By Lene Powell, J.D.
A Ninth Circuit panel upheld a lifetime trading ban for an individual who fraudulently solicited funds from investors and made false statements to a regulatory authority. The trading injunction was remedial, not punitive, and was not overbroad given the circumstances. The opinion was issued as Not for Publication (CFTC v. Crombie, September 21, 2021, per curiam).
Fraudulent solicitation and false statements to NFA. In 2013, a district court in the Northern District Court of California found James Crombie liable for violating the Commodity Exchange Act (CEA) by providing false promotional materials to potential clients and willfully making false statements and providing fraudulent documents in an investigation by the National Futures Association (NFA). The court ordered restitution and civil monetary penalties against Crombie, as well as a personal trading ban enjoining him from engaging in any personal trading on CFTC-regulated markets.
Crombie subsequently appealed, and the Ninth Circuit remanded for further proceedings on the trading ban portion of the order. The district court made detailed findings and entered an order imposing a permanent personal trading ban against Crombie as sought by the CFTC. Crombie again appealed.
Trading ban upheld. In a brief per curiam opinion, the panel found that the district court did not abuse its discretion in imposing the permanent personal trading ban, which prohibited not only trading by Crombie himself but also trading on his behalf.
First, the panel found that the district court adequately explained why CEA Sections 5(b) and 5(c) were necessary to prevent future violations almost identical to those that Crombie already committed. Crombie argued that the district court’s concerns were speculative, but the panel held that the court could issue a permanent injunction to prevent merely similar future violations. The violations were not required to be identical.
Next, the panel rejected Crombie’s argument that Section 5(e) of the permanent injunction already prohibited Crombie from doing what the district court said it feared: “Soliciting, receiving or accepting any funds from any person for the purpose of purchasing or selling any commodity futures.” This argument wrongly assumed that Crombie will obey Section 5(e), or that the Commission will immediately discover if he does not, said the panel.
The panel also rejected Crombie’s assertion that the district court could not impose a personal trading ban because he did not misappropriate client funds, deceive clients directly, or refuse to promise to abide by the law in the future. The court had never held that those were the only three circumstances to warrant a personal trading ban, and in any case a previous panel affirmed the district court’s finding that Crombie did willfully deceive his clients.
Finally, the panel affirmed the permanent duration of the trading ban. Crombie failed to show that an injunction would someday be unnecessary to ensure his compliance with the CEA. Further, administrative sanctions under § 13(b), like permanent injunctions under § 13a-1, are remedial, not punitive. In addition, he could always move to modify or lift the sanction in the future if future circumstances no longer support it. There was no reason to impose presumptively shorter trading bans on civil rather than criminal defendants, said the panel.
“Just as we may uphold permanent personal trading bans against felons, so too may we uphold a permanent personal trading ban against a defendant in a civil enforcement action when supported by the facts,” the panel wrote.
This is Docket No. 19-16190.