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CFTC modifies registration rule to exempt publishers

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  1. Prior Restraint

    NMU         WASHINGTON, D.C.         Prior Restraints         Mar 29, 2000    

CFTC modifies registration rule to exempt publishers

  • A federal appellate court dismissed a challenge to Commodities Futures Trading Commission rules after the commission finally exempted publishers from the registration requirements.

The Commodity Futures Trading Commission has changed its rules to exempt newsletter publishers, software developers and Internet website operators from its registration and licensing requirements. The commission dropped an appeal of a federal trial court ruling overturning its more restrictive rule two weeks before oral argument were to take place in the U.S. Court of Appeals in Washington, D.C.

The CFTC’s motion to dismiss its appeal was granted on March 28. Oral argument had been scheduled in the case for April 11.

The CFTC’s decision is a victory for the Institute of Justice, which brought the injunctive action against the CFTC on behalf of publishers that either publish Web-based newsletters or sell futures-trading software over the Internet. The Reporters Committee for Freedom of the Press filed friend-of-the-court briefs before both the court of appeals and the district court.

“We’re glad the CFTC has caved,” lead attorney Scott Bullock said in a statement. “The CFTC’s campaign was a blatant First Amendment violation, and now even the federal government recognizes it’s wrong to try to license Internet publishers and software developers.”

The new rule exempts from mandatory registration under the Commodity Exchange Act commodity trading advisors who disseminate standardized commodity trading advice. The plaintiffs and the Reporters Committee had argued that the old rule, which required some publishers to register with the CFTC under threat of criminal prosecution, violated the First Amendment by encroaching on protected speech and promoting self censorship.

The case concerned a 1995 CFTC requirement that “commodity trading advisors” must register with the commission. The registration process mandates finger printing, fees, and an FBI background check. The CFTC had defined an advisor to include anyone who provides information, analysis or advice about commodity trading either directly or through publications, writings or electronic media.

Under the rule, the CFTC could restrict or grant registration based on the “training, experience and such other qualifications as the Commission finds necessary or desirable to ensure the fitness of persons required to be registered.” Registration could also be revoked “in the public’s interest.” Upon registration, publishers had to maintain copies of their publications, lists of past and current subscribers and financial records to be available on demand for CFTC audits. The publishers were also required to file reports “as prescribed by the Commission.”

Larger publications, such as The Wall Street Journal and Investors Business Daily, were excluded from the registration requirement because their publications do not exclusively report on commodities. But if smaller publishers did not register, they faced fines up to $500,000 and five years in jail for a felony offense.

The CFTC had appealed the decision of a federal court in Washington, D.C. striking down the Commission’s rule requiring publishers and Internet operators who provide futures-trading information to register with the government. The court found that the rule constitutes “an impermissible prior restraint upon the exercise of free speech and runs afoul of the First Amendment.”

The court ruled that the CFTC’s registration requirement was an attempt to regulate speech that exceeded the government’s ability to regulate commodities trading. The judge distinguished the publisher-plaintiffs from commodities advisers who “exercise judgment” on behalf of those who purchase their products because the publishers never have any personal contact with their customers and never make trades for them.

(Taucher v. Born; Media Attorney: Scott Bullock, Washington, D.C.)

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© 2000 The Reporters Committee for Freedom of the Press

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