| Resolving Customer/Broker
Disputes
The Reparations Program of the
U.S. Commodity Futures Trading Commission
About the CFTC
The Commodity Futures Trading Commission (CFTC), created by Congress in 1974, is
the Federal agency that regulates commodity futures and options trading in the
United States. The CFTC's mission includes monitoring the markets to detect and
prevent commodity price distortions and market manipulations, and protecting
customers who use these markets.
The Reparations Program
If you are a futures or options customer and you have a dispute with your broker
which you cannot resolve, you may be able to use the Commission's Reparations
Program. You are eligible to use this program if:
Your complaint involves a commodity futures trading professional who was
registered with the Commodity Futures Trading Commission at the time of the
alleged wrongdoing or at the time the complaint is filed.
You believe that your account executive or brokerage firm violated the Commodity
Exchange Act or CFTC rules, resulting in losses to your account.
You file your complaint within two years of the date the violation occurred or
within two years of the date you should have known of the violation.
If you prove wrongdoing by a commodity professional caused your losses, you may
get all or some of your money back through the reparations program.
About This Brochure
This brochure is designed to assist you in deciding whether to file a
reparations claim. It provides information about (1) some of the activities
that may constitute grounds for a reparations claim, (2) what to do if you
think you have a reparations claim, (3) when, where and how to file a claim,
(4) what to expect after the claim is filed, and (5) how to find out if a
commodity futures trading professional was registered.
This brochure is not designed to offer legal advice. If you believe you need
legal advice, you should contact a private attorney.
Why Reparations?
Disputes will occur in any business. When a dispute arises, your best course of
action is to pull your facts together and try to resolve your complaint with
the individual and company involved. However, if that fails, you may want to
take your dispute to a forum where a third party can decide the outcome. The
purpose of the reparations program is to provide an inexpensive, expeditious,
fair and impartial forum for handling customer complaints. Customers can also
take complaints to federal court or to industry-sponsored arbitration.
The CFTC's reparations program offers a number of benefits. It may be faster and
less expensive than other methods of resolving disputes. If hearings are
necessary, the hearings are conducted by CFTC administrative law judges or
judgment officers who specialize in commodity law. The costs for litigants may
be less than other forums. Hearings are generally informal and scheduled, to
the extent possible, at locations which are convenient for the parties. For
claims under $30,000, hearings are conducted by conference telephone call,
requiring no travel at all. In addition, reparations proceedings take place
within the government agency which is responsible for enforcing
commodities law.
What kinds of complaints can be handled by the CFTC reparations procedures?
Reparations complaints usually involve a customer requesting compensation for a
loss which, in the opinion of the customer, was caused by improper conduct by a
commodity professional or firm. The charges that can be heard in reparations
include:
Unauthorized trading. Any transaction involving the purchase or sale of a
futures or option contract, made by a broker, without your approval.
Misrepresentation. An untrue or misleading statement concerning a
material fact which you relied on in making any decision regarding commodity
futures and option trading.
Nondisclosure. Failure to inform you of the risks associated with futures
and option trading, as well as the failure to disclose any other material fact
needed by the customer to make a decision regarding commodity futures or option
trading.
Churning. Excessive trading of your account by a broker who has control
over trading decisions, for the purpose of generating commissions, while
disregarding your financial interests.
Misappropriation of funds. An unauthorized use or diversion of the money
or property you deposited for the purpose of trading futures or options and
leverage contracts.
These activities could relate to transactions involving futures contracts,
options on futures contracts or on physical commodities, and leverage
contracts.
These are the requirements for filing a claim:
The individuals or firms named in the complaint were registered with the CFTC at
the time of violation or were subsequently registered. Information
about the registration status of an individual or firm may be obtained from the
CFTC Complaints Section by calling (202) 418-5250, or from the National Futures
Association's Information Center at 1-800-676-4632.
The statute of limitations has not expired. Your complaint must be mailed
to the CFTC's Office of Proceedings, complete with the filing fee, within two
years after your cause of action ``accrues.'' The two-year period begins when
you, exercising reasonable diligence, know that wrongdoing has possibly
occurred, or should have known wrongdoing has occurred based on facts in your
possession.
The respondents are not in bankruptcy or receivership proceedings. If one
of them is, you should file your claim with the bankruptcy trustee or the
receiver appointed by a court to administer claims. The CFTC will dismiss your
reparations claim as to that proposed respondent.
The same claim is not being considered in arbitration or a civil court. If
your claim is already being considered in arbitration or civil court, it cannot
be decided in a reparations proceeding and will be dismissed.
Types of Reparations Proceedings:
Voluntary Procedure: A claim of any size can be adjudicated through the
voluntary procedure if all complainants and respondents consent to use this
approach. All evidence is submitted in writing and there is no oral hearing.
The decision is not appealable.
Summary Procedure: If you do not select the voluntary procedure, you must
select the summary procedure if your claim is $30,000 or less. Evidence is
submitted in writing and an oral hearing may be held by telephone. The decision
is appealable to the Commission and, ultimately, to the U.S. Court of Appeals.
Formal Procedure: If you do not select the voluntary procedure, you must
select the formal procedure if your claim is more than $30,000. In addition to
the submission of documentary evidence, an oral hearing may be held in a
location that is, to the extent possible, convenient to the parties. The
decision is appealable to the Commission and, ultimately, to the U.S. Court of
Appeals.
Filing fees for reparations:
Amount of Claim ProcedureFiling Fee
Any amountVoluntary$50.00
$30,000 or lessSummary$125.00
$30,000 or moreFormal$250.00
The filing fee normally is awarded as costs if the customer wins. Usually,
parties are responsible for paying their own legal and travel expenses.
How long does the reparations process take?
The length of time it takes to receive a decision after you file a complaint can
vary substantially. The time depends upon, among other factors, the facts and
complexity of your case; whether the parties are cooperative in discovery and
prepare and submit their evidence quickly; whether any procedural disputes
arise; and whether an oral hearing is required (and if so, when it can be
scheduled).
Although every case is different, typically a voluntary proceeding will be
decided within six to eight months. At that point, the proceeding is over
because the decision cannot be appealed. Summary and formal proceedings
typically require about a year, longer if appeals are filed.
What happens after I file a complaint?
First, the complaint is sent to the respondents who are required to file an
answer. Then, after the answer has been filed, if the Complaints Section
determines that a reparations proceedings should begin, the case is forwarded
to the CFTC Proceedings Clerk for assignment to an administrative law judge or
judgment officer. Voluntary and summary proceedings normally are assigned to a
judgment officer; formal proceedings must be assigned to an administrative law
judge.
Can the respondent file a counterclaim against me?
Yes, but the counterclaim must stem from the same set of facts that are the
subject of your claim. If filed, a counterclaim typically would seek to recover
a debit balance in your account. The CFTC does not accept counterclaims
seeking attorneys' fees incurred by a respondent in simply answering or
defending the reparations claim. If a counterclaim is filed against you, you
will be sent a copy, and you must file a reply within 30 days.
How do I obtain evidence in support of my complaint?
The parties are responsible for gathering their own evidence. Evidence in
support of the allegations of the complaint can consist of the statements of
the parties themselves and of other witnesses; account forms, trading
statements, and other records; tape-recordings; order tickets; etc. The notice
of the assignment to a judge will grant you authorization to begin gathering
your evidence in support of your claim, known as ``taking discovery.'' To
obtain evidence that is in the hands of the other side, or held by third
parties, each side may formally request information during discovery. All
parties are required to respond to relevant discovery requests from the other
side. A subpoena can be obtained from the judge to obtain information from
non-parties.
Do I need an attorney?
In many cases, the facts and issues are simple enough that you may be able to
present your case without the assistance of an attorney. Sometimes the amount
of money at stake is small enough that hiring an attorney would not be
cost-effective. Therefore, many parties represent themselves (known as acting pro
se) during the proceeding. The CFTC staff is available to help pro se
litigants understand the rules and procedures of the reparations proceeding.
When more money is at stake, or if the facts either are complicated or present
more technical legal questions, you may wish to consult an attorney.
What happens after discovery?
The parties have the opportunity to present their evidence after discovery is
over. How this is done varies for each of the three types of reparations
procedures. In a voluntary procedure, the parties submit Verified Statements,
which typically consist of affidavits and supporting documents. Following their
submission, the judgment officer will issue a simple ruling as to which side
wins. No hearing is ever held, and the judgment officer's decision is final. No
explanation of the decision is provided and the decision is not appealable.
Summary Procedure: In a summary procedure, the parties also may submit
Verified Statements, but either the parties or the judgment officer may desire
an oral hearing to help resolve factual disputes. If the judgment officer
believes an oral hearing is necessary, the parties will be given at least 15
days notice of the date and time the hearing will begin. As noted previously,
hearings in summary procedures are conducted by conference telephone call, so
all parties (and witnesses) can attend with minimal inconvenience and no travel
costs. The hearing will be tape-recorded by the judgment officer. After the
hearing is over and the record is complete, the judgment officer will issue a
written decision containing specific findings of facts and conclusions of law.
Formal Procedure: Formal procedures normally involve public hearings, and
these hearings are conducted in locations that the administrative law judge
tries to make convenient to the parties (depending upon availability of
appropriate facilities and the judge's travel schedule). The parties usually
have an opportunity to file post-hearing comments with the administrative law
judge and to reply to the other side's comments. Afterwards, the administrative
law judge will issue a written decision.
Settlement: In many cases, the parties settle their dispute prior to, or
during, the hearing. CFTC administrative law judges and judgment officers often
help the parties reach a compromise by convening informal settlement
conferences, usually by telephone.
Can the decision be appealed or reviewed?
If you and the respondents named in your complaint agree to use the voluntary
procedure, neither you nor the respondents may appeal the decision to any
higher level.
If your claim was considered in a summary or formal procedure, however, you or
the respondents may appeal an adverse decision on any point in dispute (even if
you have won other parts of your case) to the Commission. There is a $50.00
filing fee for an appeal to the Commission. The Commission may reverse, modify
or affirm the initial decision. A decision by the Commission may be appealed to
a U.S. Court of Appeals.
If I win my case, when will I get my money?
Under the law, the respondents must pay within 45 days unless one of the
respondents appeals the decision. If no respondent appeals and there is no
proof that the award has been paid, the license and trading privileges of that
respondent will be automatically suspended by the Commission until payment is
made.
If the respondent fails to pay me, will the Commission collect my money for me?
The Commission may suspend the registration and trading privileges of the
respondent, but the Commission cannot help you collect your award. If the
respondent does not pay the award, however, you can ask the U.S. District Court
where the respondent lives or has a principal place of business to enforce the
award. Additional information on how to enforce an unpaid reparations award
will be sent to you by the Proceedings Clerk when the decision becomes final.
If the district court enforces the award, the court normally will require the
respondent to pay all court costs and any legal fees you have incurred in
connection with enforcing the award.
My complaint seems to meet all these criteria. How and where do I file?
Call or write:
Office of Proceedings
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street N.W.
Washington, D.C. 20581
(202) 418-5250
You may request a packet of information with appropriate forms, a copy of the
reparations rules, and instructions for filing a complaint. The CFTC also has
an Internet ``home page''--http://www.cftc.gov--which
provides a variety of futures-related information.
March 1996
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