility

determinations 26 is largely absent here as the Commission

24
Section 557(c) requires the Commission to provide "a
statement of ... findings and conclusions, and the reasons or
basis therefor, on all the material issues of fact, law, or
discretion presented on the record."
25
The Commission stated:

We agree with respondents that the general focus
of the ALJ's credibility determination—essentially
comparing the overall credibility of the Division's
witnesses with the overall credibility of the
respondents' witnesses—undermines our ability to assess
the reliability of his determination. For example,
without knowledge of which Division witnesses the ALJ
regarded as offering "weak or inconclusive" testimony,
we cannot review his determination for clear error. In
this case, we are unable to identify which witnesses
the ALJ relied upon in making his findings. For these
reasons, we have independently assessed credibility in
making our findings of fact.

C.D. at 41,573 n. 14.
26
As the Parker court stated:

"The notion that special deference is owed to a
credibility finding by a trier of fact is deeply
imbedded in our law. The opportunity to observe the
demeanor of a witness, evaluating what is said in the
substantially concurred in the ALJ's credibility conclusions.27

The petitioners cite Gamble-Skogmo, Inc. v. FTC, 211 F.2d 106

(8th Cir.1954) in support of their position, but in our view it is

simply inapposite. Whereas in Gamble-Skogmo the ALJ (before whom

all testimony was given) retired before issuing an initial

decision,28 the ALJ here did issue an opinion, albeit a somewhat

light of how it is said, and considering how it fits
with the rest of the evidence gathered before the
person who is conducting the hearing, is invaluable,
and should not be discarded lightly."

788 F.2d at 1521 (quoting Beavers v. Secretary of Health,
Educ. & Welfare, 577 F.2d 383, 387 (6th Cir.1978)).
27
In a similar vein, those cases holding that the courts of
appeals are to apply a heightened standard of review where the
ALJ and the Commission disagree regarding credibility
determinations are inapplicable here as the Commission did not
disagree with the ALJ's conclusions per se, rather the Commission
simply felt that the documentation of those determinations was
too ambiguous to be effectively reviewed upon appeal. See, e.g.,
Morris v. CFTC, 980 F.2d 1289, 1293 (9th Cir.1992) ("Agency
findings which run counter to those of the ALJ "are given less
weight than they would otherwise receive.' ") (quoting Saavedra
v. Donovan, 700 F.2d 496, 498 (9th Cir.) (citations omitted),
cert. denied, 464 U.S. 892, 104 S.Ct. 236, 78 L.Ed.2d 227
(1983)); Purdy v. CFTC, 968 F.2d 510, 519 (5th Cir.1992), cert.
denied, --- U.S. ----, 113 S.Ct. 1326, 122 L.Ed.2d 711 (1993)
("[W]here the Commission's findings d[o] not agree with the
ALJ's.... the appellate court should make a more searching
review.").
28
Interpreting § 5(c) of the APA, now reported at 5 U.S.C. §
554(d), the Gamble-Skogmo court stated that

we think it must be recognized that the primary concern
of the provision was to prescribe a procedural
guaranty, in the class of administrative proceedings
which it covered, that recommended or initial
decisions, which were to be submitted by a trial
examiner to an administrative tribunal for its
consideration or guidance, would in general be made by
the examiner who had conducted the hearing and received
the evidence, and not by some other examiner.

211 F.2d at 113 (emphasis added).
ambiguous one. Furthermore, the question before us does not

address the sufficiency of the ALJ's factual findings,29 but whether

it was proper for the Commission to reach its own factual findings,

independent of the ALJ's findings. Van Teslaar v. Bender, 365

F.Supp. 1007 (D.Md.1973), also cited by the petitioners, is

likewise inapplicable as it, too, addresses only the midstream

replacement of the initial hearing examiner.30

The prior decisions of the Commission cited by the petitioners

are also distinguishable.31 In both cases, the Commission was

unable to resolve a credibility dispute without the aid of demeanor

evidence. As discussed above, the Commission was able to

satisfactorily determine the credibility of the witnesses in this

case—aided in no small part by the petitioners' failure to

29
As the Second Circuit has remarked in this regard: "[W]e
are to review the Commission's findings, not those of the
Administrative Law Judge...." Haltmier, 554 F.2d at 561. See
also Drexel Burnham Lambert Inc. v. CFTC, 850 F.2d 742, 747
(D.C.Cir.1988). This does not mean, however, that we are to
ignore the ALJ's findings—the ALJ's findings constitute a portion
of the record as a whole and, as such, may be reviewed in order
to determine whether the CFTC's decision is supported by the
weight of the evidence. See Morris v. CFTC, 980 F.2d 1289, 1293
(9th Cir.1992) (citations omitted).
30
We are reminded of the modest hypothesis offered by
President Abraham Lincoln in explanation of his nomination to
seek a second term: "[I]t is not best to swap horses while
crossing the river." This is also the general status of the law
regarding the ALJ-level fact finding process: "The employee who
presides at the reception of evidence pursuant to section 556 of
this title shall make the recommended decision or initial
decision required by section 557 of this title, unless he becomes
unavailable to the agency." 5 U.S.C. § 554(d). As discussed
above, the APA does allow one to "swap" fact finders in between
river crossings. 5 U.S.C. § 557(b).
31
Nacht v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
[1992-1994 Transfer Binder] Comm.Fut.L.Rep. (CCH) ¶ 26,057 (CFTC
Apr. 19, 1994); Gilbert v. Refco, Inc., [1990-1992 Transfer
Binder] Comm.Fut.L.Rep. (CCH) ¶ 25,081 (CFTC June 27, 1991).
substantially object to the credibility of any particular Division

witness.

B. Sufficiency of the Evidence Supporting the Finding that Mr.
Kahn Violated § 13(b) of the Commodity Exchange Act

Kahn32 argues that the weight of the evidence is insufficient

to establish his liability under § 13(b) of the Act, 7 U.S.C. §

13c(b). "A fundamental purpose of Section 13(b) is to allow the

Commission to reach behind the corporate entity to the controlling

individuals of the corporation and to impose liability for

violations of the Act directly on such individuals as well as on

the corporation itself." In re Apache Trading Corp., [1990-1992

Transfer Binder] Comm.Fut.L.Rep. (CCH) ¶ 25,251 at 38,794 (CFTC

Mar. 11, 1992) (citation omitted). Under § 13(b) of the Act, the

Division has the burden here of establishing that "the controlling

person did not act in good faith or knowingly induced, directly or

indirectly, the act or acts constituting the violation." Kahn

contends that the evidence adduced before the Commission was

insufficient to establish that he knowingly induced the sales
33
solicitation violations committed by the JCC and EDCO AP's. To

support a finding that a controlling person knowingly induced

conduct which violates the Act, "the Division must show that the

32
Neither Bell nor JCC challenge the sufficiency of the
evidence underlying any of the Commission's findings against
them.
33
Kahn does not contest the Commission's finding that he was
a "controlling person" within the meaning of the Act.
Furthermore, Kahn does not contest the finding that the JCC and
EDCO AP's whom he controlled repeatedly violated the Act through
their solicitation activities. Therefore, the only question
before us is whether the weight of the evidence establishes that
Kahn acted with the scienter required by § 13(b) of the Act.
controlling person had actual or constructive knowledge of the core

activities that constitute the violation at issue and allowed them

to continue." In re Spiegel, [1987-1990 Transfer Binder]

Comm.Fut.L.Rep. (CCH) ¶ 24,103 at 34,767 (CFTC Jan. 12, 1988)

(footnote omitted).

In brief, the evidence marshalled against Kahn is as follows:

The Commission first found that Kahn was actively involved in the

training and monitoring of JCC's sales personnel. Kahn personally

hired many of the AP's, established their pay and benefits, and
covertly monitored their sales solicitation efforts. In addition,

Kahn required the JCC and EDCO AP's to utilize sales scripts; Kahn

taught the AP's to read the scripts verbatim. Kahn wrote some of
34
these scripts, and he reviewed and approved all of them. Kahn

34
After describing some of the more galling
misrepresentations concerning the likelihood of profits and risk
of loss made by the JCC and EDCO AP's, the Commission then
described one role that Kahn's scripts played in deceiving
potential investors:

JCC and EDCO amplified the effect of these blatant
misrepresentations by employing more subtle techniques
to deceive customers about the likelihood of profits.
The scripts Kahn prepared, for example, often
emphasized historical market moves that earned
customers substantial profits, and encouraged customers
to anticipate similar profits. Given the distorted
view of the likelihood of profit and loss fostered by
the blatant misrepresentations discussed above, such
history-based statements do not escape our scrutiny
merely because such a profit was possible, indeed, had
actually been earned at a particular historical
point.... Without additional historical context, such
as the frequency of the described market movement and
whether market fundamentals or related circumstances
have changed since the last occurrence, and some
cautionary language about the difficulty of catching a
market trend and escaping its reversal, customers can
be misled by undue emphasis on such historical
successes. In the circumstances of this case, we find
that JCC and EDCO's focus on such successes helped
also visited EDCO each month to conduct training sessions.

The record also contains direct evidence that Kahn was aware

of illegal activity. Several employees of JCC and EDCO testified

that they spoke in late 1986 with Kahn about what they perceived to

be the employment of illegal marketing strategies by JCC and EDCO.

Kahn did eventually terminate the individual implicated by the

allegations—Ted Jacobs35—but it took Kahn eight months to do so.

The Commission agreed with the ALJ's characterization of Kahn's

remedial conduct as "too little too late." C.D. at 41,579.

The Commission also noted the evidence of record that

indicated that Kahn had actively encouraged AP's to violate the

Act:

Former APs testified that Kahn and others taught them, when
soliciting customers, to minimize risk, to illustrate profit
potential with phenomenal or aberrant historical market moves,
to characterize the $2500 management fee as insignificant
compared to potential profits, and to use the Regulation 1.55
risk disclosure statement as a sales tool by explaining away
various paragraphs of the document as inapplicable to the FLT
program. They were not taught to explain the allocation
schedule,36 nor to explain that even in a discretionary account

deceive their customers about the fundamental nature of
the futures markets.

C.D. at 41,576 (citations to the record and footnotes
omitted).
35
Jacobs was an AP of JCC and he also performed a managerial
role at EDCO.
36
As the Commission explained, block orders to buy or sell

were allocated to particular FLT program customers
according to a computerized allocation sequence.
Generally, a given customer's right to an execution
depended on the time that had passed since he received
his last allocation. Those who had not been allocated
a position for the longest time were the first to be
allocated new positions. FLT program customers who had
received an allocation more recently were given a lower
 such as the FLT account, futures trading remains highly
speculative.

C.D. at 41,579 (citations to the record and footnote omitted).

In light of Kahn's extensive involvement in the solicitation

process, and the breadth of the wrongdoing by the JCC and EDCO

AP's, the Commission inferred (1) that Kahn was possessed of

constructive knowledge of these illegal activities and (2) that

Kahn failed to take effective corrective action. To support a

finding of constructive knowledge, the Division must show that Kahn

"lack[ed] actual knowledge only because he consciously avoid[ed]

it." In re Spiegel, [1987-1990 Transfer Binder] ¶ 24,103 at 34,767

n. 11 (citing United States v. Ramsey, 785 F.2d 184, 189 (7th

Cir.), cert. denied, 476 U.S. 1186, 106 S.Ct. 2924, 91 L.Ed.2d 552

(1986); United States v. Jewell, 532 F.2d 697, 702 (9th Cir.),

cert. denied, 426 U.S. 951, 96 S.Ct. 3173, 49 L.Ed.2d 1188 (1976)).

After reviewing this matter, we find that the weight of the

evidence supports the Commission's conclusion.

Kahn attempts to refute the Commission's finding of

constructive knowledge by focusing separately on each individual

element of the Commission's analysis. Kahn argues, for example,

that the mere fact that he occasionally monitored sales

priority. Under an exception to the general policy,
new FLT program customers typically were allocated a
position before existing FLT customers who had
specified the same market.

C.D. at 41,571 (footnote omitted). Thus, even if a customer
had chosen a lucrative market, there was no guarantee that
that customer's account would be traded in time to
capitalize on the favorable market conditions. Not only
were customers left in the dark regarding the allocation
system, at least two AP's testified that the system was not
even explained to the AP's.
solicitations is insufficient to establish that he consciously

avoided obtaining actual knowledge about the illegal activities at

JCC and EDCO. This seriatim approach is ultimately unavailing,

however, as it is the body of evidence as a whole which must be

considered here.

Kahn also argues that, even if he is found to have had

constructive knowledge of the fraudulent activity at JCC and EDCO,

he cannot be found to have knowingly induced this conduct as he had

instituted various compliance measures to prevent fraudulent
activity of this type. We note, however, that the fact that

prospective FLT customers were provided with the Risk Disclosure

Statement required by 17 C.F.R. § 1.55 is insufficient to relieve

Kahn of liability here as the Risk Disclosure Statement was coupled

with material omissions and affirmative misrepresentations about
37
risk. See Clayton Brokerage, 794 F.2d at 580-81. Likewise,

37
As we stated in Clayton Brokerage:

[P]resentation of the risk disclosure statement does
not relieve a broker of any obligation under the [Act]
to disclose all material information about risk to
customers....

Furthermore, this case involves affirmative
misrepresentations as to risk.... Oral representations
may effectively nullify the warnings in the statement
by discounting its general significance and its
relevance to the customer's particular situation....
[The risk disclosure statement] does not warn the
customer to disbelieve representations that certain
trading strategies can limit losses, that the broker's
scheme can overcome inherent market risks, or that
certain commodities are less volatile. Those
unfamiliar with the workings of markets are unlikely to
understand that no broker can eliminate or diminish
risk. The customer may be led to believe that the
course of trading on which he or she embarks is not
susceptible to the extreme risk that the statement
warns "can" or "may" accompany trading. Further, the
 38
Kahn's tape-recorded compliance system is also insufficient to

relieve him of liability: One "cannot use the customer agreement

as a contractual shield against valid federal regulation and

liability for violation of such regulation, or as an "advance

exoneration of contemplated fraudulent conduct.' " Myron v.

Hauser, 673 F.2d 994, 1007 (8th Cir.1982) (quoting CFTC v. U.S.

Metals Depository Co., 468 F.Supp. 1149, 1161 (S.D.N.Y.1979))

(other citations omitted).39

statement uses terms of art that require explanation,
without which the significance of the warning to the
particular customer may not be understood. Thus, it is
not logically inconsistent to believe the warning on
the risk disclosure statement while at the same time
believing representations such as were made by [the
AP].

794 F.2d at 580-81 (citations omitted).
38
Under Kahn's compliance system, customers who had recently
opened an FLT account were asked, in general, whether they had
read the Risk Disclosure Statement, whether the broker had made
any representations beyond those contained in the documents, and
whether they fully understood the fees and risks involved.

Neither the ALJ nor the Commission were overly
impressed with the compliance system. The Commission
summarized the ALJ's fact findings on this issue as follows:

After JCC or EDCO had received the customer's
money, another person (not the soliciting AP) called
the customer and asked "a litany inquiry of leading
questions." Both questions and answers were recorded
on tape. A number of customers testified that their
APs told them that the compliance call was merely a
government requirement and did not apply to the FLT
program. The APs instructed customers how to answer
the questions; if a "wrong" answer was given, the
compliance call was stopped. The person conducting the
compliance call would then transfer the customer back
to the AP for further coaching.

C.D. at 41,572 n. 11 (citations to the record omitted).
39
Furthermore, a finding of good faith is not necessarily
enough to exculpate a controlling person under the Act as § 13(b)
 We conclude that the weight of the evidence sufficiently

establishes that Kahn was aware—at least constructively—of the

fraudulent sales solicitation activities, and that he had the power

to prevent these activities, but failed to do so. Accordingly, we

uphold the Commission's conclusion that Kahn is liable under §

13(b) of the Act.

C. Whether the Sanctions Imposed by the Commission Constitute an
Abuse of Discretion

Two challenges are raised to the Commission's imposition of

civil monetary penalties.40 First, the petitioners argue that the

fines are inappropriate as the decision to impose the fines was

grounded in the ALJ's credibility-based findings which the

Commission erroneously reviewed de novo. As discussed above, the

Commission did not truly—for the most part—determine credibility de

novo in this case and, in any event, the Commission is empowered to

conduct a de novo review of the factual record. Thus, this

argument is unavailing.

Second, the petitioners argue that even if the decision to

impose the fines was properly reached, the decision nonetheless

represents an abuse of discretion as the fines are excessive in

relation to the gravity of their offenses and in relation to the

requires the Commission to prove a lack of good faith or knowing
inducement. See In re Spiegel, [1987-1990 Transfer Binder] ¶
24,103 at 34,767 ("[I]f the controlling person knowingly induces
acts that amount to a violation, he will not escape liability
merely because he acted in good faith.") (citation omitted).
40
The petitioners do not contest the cease and desist order,
nor do they contest the revocation of their registrations under
the Act.
net worth of each petitioner.41 In determining the amount of a

penalty under the Act, § 6(d) directs the Commission to, inter

alia, consider "the appropriateness of such penalty to the net

worth of the person charged, and the gravity of the violation." 7

U.S.C. § 9a.42 As the Commission has stated, "[a] fair

consideration of the factors in Section 6(d) should ordinarily

result in a civil penalty that does not exceed a respondent's net

worth yet deters future violations by making it beneficial

41
The ALJ justified the severe sanctions as follows:

The demonstrated conduct goes to one of the more
prominent reasons for antifraud protection. The subtle
deceptive nature of the activity makes it
particular[ly] egregious....

... [T]he violations under this count are most
egregious because the conduct reaches out to a public
sector which is beset with the perplexing problem of
securing a capital return in today's world of super
mixed capital possibilities. The nature of the
solicitations was such that many persons without a firm
understanding of the nature of the involved speculation
were likely to become immersed in a venture with a high
potential for financial disaster contrary to their
understanding.

The potential victims in such operations are so
numerous and widespread that simple penalties will not
suffice. The individual respondents are all persons of
large influence in the management and direction of the
firms. They are more than mere salesmen carrying out
firm dictates. They were, in fact, the dictators.

I.D. at 38,470.
42
Effective October 28, 1992, the FTPA amended § 6(d)
(redesignating it as § 6(e)) and obviated the Commission's duty
to consider a respondent's net worth when assessing a monetary
penalty. 7 U.S.C. § 9a(1). The Commission has held, however,
that this amendment does not apply retroactively to cases, such
as this one, that were pending on its docket prior to October 28,
1992. See In re Gordon, [1992-1994 Transfer Binder]
Comm.Fut.L.Rep. (CCH) ¶ 25,667 at 40,182 n. 5 (CFTC Mar. 16,
1993) (citation omitted).
financially to comply with the requirements of the Act and

Commission regulations rather than risk violations." In re Premex,

Inc., [1987-1990 Transfer Binder] Comm.Fut.L.Rep. (CCH) ¶ 24,165 at

34,892 to 34,893 (CFTC Feb. 17, 1988).

1.

Turning first to the gravity of the petitioners' conduct, we

take note of the Commission's previous statements in this regard:

Our gravity determination turns on the synthesis of two
distinct components. The starting point is an assessment of
the abstract or general seriousness of each violation at
issue. The nature of some violations make them generally more
serious than other violations. The general seriousness of a
violation derives primarily from its relationship to the
various regulatory purposes of the Commodity Exchange Act.
Conduct that violates core provisions of the Act's regulatory
system—such as manipulating prices or defrauding customers
should be considered very serious even if there are mitigating
facts and circumstances.... Once a violation has been
generally located on the statutory continuum of seriousness,
the focus shifts to the particular mitigating or aggravating
circumstances presented by the unique facts of the individual
conduct at issue....

Several factors deserve special consideration in
analyzing the individual culpability of a respondent.... A
respondent who makes a mistake in the face of an ambiguous
statutory duty or in circumstances that are unique and
unforeseeable is less culpable than a respondent who knowingly
and repeatedly violates the same provisions in an effort to
gain a competitive edge.

... [T]he consequences flowing from the violative conduct
should also be assessed. If the respondent benefitted from
the violation or if direct harm to customers or the market
resulted, respondent's violation is more serious than those
that result only in potential benefit or harm. Moreover, a
respondent's post-violation conduct—cooperation with
authorities, attempts to cure the violation and provide
restitution—may mitigate the seriousness of the violation.

In re Premex, [1987-1990 Transfer Binder] ¶ 24,165 at 34,890 to

34,891 (footnotes and citations omitted) (emphasis added). The

bulk of each petitioner's monetary penalty—$500,000 of Kahn's

$510,000 total, $40,000 of JCC's $50,000 total, and all of Bell's
$100,000 fine—was imposed in response to the numerous

misrepresentations made to potential customers of the FLT program

concerning the likelihood of profits and risk of loss. As the

Premex court stated, "defrauding customers should be considered

very serious." Id. at 34,890.

Moreover, the record reveals no mitigating factors in the

petitioners' favor. The weight of the evidence demonstrates that

the violations of the Act at issue here were "knowingly and

repeatedly" committed; we are not dealing with a situation

involving an isolated "mistake" arising from an ambiguous statutory

duty or from circumstances that are unique and unforeseeable. Id.

at 34,891. Furthermore, the consequences flowing from these

repeated violations are very serious: It appears that the

petitioners turned a handsome profit 43 and that many customers of

the FLT Program were directly harmed as a result of these

violations. Last, we note that the petitioners' post-violation

conduct warrants no reduction of their fines. In light of the

foregoing, we cannot find that the Commission abused its discretion

by imposing a $510,000 fine against Kahn, a $50,000 fine against

JCC, and a $100,000 fine against Bell.

2.

43
The record reveals that JCC generated over $11.2 million
in commission charges, and that EDCO generated over $7.4 million
in commission charges, during the relevant period. Kahn's
earnings from JCC exceeded $244,000 in 1985, $1.4 million in
1986, $1.2 million in 1987, and $272,000 in 1988. Bell's
earnings from JCC exceeded $121,000 in 1985, $198,000 in 1986,
$108,000 in 1987, and $122,000 in 1988. The record is unclear,
however, in regard to exactly what percentage of each figure may
be attributed to the FLT program. We note, however, that the
petitioners have failed to introduce any evidence purporting to
establish any income source other than the FLT program.
 We next review the appropriateness of Kahn's $510,000 penalty

in relation to his net worth.44 In reviewing the record pertaining

to the quantification of Kahn's net worth, we note that Kahn claims

assets totalling $718,500, whereas the Division claims that Kahn is

actually worth $1,390,789. The disparity is traceable to Kahn's

reduction of many of his assets by 50% for a claimed spousal

benefit. Kahn claims that his $510,000 fine—which represents

approximately 71% of his version of his net worth—is an

"extraordinary" and "draconian" amount. While the percentage of

Kahn's net worth which this fine represents—assuming arguendo that

Kahn's calculation of his net worth is correct—is on the high side

of Commission precedent, this fine does not exceed the Commission's

statutory authority,45 nor is such a proportionately weighty fine

unprecedented. See, e.g., Premex, [1987-1990 Transfer Binder] ¶

24,165 at 34,892 to 34,893 (imposing a monetary penalty which

represented approximately 88% of the respondent's net worth).

Kahn cites In re Incomco, Inc., [1990-1992 Transfer Binder]

Comm.Fut.L.Rep. (CCH) ¶ 25,198 (CFTC Dec. 30, 1991), in support of

his position on this issue. Noting that it had "rarely imposed

civil monetary penalties upon individuals as high as $550,000," the

44
When the ALJ initially imposed the monetary penalties in
his initial decision, he afforded the respondents the opportunity
to demonstrate that the tentative penalties were unreasonable in
light of their respective net worths. JCC and Bell opted out of
this proceeding and they have therefore waived the right to
contest the propriety of their fines in relation to their net
worths.
45
Section 6(b) of the Act authorizes a fine of up to
$100,000, or triple the monetary gain attained, for each
violation of the Act. Kahn does not argue that his fine is
statutorily excessive.
Commission reduced the respondent's fine in that case from $550,000

to $105,000. Id. at 38,536 to 38,537 (citations omitted). The

Commission's decision to reduce the penalty in that case, however,

was influenced by the fact that the respondent had already been

fined criminally, served jail time, and had been required to pay $1

million to the bankruptcy trustee. None of these considerations

are applicable here.

While 71% does represent a substantial proportion of Kahn's

assets, we cannot find that the Commission abused its discretion,

especially since the bulk of Kahn's net worth appears to have been

derived from the wrongful conduct here at issue.

IV. CONCLUSION

For the foregoing reasons, the Commission's opinion and order

is affirmed.

AFFIRMED.