The opinion of the court was delivered by: Urbina, District Judge.
Entering Judgment for the Plaintiffs
A bench trial was held in the above-captioned case beginning
Monday, May 3, 1999 and ending Wednesday, May 5, 1999, during
which the court took testimony from various witnesses and
received documents into evidence. Upon reviewing the testimony
and evidence, as well as the existing record and the relevant
law, the court enters the following findings of fact and
conclusions of law. Based on these findings and conclusions, the
court will enter judgment in this case for the plaintiffs.
This case involves a First Amendment challenge to Section 4m of
the Commodity Exchange Act ("CEA"), 7 U.S.C. § 6m (1994), as
applied to the plaintiffs who publish books, newsletters,
Internet websites, detailed written instruction manuals (known in
the industry as "trading systems"), and computer software that
provide information, analysis, and advice on commodity futures
trading. The plaintiff-publishers in this action seek a
declaration that they may lawfully publish without being
registered as commodity trading advisors ("CTA") with the
Commodity Futures Trading Commission ("CFTC"). The defendants
contend that the registration requirement is constitutional under
the First Amendment.
Plaintiffs Frank Taucher, Stephen Briese, Frederick J.
Kastead*fn1, and Robert Miner (hereinafter collectively referred
to as "the plaintiffs") are publishers whose publications include
books, newsletters, Internet websites, trading systems, and
computer software. Plaintiffs Galen Cawley, Arthur Hayner, Edward
W. Hearne III, Roemer McPhee, and Roger Rines are members of the
public who read and use the plaintiffs' publications and other
Named as a defendant is the Commodity Futures Trading
Commission ("CFTC"), the independent federal regulatory agency
charged with administering and enforcing the Commodity Exchange
Act, 7 U.S.C. § 1 et seq., and the regulations promulgated
thereunder, 17 C.F.R. § 1.1 et seq. Also named as defendants in
their official capacities are the CFTC's chairperson, Brooksley
E. Born, and CFTC commissioners Barbara Pedersen Holum, David D.
Spears and John E. Tull, Jr.
1. Participants in the futures market rely in part on published
information, recommendations and analyses in order to make
2. Information may be gleaned from a variety of sources including
but not limited to books, newsletters, Internet websites,
computer software and advisory services.
3. Commodity Trading Advisors are one of several kinds of
commodity trading professionals regulated by the Commodity
Futures Trading Commission.
4. CTAs who give individually tailored advice to their clients
normally also manage client funds.
5. In the commodity trading advisory profession as it is
practiced today, a CTA ordinarily does not devise a specific
trading strategy for a particular client.
7. The CFTC requires that a CTA disclose to his clients the
trading methods, strategies or disciplines he intends to use to
trade for the client's account.
8. A CTA would not trade a $10,000 discretionary commodity
account the same way he would trade a $100,000 account because
the CTA does not have sufficient funds to trade the smaller
account the same way he would trade the larger account.
9. Although a CTA will follow his trading program regardless of
the size of a particular discretionary commodity account, the
CTA may structure the actual trades differently in a smaller
account because he has fewer funds with which to trade.
10. CTAs who manage their clients' money must execute a
power-of-attorney agreement with their client which
authorizes the CTA to execute trades on behalf of clients.
11. After the contract is executed, the client of a
money-managing CTA does not approve or veto specific trading
12. A client of a money-managing CTA will generally not find out
that a trade has been executed on his or her behalf until the
client receives the next statement of account balance.
13. The CTA's trading decisions can expose the client to loss,
even in excess of the initial amount invested.
14. When a client wishes to enter into a relationship with a CTA,
the CTA provides the client with a disclosure document which
contains, among other things, a "Risk Disclosure Statement."
The Risk Disclosure Statement states, among other
disclosures, that "[t]he risk of loss in trading commodities
can be substantial."
15. As a general matter, money-managing CTAs do not communicate
trading advice to their clients.
16. Rather, money-managing CTAs gather information and then use
that information themselves to make trading decisions.
17. Individuals cannot execute trades in the market without going
through a broker (known as a Futures Commission Merchant or
FCM) who is licensed by the CFTC.
18. Because futures transactions are highly leveraged, a client
can lose more money than he invests and, thus, the commodity
trading account relationship between a client and broker
involves unlimited risk on the part of the broker.
19. To insure that a client has sufficient funds to meet margin
calls and cover losses in a trading account and, thus,
minimize the client's potential default, the broker typically
obtains from the client such financial information as assets,
liabilities, net worth, liquid capital and risk capital.
20. There is no legal requirement that a CTA determine the
suitability of a prospective client to engage in futures
21. Plaintiff Robert Miner ("Miner") is a publisher of futures
trading information, analysis and advice.
22. Miner does business through Dynamic Traders Group, Inc.
23. He publishes a weekly publication called Dynamic Trader
25. In addition to advice and recommendations, Miner also
provides subscribers with a trading education; each of the
reports contains a tutorial, explaining the analysis used in
the trading decisions and his approach to futures trading.
26. Miner has published a book, Dynamic Trading, that he offers
for sale to the public, which explains his approach to
27. Miner has a website, http://dynamictraders.com, that provides
information on, and advertising for, the products and
technical services offered by his company, as well as
occasional technical analysis and trade recommendations.
28. Miner has published a Dynamic Trader Trading Course, which
is a comprehensive instruction manual in commodities trading
29. The Dynamic Trader Trading Course teaches traders theory
and practical application of analysis and trading strategies.
30. Miner has developed and markets a computer software program
called Dynamic Trader Software that performs technical
analysis of the financial and commodity markets.
31. The analysis provided by the Dynamic Trader Software
reflects the technical analysis techniques described in the
Dynamic Trader Trading Course.
32. The routines, reports and studies in the software program
apply to all actively traded markets, including futures,
stocks, indexes, and mutual funds.
33. The purpose of the analysis is to provide the trader with the
information he or she requires in making a trading decision;
the software also, within certain routines, provides buy and
sell signal set-ups.
34. In order to generate meaningful trading advice, a user of the
Dynamic Trader Trading Course or the Dynamic Trader
Software is required to use it in conjunction with certain
other information that the user supplies (the "User Input").
The User Input is made up of "Price Data" and "Parameters."
35. Price Data consists of a series of data that corresponds to
the prices of a certain instrument over a certain period of
time. The Price Data may be supplied on a daily, weekly or
other basis. The instrument may be a futures contract or some
other type of instrument. The Price Data may represent an
instrument that the user already owns, an instrument that the
user does not own, or purely hypothetical data.
36. The Parameters are certain numerical values that the user may
select in order to "fine tune" the mathematical output of
routines within the program that examine a given set of Price
Data. A user will normally select the Parameters that, based
on the user's knowledge or experience, are likely to lead to
the most profitable or otherwise meaningful result.
37. By using the Dynamic Trader Trading Course or the Dynamic
Trader Software in conjunction with a given set of Price
Data and a given set of Parameters, a user obtains output
which the user must then interpret by using his own skills
39. Every person who uses the same Price Data and Parameters in
conjunction with the Dynamic Trader Trading Course will, if
the instructions are followed correctly, receive the same
output regardless of his individual needs and circumstances.
Likewise, every person that uses the same Price Data and
Parameters in conjunction with the Dynamic Trader Software
will receive the same output regardless of his individual
needs and circumstances.
40. Miner charges a fee to subscribers of the Dynamic Trader
Weekly Report and the semimonthly Dynamic Trader Report.
41. Miner charges a fee to purchasers of his book, Dynamic
Trading, his instruction manual, Dynamic Trader Trading
Course, and his software program, Dynamic Trader Software.
42. Miner also offers issues of his Dynamic Trader Weekly
Report at his website for a fee.
43. Through his various publications, Miner provides commodity
trading advice to approximately 500 subscribers.
44. Miner distributes his several publications by various means,
including mail, facsimile transmission and the Internet.
45. Miner's activities of publishing commodity trading advice are
not solely incidental to his business.
46. Miner does not have discretionary control over customer
accounts, nor does he execute trades on customers' behalf or
otherwise manage customer money.
47. Miner's Dynamic Trader software is incapable of actually
executing trades on behalf of a customer, or otherwise
performing any trading-related activity other than causing a
computer to display the output of the price data or
mathematical manipulation of the price data for a user to
48. When Miner wrote and published his book, newsletters and
Internet publications, he did not tailor their contents to
the particular needs and circumstances of any individual
49. When Miner wrote and published the Dynamic Trader Trading
Course and the Dynamic Trader Software, he did not in any
way tailor their contents to the particular needs and
circumstances of any individual user.
50. When Miner wrote and published his book, newsletters, and
Internet publications, he was unfamiliar with the particular
needs and circumstances of specific individuals who might
51. When Miner wrote and published the Dynamic Trader Trading
Course and the Dynamic Trader Software, he was unfamiliar
with the particular needs and circumstances of specific
individuals who might use them.
52. Miner furnishes to every reader of his book, newsletters and
Internet publications identical copies of the documents.
53. Miner furnishes to every purchaser of each edition of the
Dynamic Trader Trading Course and the Dynamic Trader
Software an identical copy of the manual or software.
54. Miner does not and cannot alter the contents of the Dynamic
Trader Trading Course or the Dynamic Trader Software after
it has been distributed to a given user.
56. Miner does not operate, has not operated and does not intend
to operate a telephone "hot line" or other medium of
communication by which he would inform individual users
whether they should follow or ignore specific recommendations
of the Dynamic Trader Trading Course or the Dynamic Trader
57. Miner's website contains an order form where users can
provide information through an on-line form that is delivered
electronically to Miner.
58. This information consists solely of the trading time frame
that the user is interested in and the market(s) that ...