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

Corporations, Securities & Antitrust Practice Group Newsletter - Volume 1, Issue 3, Fall 1997
By Scott Bullock
December 01, 1997

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. 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. The Institute for Justice has commenced an action against the CFTC to halt these measures to unconstitutionally license speech on behalf of certain persons who publish information about commodities, through both traditional media and over the Internet. This action, titled Taucher v. Born, was filed on July30, 1997 in the U.S. District Court for the District of Columbia, Civ. No. 1711.

Established in 1974, the CFTC is the federal agency charged with regulating the commodities and futures markets in the United States. Unfortunately, rather than limiting itself to the discrete and valuable role of establishing regulations to protect individuals from fraud in the marketplace, the CFTC recently has sought to expand its reach 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 about commodities for a fee be registered and regulated, even if the person neither offers personalized investment advice nor invests customer funds.

The CFTC's current power play mirrors the SEC's earlier misguided effort to impose registration requirements on individuals who publish certain information about securities. The U.S. Supreme Court rebuffed the SEC in a 1985 decision, holding that so long as individuals are merely publishing about securities, rather than trading them or offering personal advice, the agency could not require registration. 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. Individuals who publish about commodities, however, do not enjoy this same protection and instead live in fear of the CFTC stopping their presses.

Since its current registration drive began in 1995, 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. Through the Communications Decency Act, the federal government sought to control the content of speech on the Internet. The CFTC is not content merely to control what information is available on the Internet, but now seeks to dictate who may provide information over the Internet.

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 that addresses commodities 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 an overly broad intrusion by the heavy hand of government into this vital emerging technology. (You can learn more about the CFTC's Internet proposal at

Not surprisingly, 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 publishers and publications are worthwhile be made in the marketplace of ideas, not in the offices of the CFTC.

Of course, the government can and should 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.

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 commodity markets. Just as important as the publishers, the plaintiffs also include the consumers of speech-the readers of these publications-who wish to continue to receive useful information without government interference. This action aims to preserve both the right of individuals to communicate truthful information and the ability of willing listeners to decide which information will assist them in their economic decisionmaking.

At its heart, the CFTC's policy is a policy of ignorance. The agency seems to believe that the less information people have about commodity 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." Rubin v. Coors Brewing Co., 115 S.Ct. 1585, 1597 (1995). 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. The Court has already ruled that such governmental action is unconstitutional and this precedent and our tradition of free speech should return the CFTC to its appropriate role, a role of fraud prevention rather than big brother.

Scott G. Bullock is an attorney at the Institute for Justice, a Washington, D.C.-based public interest law firm that represents the plaintiffs in Taucher v. Born.