CFTC Challenge

The CFTC vs. The First Amendment: The Federal Government's Assault on Free Speech

In one of the first cases to extend First Amendment protections to the Internet, the Institute for Justice successfully defeated an attempt by the Commodity Futures Trading Commission to license Internet and software publishers.  If the regulators had prevailed, development of software and online content would have been dramatically curtailed as government agencies would have aggressively licensed and regulated information providers across these evolving media.

In this case, the Institute for Justice represented publishers of online content, websites, software, books and newsletters designed to assist people in analyzing the commodity and futures markets, and consumers who subscribed to the sites, on-line services and publications to find information and make their own decisions.  Like most content providers, the Institute’s clients did not invest customer funds; nor did they give person-to-person trading advice.  Instead, they simply provided information and analysis to their customers.

The federal government, specifically the Commodity Futures Trading Commission (CFTC), however, wanted to establish its authority to regulate and license anyone who spoke on topics under its jurisdiction—in this case the commodity markets.  The CFTC claimed that it, and only it, could grant the right to publish information on commodity trading.  The agency demanded registration as a “Commodity Trading Advisor” before one could publish any information on these markets.  Registration required fees, fingerprinting, background checks and perhaps most onerously, handing over a list of one’s subscribers and being subject to on-demand audits by the CFTC.  Even after obtaining government’s approval to speak, the license could be revoked if the agency believes the licensee does not operate in “the public interest.”  If one failed to register, he or she risked $500,000 in fines and up to five years in prison.

This case halted the next wave of government regulation—a regime under which individuals and companies would have had to secure government approval before developing software or publishing online.

Case Team



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John E. Kramer Vice President for Strategic Relations [email protected]


The ability to speak and publish freely is the birthright of all Americans. But not if the Commodity Futures Trading Commission (CFTC) gets its way. The CFTC claims that it, and only it, can grant the right to publish information about trading commodities. Anyone who offers advice, analysis or even general information about this subject for compensation must be registered as a “commodity trading advisor.” Selling a book or a piece of software, or charging a newsletter subscription fee forces the publisher to register with the CFTC. Registration involves fingerprinting, paying fees, filing reports with the CFTC, turning over subscriber lists, and being subject to on-demand audits. Anyone not registered who publishes on this subject violates federal law, and is subject to $500,000 in fines and up to five years in jail-a felony offense. On July 30, 1997, the Institute for Justice sued the CFTC to halt these efforts to license speech.

Established in 1974, the CFTC is the federal agency charged with regulating the commodities and futures markets in the United States. Founded in the mid-1800s, the organized commodity exchanges were created to establish the price of agricultural products not only for immediate delivery, but also for future pricing. The markets enabled farmers and producers to know what price they could expect to receive at harvest time, before even planting a crop. As a result, farmers could determine whether or not it made economic sense to plant a crop in the spring for harvest in the fall. Today, these markets (now known as commodity and futures exchanges) include everything from pork bellies to Japanese yen, heating oil to soybeans. They have evolved into one of the most important financial markets in the world, enabling raw material producers, processors and users, financial intermediaries, and international companies to manage their price, interest rate, and exchange rate risk. And investors throughout the world can interpret the information that converges on the exchange floors and enter the futures markets. Our futures markets are a classic example of the free enterprise system at work.

Unfortunately, rather than a discrete role for government regulation to protect individuals from fraud in the marketplace, the CFTC recently has sought to maximize its power at every turn. Not content simply to police individuals and firms actively managing investor accounts in the exchanges, the CFTC began in 1995 to demand that anyone who publishes information about commodities for a fee be registered and regulated, even if the person neither offers personalized investment advice nor invests customer funds.

The Securities and Exchange Commission (SEC) attempted to do the exact same thing in the 1980s to individuals who provide information on stocks and securities. But in 1985 the U.S. Supreme Court held that so long as individuals are merely publishing, rather than trading securities or offering personal advice, they need not be registered with the SEC. Lowe v. Securities and Exchange Commission, 472 U.S. 181 (1985). As a result of that decision, the SEC went back to its authorized mission of rooting fraud out of the marketplace rather than harassing publishers. Importantly, this precedent did not hamper the ability of the SEC to go after the “bad guys” in the financial business, but instead led to a proliferation of new sources of information for people interested in stock trading. Motley Fool, the new on-line source on stock trading, is but one example of the burgeoning sources of information on stocks. Individuals who publish about commodities, however, do not enjoy this same protection and instead live in fear of the CFTC stopping their presses.

The CFTC has moved beyond traditional publications and now wants to regulate computer software and information on-line. The CFTC has filed lawsuits seeking to stop unregistered developers of computer software from offering their products. Moreover, while national attention focused on the Communications Decency Act and the government’s attempt to regulate indecency on the Internet, the CFTC last year quietly attempted to regulate the Internet with potentially more damaging consequences for all of society. The proposal spares virtually nothing on the Internet from CFTC oversight and regulation-web sites, usergroups, and hyperlinks are brought under the CFTC’s jurisdiction. Anyone who establishes one of these tools must be registered, fingerprinted, pay fees, and be subject to audits at the demand of the agency. Although the CFTC has suspended (but not withdrawn) the rule’s enforcement pending further review, the proposal heralds the intrusion of the heavy hand of government into this vital emerging technology.

In its suit, the Institute for Justice represents newsletter publishers, software developers, and those who use the Internet. The Institute’s lawsuit seeks to end government-compelled registration of those who either through traditional publications, software, or the Internet, offer impersonal analysis, advice, and information about the commodities markets. The plaintiffs include both the publishers and the consumers of speech-the readers of these publications-who wish to continue to publish and receive useful information without government interference. The lawsuit aims to preserve both the right of individuals to communicate truthful information and the ability of willing listeners to receive important information to guide their economic decision making.


More than 350 years ago, Paradise Lost author John Milton penned his classic essay, Appeal for the Liberty of Unlicensed Printers, a challenge to the ability of the English Parliament to license those who wanted to publish. Milton and later the drafters of the First Amendment recognized that freedom of the press was first and foremost a right to publish “without a license what formerly could be published only with one.”

The CFTC, however, has turned this fundamental principle of freedom on its head-only those “approved” by the agency will be allowed to publish commodities information. As mentioned previously, anyone who offers analysis, advice, or even provides general information about the commodities markets must be registered as a “commodity trading advisor,” even if the person neither actively invests customer funds in the market nor provides person-to-person consultation.

Imagine if a federal agency demanded that individuals offering opinions about automobiles or appliances in Consumer Reports or a similar publication be licensed and subject to constant oversight by the government. This seemingly absurd scenario undoubtedly would be declared unconstitutional, yet small publications providing information about commodities face an identical situation.

For the past two years, the CFTC has undertaken a campaign against small newsletter publishers, individuals who offer benign facts like price information and charts mapping historical trends in commodities markets. The message of this campaign is clear: register with the CFTC or risk prosecution.

The CFTC’s campaign has had a serious chilling effect upon an entire industry. Consider the case of plaintiff Stephen Briese, publisher of the Bullish Review market letter. He monitors the CFTC’s own Commitments of Traders report, relaying suspected errors to both his subscribers and the CFTC itself. Briese is not registered, but he offers “commodity trading advice,” according to the CFTC. However, all of his subscribers get the same information and the same commentary; the advice, opinions, and commentary are entirely impersonal. Briese’s fear of government prosecution has caused him to refrain from offering specific trade recommendations or even advertising his publication. Nevertheless, under the CFTC’s interpretation of the law, Briese must register. As a result, Briese must consider switching to analyzing stock and bond markets, where his opinions receive full First Amendment protection.

Moreover, the CFTC’s recent campaign against the publishers of computer software has stopped Briese from offering the commodity trading software he has designed. The CFTC has declared that the registration requirements apply to designers and distributors of computer software programs that generate commodity trading analysis and strategies. Again, Briese risks CFTC prosecution if he offers his software. Computer software, however, is speech, and is entitled to First Amendment protection. As a federal district court recently noted, “the particular language one chooses [does not] change the nature of language for First Amendment purposes. The court can find no meaningful difference between computer language. . .and German or French.” The CFTC’s suppression of software relating to commodities trading deprives Briese not only of his First Amendment rights, but also causes him to suffer economically.

Plaintiff Frank Taucher publishes a number of newsletters and books, including the respected Supertrader’s Almanac, offering analysis of seasonal trends in commodities, among other commodity publications. Like Briese, Taucher has developed software that he cannot bring to the market because of the CFTC. Moreover, with the advent of the CFTC’s campaign against newsletter publishers, Taucher’s very livelihood is threatened. Taucher is perhaps at greater risk than Briese, since several of his publications provide trading recommendations and strategies-an area in which the CFTC has been particularly vigilant in enforcing the registration requirements. Indeed, Jeff Holik, deputy director of enforcement for the CFTC recently told The Wall Street Journal that the agency was going to continue to “vigorously enforce” registration requirements against publishers “giving specific recommendations to buy and sell futures.”

As a result, Taucher faces heavy fines and even imprisonment merely for providing publications to willing subscribers. Taucher, like numerous other publishers, lives in constant fear of government investigation and prosecution. And like so many others, he has grown reluctant to advertise or market his publications, and instead relies on current subscribers.

Other unregistered publishers face similar threats and harassment for publishing information without being registered. Plaintiff Bo Thunman lives in fear of a “knock on the door” due to the publication of his Club 3000. This publication is a forum where both Bo and the members of the club trade information on commodities. Moreover, the forum is an important source of information about who are the best and worst trading advisors. Thunman and his readers routinely criticize publishers who are wrong in their analysis. In other words, Thunman’s publication is probably a far more effective mechanism to separate the good publishers from the bad than the CFTC could ever hope to be. However, because he and his readers provide opinions without being registered, they are violating federal law, according to the CFTC. Thunman and his writers wish to remove the cloud of doubt and suspicion of illegality that surrounds their publication.

Roger Rines is also challenging the registration requirement as a subscriber to several commodity advisory newsletters published by both registered and unregistered publishers. He serves as director of research for Commodity Traders Consumer Report. Rines is responsible for tracking the results of advisor recommendations and ranking the most accurate and successful advisors. His publication, like Thunman’s, serves as an important source of information for readers of commodity publications. Since the inception of the CFTC’s campaign, he has watched publishers drop out of the newsletter business because of the threat of CFTC prosecution. Even more disturbing for consumers, he has watched advisor recommendations become so vague-often in a vain attempt to avoid CFTC oversight-as to become almost worthless to subscribers interested in specific and accurate advice. He has joined forces with the publishers to protect the First Amendment right of both publishers and readers of economic information.

It is bad enough that the CFTC is going after publishers of newsletters and the publishers of computer software. Now, the CFTC has its sights set on-line.

Regulation of the Internet

History is rich with inventive means to expand the ability to communicate-and richer still with efforts by government to censor speech. So it comes as little surprise that with the advent of the Internet, the heavy hand of government already appears.

The Internet by its very nature is a decentralized system of transmitting and storing vast amounts of information. As a panel of judges from the U.S. Court of Appeals for the Third Circuit recently recognized, the Internet “has achieved, and continues to achieve, the most participatory marketplace of mass speech that this country-and indeed this world-has yet seen.” American Civil Liberties Union (ACLU) v. Reno, 929 F. Supp. 825 (E.D.Pa. 1996). The U.S. Supreme Court in June agreed, and struck down the Communications Decency Act. Reno v. ACLU, 65 U.S.L.W. 4715 (June 25, 1997). In so doing, the Court recognized that the Internet should receive the highest form of First Amendment protection.

The CFTC, however, seems to operate in a legal vacuum concerning the ability of government to restrict who may use the Internet. Through the Communications Decency Act, the federal government sought to control the content of speech on the Internet. The proposal by the CFTC represents another equally dangerous regulatory scheme. The CFTC seeks to control who may provide information over the Internet. Anyone who offers information about commodities for compensation over the Internet is subject to the registration requirement. While most of us view the Internet as an exciting, revolutionary method of communication, the CFTC views it as a potentially dangerous mechanism it must control and regulate. The CFTC blandly states in its rule that the Internet presents “regulators with a complex of issues that differ significantly from those presented by traditional paper-based or telephonic activities.”

The CFTC’s authority could legitimately be construed to cover on-line trading services and to root out on-line fraud. However, the agency wants to regulate all information that is on the Net-webpages, hyperlinks, chatrooms, and software applications. Here are but a few examples of what the CFTC wishes to regulate:

Republication: One of the most sweeping-and most disturbing-aspects of the CFTC’s proposal is its admonition that it can regulate even those who reprint publications written by others. According to the CFTC, information already in the public domain is commodity trading advice subject to regulation. The Internet of course provides a method of storing, transmitting, and obtaining access to vast amounts of information with a few clicks of a mouse. Entire libraries are at one’s fingertips. According to the CFTC, however, even one who compiles information published elsewhere on the Net or in book form-in other words, someone who establishes a library on-line-must register. Perhaps even worse than the fact that library compilers must register is the prospect of the CFTC scouring through the Net in an attempt to find an unauthorized person who offers books and information about the commodities market.

Websites: The only commodities websites exempt from registration are those that offer “yellow pages”-type listings. But if a provider adds any commentary, including advertising, this triggers the registration requirement. If you provide opinions, then you must register. If you receive compensation from any advertisers on your website, then you must register. Even if you provide a disclaimer on the website stating that you are not making decisions for others, it does not matter; you must still register.

Hyperlinks: Hyperlinks are one of the most prominent and important features of the Net, and the CFTC is determined to regulate them. A hyperlink is simply a connective mechanism between websites. But the CFTC sees them as a means of providing information about commodities trading. The CFTC exempts registration only if a person provides a list of hyperlinks that is the equivalent of a telephone book. Anything else, and the CFTC cracks down-any editorial comments, even highlighting of certain names or links could bring on regulation. In one of its most preposterous statements concerning Internet regulation, the CFTC states that a list of hyperlinks of persons or services that is “preselected” or “defined” can trigger CFTC oversight. Of course, what other type of list can there be outside of listing every trader in a particular area or every source of information, making the website virtually useless?

Compensation. . .or not: The CFTC proposal is internally inconsistent. For instance, the CFTC claims the payment of compensation triggers the registration requirement. However, the CFTC regulates the following factual scenario: if an individual who studies the commodities and futures markets and shares information and opinions with three of his friends through e-mail or other electronic communications and no others, then he need not register. However, if that person operates a website and posts the performance data of his friends’ accounts, then he would have to register. Here, however, the person never received compensation from anyone, but merely went “public” with the information. Nevertheless, he is subject to registration. The CFTC’s example demonstrates the sweeping nature of its proposal-and its determination to bring as many people as possible under its jurisdiction, even if it means not following its own guidelines.

The CFTC’s proposal is as disturbing as it is sweeping. It strikes at the very core of freedom of speech and the press-and it violates the First Amendment. Unless the CFTC is stopped, those who disseminate indecent pictures over the Net could now receive greater protection than those who publish information about pork bellies and Japanese yen.

Litigation Strategy

Central to the mission of the Institute for Justice is reinvigorating the founding principles of the First Amendment. Through litigation and public outreach we seek to protect the free flow of information indispensable to our republican form of government and to our free enterprise economy.

The notion that individuals must register with the government before providing information-the equivalent of obtaining a license in order to speak or publish-is antithetical to the First Amendment and to the tradition of free speech and open inquiry in this country. The U.S. Supreme Court has held that a licensing scheme “strikes at the very foundation of freedom of the press.” Indeed, virtually any requirement of prior permission to speak or publish constitutes a “prior restraint” on speech and violates the First Amendment. Simply put, the government cannot condition free speech on first obtaining a license or permission from the government. The CFTC violates this fundamental constitutional right through its application of the registration requirements under the Commodity Exchange Act.

The CFTC’s actions conflict directly with the U.S. Supreme Court’s decision in Lowe v. Securities and Exchange Commission, 472 U.S. 181 (1985). Recognizing the hostility toward licensing of the press mentioned above, the Supreme Court in Lowe held that publishers had the right to publish impersonal advisory newsletters concerning stocks and securities without government-mandated registration. In a concurring opinion, three justices declared that required registration of such publications violated First Amendment guarantees.

Astonishingly, the CFTC claims that it is not governed by Lowe. In the late 1980s and early 1990s, two administrative law judges at the CFTC held that Lowe applied to the CFTC and that impersonal publishers of futures information could not be required to register. However, in 1993, the CFTC overruled these judges and declared that even the publishers of impersonal information must register as commodity trading advisors. The grounds for the CFTC’s refusal to follow the clear mandate of Lowe are (1) that the Court was interpreting the Investment Advisers Act (IAA), not the Commodity Exchange Act (CEA); and (2) that the CEA only exempts publications offering commodity investment advice that is “solely incidental” to the conduct of their business.

These purported justifications are entirely unpersuasive. First, the language of the IAA and the CEA are virtually identical, and the exclusion from registration for investment advice concerning stock trading set forth by the Court in Lowe is equally applicable to commodities advisors under the CEA. Second, the exemption for publications that offer investment advice “solely incidental” to the publication’s mission does nothing to cure First Amendment violations. The small publications placed most in jeopardy by the CFTC’s interpretation deal almost exclusively with commodity markets and analysis. Under the CFTC’s rule, they must involuntarily register.

The CFTC also ignores important recent jurisprudence recognizing computer software as speech worthy of full protection under the First Amendment. Although a relatively new area in the law, the U.S. District for the Northern District of California has held that software-even encryption software that could arguably raise national security concerns-is speech for purposes of First Amendment protection in the same way that music notations and mathematical equations are protected under the Constitution. Importantly, the court struck down a government licensing scheme analogous to the CFTC’s attempt to license the makers of commodity trading software. Surely, if computer software relating to national security matters is protected under the First Amendment, so too is software that offers suggestions as to when is the best time to buy heating oil or cattle futures. The CFTC’s attempt to register software publishers violates the free speech guarantee of the First Amendment.

Attempts by the CFTC to regulate the Internet are deeply destructive of First Amendment freedoms. This summer, the U.S. Supreme Court professed profound skepticism toward governmental efforts to regulate the Internet. Moreover the Court was particularly concerned that speakers on the Internet would have to choose between silence and the risk of prosecution. The same chilling effect applies with equal vigor to those who wish to provide commodities information without fear of reprisal by the CFTC.

Of course, the CFTC and its sister agency, the Federal Trade Commission, can protect consumers from fraud. For instance, if a publisher intentionally provides false and misleading information, the government would be within its right to prosecute those individuals for fraud. Anti-fraud statutes provide ample protection to consumers from fraudulent or false commodities information.

Admittedly, the quality of commodities information varies among different publications and over the Net. Some publications supply their customers with useful information for their investments, while others are wrong in their analysis or too late in their pronouncements to help investors. The First Amendment guarantees, however, that decisions over which publications are worthwhile and which are of lesser value be made in the marketplace of ideas, not in the offices of the CFTC.

Moreover, the registration requirements would do nothing to separate the responsible, accurate publications from those that provide information of little or no use to consumers. In fact, the registration requirements are likely to harm the public. Public forums like Club 3000 would not be allowed to disseminate individual trader’s experiences using publishers’ software and advice. And in the case of Steve Briese, the public would be denied oversight of the CFTC’s own data releases. The registration requirements merely serve to hamper the dissemination of economic information, without any corresponding benefit to the public or to the commodities market. Under the First Amendment, the CFTC must limit its regulatory oversight to those individuals that actively manage or invest funds and those who offer person-to-person investment advice. All other types of commentary about commodities markets are entitled to full First Amendment protection.


At its heart, the CFTC’s policy is a policy of ignorance. The agency seems to believe that the less information people have about commodities trading, the better. The First Amendment and the tradition of open inquiry in this country are premised on the exact opposite principle. More information, more robust debate, more speech creates a marketplace of ideas where listeners, not government officials, choose which information is valuable and which speakers are worthy of being heard from again. Moreover, as Justice John Paul Stevens recently wrote, the “Constitution is most skeptical of [laws] that seek to keep people in the dark for what the government believes to be their own good.” Through its campaign against newsletters, computer software, and Internet sites, the CFTC stifles this marketplace and keeps consumers in the dark about valuable economic information. This lawsuit will hopefully close another sordid chapter in government’s continuing campaign against free speech. Litigation Team

The lead lawyers in this case for the Institute for Justice are Staff Attorney Scott Bullock, President and General Counsel Chip Mellor and Staff Attorney Donna Matias.

The Institute for Justice advances a rule of law under which individuals control their destinies as free and responsible members of society. Through strategic litigation, training, and outreach, the Institute secures greater protection for individual liberty, challenges the scope and ideology of the Regulatory Welfare State, and illustrates and extends the benefits of freedom to those whose full enjoyment of liberty is denied by government. The Institute was founded in September 1991 by William Mellor and Clint Bolick.

For more information, or to arrange an interview with the Institute for Justice and its clients, please contact: John E. Kramer, Director of Communications Institute for Justice901 N. Glebe Road, Suite 900Arlington, VA 22203Phone: (703) 682-9320Fax: (703) 682-9321

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