In response to two adverse First Amendment decisions in federal court, the Commodity Futures Trading Commission (CFTC) amended its regulations in March 2000. The agency will no longer require certain newsletter publishers, Internet Web site operators, and others from having to register as commodity trading advisers (CTAs) under the Commodity Exchange Act.

    The CFTC originally had implemented an extensive registration process for commodities trading advisers, requiring fingerprinting, background checks, fees, and the filing of reports with the Commission. Those who failed to register were subject to severe civil and criminal penalties. The agency interpreted the requirements to apply to virtually anyone who ran a Web site discussing commodities even if the advice was not personalized.

    Government attorneys argued that because the requirements amounted to the regulation of a profession, a reviewing court would not need to apply First Amendment analysis. However, two federal district courts characterized the registration requirement as applied to be an unconstitutional prior restraint in violation of the First Amendment. Taucher v. Born, 53 F. Supp. 2d 464 (D.D.C. 1999); Commodity Trend Service, Inc. v. CFTC, 1999 U.S. Dist. LEXIS 15877 (N.D. Ill. Sept. 28, 1999).

    In Taucher, 10 individuals -- most of whom publish books, newsletters, or Web sites about commodities and futures trading -- challenged the law and related CFTC regulations in federal court in July 1997. After a three-day trial in May 2000, U.S. district court Judge Ricardo Urbina took the matter under advisement. On June 21, he issued a ruling that struck down the registration requirements on First Amendment grounds.

    Attorneys for the CFTC argued that the registration and licensing requirements represented permissible regulation of a profession rather than regulation of speech. However, Judge Urbina noted that "there comes a point ... where government legislation crosses the line between the regulation of a profession and the regulation of speech."

    "The First Amendment permits restraints on speech only when they are narrowly tailored to advance a legitimate governmental interest," Judge Urbina wrote. While the government has a legitimate interest in protecting consumers from potentially fraudulent speech, the judge ruled that the means chosen by the CFTC were "extreme." The defendants "have imposed a drastic prohibition on speech based on the mere possibility that the prohibited speech will be fraudulent," the judge wrote. "Such a prior restraint on fully protected speech cannot withstand the searching scrutiny of the First Amendment."

    The CFTC filed a notice of appeal in August 1999. However, the agency later dropped its appeal when it adopted the new exemption.

    Commodity Trend Service, Inc., now known as CTS Financial Publishing, Inc., distributes a number of publications concerning the securities and commodity futures market, including books, magazines, and publications available over the Internet. The publications offer impersonal advice, as CTS does not obtain information tailored to the financial situation of any specific subscriber.

    In April 1997 CTS sued in federal court, alleging that the act is unconstitutional on its face and as it applies to the publishers of impersonal advice. In 1997, a federal district court judge dismissed the action as not ripe. Commodity Trend Service, Inc. v. CFTC, 1997 U.S. Dist. LEXIS 11514 (N.D. Ill. July 31, 1997). However, in 1998, the U.S. Court of Appeals for the Seventh Circuit reinstated the suit. Commodity Trend Service, Inc. v. CFTC, 149 F.3d 679 (7th Cir. 1998). On remand, CTS continued its challenge of the registration requirements and also attacked several anti-fraud provisions of the Commodity Exchange Act and corresponding federal regulations.

    In September 1999, U.S. district court Judge Wayne R. Andersen (not the judge who dismissed the suit in 1997) reached the same conclusion as Judge Urbina in Taucher, writing: "[W]e find that applying the registration requirement of the CEA to prohibit CTS from publishing its impersonal commodity futures trading advice constitutes an impermissible prior restraint upon the exercise of free speech in violation of the First Amendment." Judge Andersen did find that an anti-fraud provision of the CEA applied to CTS. Commodity Trend Service, Inc. v. CFTC, 1999 U.S. Dist. LEXIS 15877 (N.D. Ill. Sept. 28, 1999). The CFTC originally appealed Judge Andersen’s decision that the registration requirements of the CEA were unconstitutional. However, it voluntarily dropped that appeal. Commodity Trend Service, Inc. v. CFTC, 233 F.3d 981, 985 n.1 (7th Cir. 1999).

    In March 2000, the CFTC published its new rule in the Federal Register. 65 Fed. Reg. 12,938 (2000) (to be codified at 17 C.F.R. 4.14(a)(9)). The rule provides that persons do not have to register as commodity trading advisors if they do not engage in the following activities: "directing client accounts; or providing commodity trading advice based on, or tailored to the commodity interest or cash market value positions or other circumstances or characteristics of particular clients."

    In the Register, the CFTC explained its new rule: "The exemption adopted today is intended to apply to CTAs that provide standardized commodity trading advice by means of media such as newsletters, prerecorded telephone newslines, Internet web sites, and non-customized computer software." Id. at 12,939. The agency mentioned that "litigation of First Amendment issues has required the expenditure of considerable resources by the Commission and, in some instances, has complicated the Commission’s investigation and prosecution of fraud by CTAs." Id.

    Fortunately, the CFTC appears to have recognized that it needs to be more protective of speech: "The Commission believes that minimizing impact on speech, other than false, deceptive or misleading speech, is a relevant policy consideration in determining the Commission’s regulatory approach towards CTAs whose relationship with their clients is limited to standardized advice through media such as newsletters, prerecorded telephone newslines, Internet web sites, and non-customized computer software." Id.