The United States District Court for the District of Columbia declared unconstitutional the Commodity Futures Trading Commission's requirement that individuals who disseminate general advice on futures markets register with the CFTC as Commodity Trading Advisors ("CTAs"). Although the court acknowledged the CFTC's authority to regulate the CTA profession, it found that the CFTC's purpose was to regulate speech, not trading activity, and that the regulation as applied thus was a prior restraint on speech that violated the First Amendment.
Section 4m of the Commodity Exchange Act, 7 U.S.C. § 6m, requires anyone who is paid for providing futures trading information to register as a CTA. The plaintiffs, who publish and sell information about futures trading through a variety of media, including books, newsletters, Internet websites, detailed written instruction manuals and computer software, sought a declaratory judgement that Section 4m impermissibly restricted freedom of speech because it requires CTA registration even if a person does not manage customer accounts or offer individual investment advice. The CFTC defended Section 4m as a permissible regulation of the CTA profession.
The court concluded that the registration requirement restricted speech. The court noted that the CFTC may regulate trading activity, and speech incidental to that activity, if the regulations "have a rational connection [to] fitness or capacity to practice the profession." The court acknowledged, however, that regulation of a profession may cross a fine line and become a regulation of speech. Where a professional "takes the affairs of a client personally in hand and [exercises] judgment on [the client's behalf] . . . the professional's speech is incidental to [her professional conduct, and] generally applicable licensing provisions [are permissible]," the court noted. In contrast, where no such "personal nexus" exists between professional and client, the object of the regulation is speech, and as such the regulation is subject to First Amendment scrutiny.
On the facts before it, the court concluded that the CFTC's application of the registration requirement to plaintiffs was an attempt to regulate speech because the plaintiffs had established no "personal nexus" with their customers. The plaintiffs, the court observed, had no personal contacts with customers, did not make individual trading recommendations, and did not execute trades. Rather, the court noted that the plaintiffs offered only general trading advice. As the court stated, the plaintiffs' business was "the selling of ideas, not the trading of commodity futures," and that they profited whatever the client independently decided to do.
The court then considered whether the regulation satisfied the First Amendment. The court observed that licensing schemes as applied to speech bear a "heavy presumption" of unconstitutionality. The court reaffirmed that prior restraints are permissible only if the speech would cause great and certain harm that cannot be remedied by less intrusive measures. The court found that the CFTC's regulation imposed a "drastic prohibition" on speech based on the "mere possibility" that the information was fraudulent and concluded that such theoretical harm did not justify the restraint. Accordingly, the court concluded that Section 4m as applied to the plaintiffs violated the First Amendment. *
Taucher v. Born, -- F. Supp.2d --, No. Civ A 97-1711 RMU, 1999 WL 431065 (D.D.C. June 21, 1999).
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