Hon. Ilana Diamond Rovner
MEMORANDUM OPINION AND ORDER
The government alleges in this criminal prosecution that defendants Norman K. Furlett and Ira P. Greenspon committed fraud in the trading of commodity futures contracts. In addition, Furlett and Greenspon are accused of obstructing the Commodity Futures Trading Commission's investigation into their conduct and suborning perjury. Furlett has moved to dismiss the indictment on the ground that it is barred by the double jeopardy provisions of the Fifth Amendment in light of prior sanctions imposed by the Commodity Futures Trading Commission for the same conduct underlying this prosecution. Greenspon has adopted Furlett's motion. For the reasons set forth below, the motion is denied.
For purposes of the pending motion to dismiss, the government's allegations need only be summarized briefly. According to the indictment, Furlett and Greenspon are "associated persons" (also known as brokers, account representatives, or account executives) affiliated with GNP Commodities, Inc. ("GNP"), an Illinois corporation whose principal place of business is in Chicago. GNP is a futures commission merchant (also known as an FCM or brokerage firm) which is & member of both the Chicago Board of Trade and the Chicago Mercantile Exchange. As an FCM, GNP solicits and accepts orders to buy or sell commodity futures contracts.
According to the indictment, Greenspon and Furlett became partners in a commodities brokerage business which was a part of GNP in December, 1985. In their role as brokers, they placed orders for the purchase and sale of commodity futures on behalf of GNP customers.
The government alleges that beginning no later than January, 1986, and continuing until at least October, 1987, Furlett and Greenspon engaged in a conspiracy to commit mail and wire fraud, to obstruct an investigation of the CFTC, and to suborn perjury. (Indictment, Count One.) The indictment also charges the defendants with the substantive offenses of mail fraud (Counts Two through Ten), obstruction of a proceeding pending before a federal agency (Count Eleven), and suborning perjury (Count Twelve).
More specifically, the government alleges that Furlett and Greenspon engaged in a pattern of deceitful commodities trading. According to the indictment, defendants on multiple occasions placed orders for the purchase or sale of a commodity without identifying the account for which the transaction was being made. The failure to identify an account number purportedly was a violation of internal GNP rules as well as CFTC and commodities exchange regulations. Allegedly, Furlett and Greenspon would then wait to see whether or not the relevant trade was profitable. If the trade turned out to be profitable, defendants allegedly would then assign it either to their own accounts or to accounts in which they held an undisclosed beneficial interest. If the trade resulted in a loss, defendants would allegedly assign it to the accounts of other customers.
In addition, the indictment alleges that Furlett and Greenspon made misrepresentations to their commodities customers or directed subordinates to do so. On certain occasions, for example, investments allegedly were solicited from GNP customers based upon representations regarding the track record of accounts to which profitable trades had been assigned. On other occasions, defendants allegedly would inform a customer falsely that defendants themselves were trading in a particular commodity in order to persuade the customer to trade in that commodity.
On October 11, 1989, the Division of Enforcement of the CFTC filed a complaint against Furlett and Greenspon, among others, based largely upon the types of conduct alleged above. In particular, the complaint alleged that Greenspon and Furlett issued orders without account identification numbers, allocated profitable trades to accounts belonging to themselves or to their friends, and made fraudulent representations to GNP customers. A hearing was conducted before an administrative law judge ("ALJ") in November, 1989.
On May 25, 1990, the ALJ entered a lengthy opinion in which he concluded, inter alia, that Furlett and Greenspon had violated Sections 4b(A), 4b(C), and 4g(1) of the Commodity Exchange Act, 7 U.S.C. §§ 6b(A), 6b(C), and 6g(1), by fraudulently allocating trades, making fraudulent misrepresentations to customers concerning commodity futures accounts, and placing trade orders without account numbers and failing to make an immediate record of such orders with the proper account information. In assessing the severity of the conduct, the ALJ observed:
The facts set forth in this matter constitute a pernicious, widespread, and institutionalized scheme of cheating and defrauding customers, sustained without abatement or restraint over a period of years. The egregiousness of Greenspon's and Furlett's conduct is amplified by the recondite nature of their activity, and the tacit acceptance of the fraud they perpetrated by respondents Monieson [who supervised Furlett and Greenspon] and GNP. As such, it is imperative that sanctions be levied against respondents to deter further illegal activity and to protect public customers from the type of insidious conduct described in this case.
(ALJ Op. at 133-34.) The ALJ proceeded to revoke the CFTC registrations of Furlett and Greenspon, prohibit both from trading on or subject to the rules of any contract market, and order them to cease and desist from any further violations of the Commodities Exchange Act. (Id. at 134-35.) In addition, "taking into consideration the extreme seriousness of the violations committed by respondents . . . and the representations of [their] net worth," the ALJ ordered Greenspon and Furlett each to pay a civil monetary penalty of $ 75,000. (Id.)
The government has represented to this Court without contradiction that the ALJ's findings and order are on appeal within the CFTC. (See Gov. Mem. at 7, n.4.)
The indictment in this case was returned on April 3, 1991.
The Double Jeopardy Clause of the Fifth Amendment provides: "Nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb . . . ." U.S. Const. amend. V. There are three scenarios which run afoul of the double jeopardy bar: (1) a second prosecution of an individual for an offense of which he already has been acquitted; (2) a second prosecution of an individual for an offense of which he already has been convicted; and (3) the imposition of multiple punishments for the same offense. North Carolina v. Pearce, 395 U.S. 711, 717, 89 S. Ct. 2072, 2076, 23 L. Ed. 2d 656 (1969); United States v. Reed, 937 F.2d 575, 576 (11th Cir. 1991). United States v. Hall, 730 F. Supp. 646, 654 (M.D. Pa. 1990). Defendants argue that the instant prosecution represents the government's attempt to impose multiple punishments upon them for the same offense. In their view, the ALJ's order prohibiting them from trading in any contract market and fining them each $ 75,000, although imposed in a civil proceeding, is punitive in nature, thereby precluding the government from seeking further punishment for the same conduct by way of a criminal prosecution.
Defendants' argument rests upon the Supreme Court's recent decision in United States v. Halper, 490 U.S. 435, 109 S. Ct. 1892, 104 L. Ed. 2d 487 (1989). The defendant in Halper was a medical laboratory manager who had submitted 65 false Medicare claims for reimbursement. Although numerous, the claims were for small amounts and resulted in a total loss of only $ 585 to the government. When his fraud was discovered, Halper was indicted for violation of the criminal false claims statute, 18 U.S.C. § 287. Upon conviction, he was sentenced to a two-year period of incarceration and fined $ 5,000. Subsequently, the government filed suit under the civil False Claims Act, 31 U.S.C. § 3729 et seq., seeking to recover the statutory penalty of $ 2,000 for each of his 65 false claims i.e. $ 130,000 in total) over and above its actual loss. The district court concluded that the Double Jeopardy Clause was implicated in light of the criminal penalties previously imposed upon Halper and the disparity between the civil statutory penalty and the relatively small loss the government had actually sustained.
The Supreme Court agreed in a unanimous opinion. Because a civil proceeding may serve punitive as well as remedial ends, the Court acknowledged that a sanction imposed in such a proceeding may constitute the sort of multiple punishment prohibited by the Double Jeopardy Clause. 109 S. Ct. 1890 at 1901-02. The proper inquiry in this regard, the Court held, was whether the sanction carried objective indicia of punishment:
[A] civil sanction that cannot fairly be said solely to serve a remedial purpose, but rather can be explained only as also serving either retributive or deterrent purposes, is punishment, as we have come to understand the term. We therefore hold that under the Double Jeopardy Clause a defendant who already has been punished in a criminal prosecution may not be subjected to an additional civil sanction to the extent that the second sanction may not fairly be characterized as remedial, but only as a deterrent or retribution.