Cftc v. James Crombie
19-16190
9th Cir.Sep 21, 2021Background
- In 2013 the district court entered a permanent injunction against James Crombie for violations of the Commodity Exchange Act; Crombie appealed parts of that injunction.
- Two challenged provisions: Section 5(b) bars Crombie from entering into commodity futures/options, swaps, forex, and related transactions for his own account or any account in which he has a direct or indirect interest; Section 5(c) bars any such contracts being traded on his behalf.
- A prior Ninth Circuit panel remanded for explanation of the provisions’ nexus to preventing future similar violations; on remand the district court explained it feared Crombie could falsify documents, solicit funds, deposit them into trading accounts (his or third-party), and then trade for customers, and it reimposed Sections 5(b) and 5(c).
- Crombie argued the provisions were speculative/overbroad, redundant with Section 5(e) (which prohibits soliciting/receiving funds), impermissible because he allegedly did not directly misappropriate or directly deceive clients, and that lifelong bans are excessive.
- The Ninth Circuit reviewed for abuse of discretion, affirmed the district court: the court provided adequate justification tying the bans to preventing future similar violations; injunctions under the CEA are remedial and may be modified if future circumstances warrant; Crombie’s motion to compel grand jury materials was denied.
Issues
| Issue | Plaintiff's Argument (CFTC) | Defendant's Argument (Crombie) | Held |
|---|---|---|---|
| Whether Sections 5(b) and 5(c) are overbroad/abuse of discretion | Necessary to prevent future similar violations; risk Crombie could falsify docs and trade for customers or third parties | Bans are speculative and overbroad | Affirmed: not an abuse of discretion; district court gave adequate, non-speculative justification |
| Whether the trading bans are unnecessary because Section 5(e) already prohibits soliciting funds | 5(e) alone may not prevent concealed misuse; trading bans are needed to prevent undetectable schemes | 5(e) makes the bans redundant | Rejected: district court reasonably feared noncompliance and delayed detection, so bans are necessary |
| Whether a personal trading ban requires specific predicates (misappropriation, direct deception, refusal to promise future compliance) | Personal ban warranted here based on prior finding of willful deception | Ban improper because Crombie did not misappropriate funds, deceive directly, or refuse to promise compliance | Rejected: those prerequisites are not exclusive; prior panel already found willful deception; ban permissible |
| Whether lifetime duration of Sections 5(b) and 5(c) is excessive | Permanent injunctions under the CEA are remedial and may be permanent if facts support | Lifetime ban is excessive; points to five‑year administrative presumption for felons | Affirmed: permanence is remedial, not punitive; lifetime ban may be modified later if circumstances change |
Key Cases Cited
- Commodity Futures Trading Comm’n v. Crombie, 914 F.3d 1208 (9th Cir. 2019) (prior panel's findings on deception and remand for nexus explanation)
- Stormans, Inc. v. Selecky, 586 F.3d 1109 (9th Cir. 2009) (an overbroad injunction is an abuse of discretion)
- Lawrence v. Commodity Futures Trading Comm’n, 759 F.2d 767 (9th Cir. 1985) (CEA sanctions characterized as remedial)
- Clark v. Coye, 60 F.3d 600 (9th Cir. 1995) (standard for motions to modify or lift injunctions)