Commodity Futures Trading Commission v. Co Petro Marketing Group, Inc., a California Corporation Harold D. Goldstein and Michael Bradley Krivacek

Co Petro Marketing Group, Inc., and individual appellants, Harold Goldstein and Michael Krivacek,1 (Co Petro) appeal from an order of the district court, 502 F.Supp. 806, permanently enjoining them from offering, selling, or otherwise engaging in futures contracts in petroleum products, in violation of §§ 4 and 4h of the Commodity Exchange Act, as amended, (the Act), 7 U.S.C. §§ 6, 6h (1976). Co Petro contends that the contracts it sold were not subject to the Act. Co Petro also appeals from the district court's award of relief ancillary to the permanent injunction. The district court appointed a receiver, ordered Co Petro to permit the receiver access to the firm's books and records, ordered an accounting, and generally ordered the disgorgement of unlawfully obtained funds. Co Petro further assigns as error the district court's taking judicial notice of three prior proceedings against defendant Goldstein. We affirm the district court's judgment that Co Petro was offering and selling "contracts of sale of a commodity for future delivery" (futures contracts) within the meaning of section 2(a)(1) of the Act, 7 U.S.C. § 2 (1976). We also agree with the district court that Co Petro violated sections 4 and 4h of the Act, 7 U.S.C. §§ 6, 6h (1976), by trading these contracts otherwise than by or through a member of a board of trade which has been designated by the Commodity Futures Trading Commission as a contract market. Finally we affirm the award of ancillary relief and find no error in the district court's taking judicial notice of the three prior proceedings against defendant Goldstein.

Co Petro is licensed by the State of California as a gasoline broker. It operated a chain of retail gasoline outlets and also acted as a broker of petroleum products, buying and reselling in the spot market several hundred thousand gallons of gasoline and diesel fuel monthly. While part of its business operations involved the direct sale of gasoline to industrial, commercial, and retail users of gasoline2, Co Petro also offered and sold contracts for the future purchase of petroleum products pursuant to an "Agency Agreement for Purchase and Sale of Motor Vehicle Fuel" (Agency Agreement).

Under the Agency Agreement, the customer (1) appointed Co Petro as his agent to purchase a specified quantity and type of fuel at a fixed price for delivery at an agreed future date, and (2) paid a deposit based upon a fixed percentage of the purchase price. Co Petro, however, did not require its customer to take delivery of the fuel. Instead, at a later specified date the customer could appoint Co Petro to sell the fuel on his behalf. If the cash price had risen in the interim Co Petro was to (1) remit the difference between the original purchase price and the subsequent sale price, and (2) refund any remaining deposit. If the cash price had decreased, Co Petro was to (1) deduct from the deposit the difference between the purchase price and the subsequent sale price, and (2) remit the balance of the deposit to the customer. A liquidated damages clause provided that in no event would the customer lose more than 95% of his initial deposit.

Co Petro marketed these contracts extensively to the general public through newspaper advertisements, private seminars, commissioned telephone solicitors, and various other commissioned sales agents. The Commodity Futures Trading Commission brought this statutory injunctive action under section 6c of the Act, 7 U.S.C. § 13a-1 (1976), seeking to enjoin Co Petro's sales of petroleum products pursuant to its Agency Agreements. The Commission's complaint generally charged and the district court held that Co Petro was in violation of the Act by offering and selling contracts of sale of commodities for future delivery outside of a licensed contract market.

Co Petro contends that the Commission lacks jurisdiction over transactions pursuant to its Agency Agreements because these agreements are "cash forward" contracts expressly excluded from regulation by section 2(a)(1) of the Act, 7 U.S.C. § 2 (1976). While section 2(a)(1) provides the Commission with regulatory jurisdiction over "contracts of sale of a commodity for future delivery,"3 it further provides that the term future delivery "shall not include any sale of any cash commodity for deferred shipment or delivery." Cash commodity contracts for deferred shipment or delivery are commonly known as "cash forward" contracts, while contracts of sale of a commodity for future delivery are called "futures contracts". See H.R.Rep.No.93-975, 93d Cong., 2d Sess. 129-30 (1974). The Act, however, sets forth no further definitions of the term "future delivery" or of the phrase "cash commodity for deferred shipment or delivery." The statutory language, therefore, provides little guidance as to the distinctions between regulated futures contracts and excluded cash forward contracts and, to our knowledge, no other court has dealt with this question. Where the statute is, as here, ambiguous on its face, it is necessary to look to legislative history to ascertain the intent of Congress. See United States v. Turkette, 452 U.S. 576, 580, 101 S.Ct. 2524, 2527, 69 L.Ed.2d 246 (1981). Our examination of the relevant legislative history leads us to conclude that the Co Petro's Agency Agreements are not cash forward contracts within the meaning of the Act.

The exclusion for cash forward contracts originated in the Future Trading Act, Pub.L.No.67-66, § 2, 42 Stat. 187 (1921). Congress passed the Future Trading Act as a result of excessive speculation and price manipulations occurring on the grain futures markets. S.Rep.No.212, 67th Cong., 1st Sess. 4-5 (1921). See S.Rep.No.93-1131, 93d Cong., 2d Sess. 13 (1974), reprinted in (1974) U.S.Code & Ad.News 5843, 5854-55. To curb these abuses, the Future Trading Act imposed a prohibitive tax on all futures contracts with two exceptions. Section 4(a) of the Act exempted from the tax future delivery contracts made by owners and growers of grain, owners and renters of land on which grain was grown, and associations of such persons. 42 Stat. 187. Section 4(b) of the Act exempted from the tax future delivery contracts made by or through members of boards of trade which had been designated by the Secretary of Agriculture as contract markets. Id. During hearings on the bill that became the Future Trading Act, various witnesses expressed concern that the exemption for owners and growers of grain, owners and renters of land on which grain was grown, and associations of such persons, was too narrow. By its terms, this section might not exempt from the tax a variety of legitimate commercial transactions, such as cash grain contracts between farmers and grain elevator operators for the future delivery of grain. Hearings on H.R. 5676 Before the Senate Committee on Agriculture and Forestry, 67th Cong., 1st Sess. 8-9, 213-214, 431, 462 (1921). As a result, the Senate added language to section 2 of the bill, excluding "any sale of cash grain for deferred shipment" from the term "future delivery".4 S.Rep.No.212, 67th Cong., 1st Sess. 1 (1921). There is no indication that Congress drew this exclusion otherwise than to meet a particular need such as that of a farmer to sell part of next season's harvest at a set price to a grain elevator or miller.5 These cash forward contracts guarantee the farmer a buyer for his crop and provide the buyer with an assured price. Most important, both parties to the contracts deal in and contemplate future delivery of the actual grain.6

The exclusion was carried forward without change into the Grain Futures Act, Pub.L.No.67-331, § 2, 42 Stat. 998 (1922).7 In 1936, Congress enacted the Commodity Exchange Act, Pub.L.No.74-675, 49 Stat. 1491 (1936). This Act expanded the scope of federal regulation to include certain specified commodities in addition to grain, id., § 3, and reworded the exclusion to except "any cash commodity for deferred shipment or delivery." Id., § 2. The Commodity Exchange Act also deleted the express exemption for owners and growers of grain, owners and renters of land, and associations of such persons. Congress considered the exemption redundant since section 2 of the Act, which excluded cash commodity contracts for deferred shipment or delivery, served to protect the same interests that had been protected by the exemption for owners and growers. H.R.Rep.No.421, 74th Cong., 1st Sess. 4-5 (1935). Although the Act has been amended numerous times since 1936, the language excluding cash commodities for deferred shipment or delivery has remained the same.

A more recent House Report on the 1974 Amendments to the Act reconfirms the narrowness of the exclusion. H.R.Rep.No.93-975, 93d Cong., 2d Sess. 129-30 (1974). The House Report describes a typical cash transaction as involving, for example, a farmer who wants to convert 5,000 bushels of wheat into cash. He seeks a buyer such as a grain elevator for whom the wheat has "inherent value." The wheat has "inherent value" for the grain elevator because the elevator "is in contact with potential buyers such as the flour miller, and has the facilities to store, condition, and load out the grain and earn additional income from these services." Id. at 129. The wheat also has "inherent value" to the flour miller, who can increase its utility and value by grinding it into flour. Id. A cash forward contract is common in these kinds of transactions because it guarantees the miller, for example, a price but allows delivery to be deferred "until such time as he could process the wheat."8 Id. This House Report therefore supports prior history indicating that a cash forward contract is one in which the parties contemplate physical transfer of the actual commodity.

The situation for which the exclusion for cash forward contracts was designed is not present here. Co Petro's Agency Agreement customers were, for the most part, speculators from the general public. The underlying petroleum products had no inherent value to these speculators. They had neither the intention of taking delivery nor the capacity to do so. Yet it was to the general public that Co Petro made its strongest sales pitches. For example, in an advertisement in the Los Angeles Times under the headline "Invest in Gasoline," Co Petro stated: "The Sophisticated Small Investor Can Make Money Buying Gasoline. It's a high risk-high potential yield opportunity." In addition to advertising extensively in newspapers of general circulation, Co Petro ran seminars to explain its investment vehicle to the general public.9 It also hired sales agents experienced in marketing commodities to investors.10 In an apparent attempt to protect itself, Co Petro required the investor in one version of its Agency Agreement to initial the following statement: "I realize that a motor vehicle fuel purchase is a high risk speculative venture and I fully understand that I could lose most or all of my entire deposit and by virtue of my own business experience or independent advice, I am capable of evaluating the hazards and merits of this motor vehicle fuel purchase."

There is nothing in the legislative history surrounding cash forward contracts to suggest that Congress intended the exclusion to encompass agreements for the future delivery of commodities sold merely for purposes of such speculation. Congress has recognized the vital role speculators play in the proper functioning of futures markets, H.R.Rep.No.93-975, supra, at 138, and has expressed its desire to protect speculators through expansive federal regulation. See Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Curran, --- U.S. ----, ----, 102 S.Ct. 1825, 1845, 72 L.Ed.2d 182 (1982). Prior to the 1974 Amendments to the Act, only certain specified commodities were regulated. In 1974, Congress not only expanded the list of commodities subject to regulation, but also extended regulation to "all other goods and articles, ... and all services, rights, and interests in which contracts for future delivery are presently or in the future dealt with." 7 U.S.C. § 2 (1976). The House Report on these amendments stated: "There is no reason why a person trading in one of the currently unregulated futures markets should not receive the same protection afforded to those trading in the currently regulated markets." H.R.Rep.No.93-975, supra, at 76. See S.Rep.No.93-1131, supra, at 19. This recent expression of legislative intent to protect persons like Co Petro's customers, who deal in previously unregulated commodity futures, is consonant with a narrow reading of the exclusion for sales of cash commodities for deferred shipment or delivery. We hold, therefore, that this exclusion is unavailable to contracts of sale for commodities which are sold merely for speculative purposes and which are not predicated upon the expectation that delivery of the actual commodity by the seller to the original contracting buyer will occur in the future. See In re Stovall, (Current) Commodity Futures Law Reports (CCH) § 20,941 at 23, 778 (Dec. 6, 1979).

This does not end our inquiry, however. Even though Co Petro's Agency Agreements do not fall within the exclusion for cash forward contracts, there remains the question whether they are "contracts of sale of a commodity for future delivery" (futures contracts) within the meaning of section 2(a)(1) of the Act, 7 U.S.C. § 2 (1976). Co Petro contends that its Agency Agreements cannot be futures contracts because they lack most of the common distinguishing features of futures contracts as they are known in the industry. Futures contracts traded on the designated markets have certain basic characteristics. Except for price, all the futures contracts for a specified commodity are identical in quantity and other terms. The fungible nature of these contracts facilitates offsetting transactions by which purchasers or sellers can liquidate their positions by forming opposite contracts. The price differential between the opposite contracts then determines the investor's profit or loss. See Cargill, Inc. v. Hardin, 452 F.2d 1154, 1157 (8th Cir. 1971), cert. denied, 406 U.S. 932, 92 S.Ct. 1770, 32 L.Ed.2d 135 (1972); H.R.Rep.No.93-975, supra, at 130.

While contracts pursuant to Co Petro's Agency Agreements were not as rigidly standardized as futures contracts traded on licensed contract markets, neither were they individualized. Tables furnished by Co Petro to its sales agents demonstrate uniformity in the basic units of volume, multiples of which were offered for sale.11 Similarly, relevant dates in Co Petro's Agency Agreements were uniform. The date on which an investor had to notify Co Petro of his intent to take delivery or appoint Co Petro as his agent to resell the contract was set at approximately eight months from the purchase date. An investor could not give notice prior to the specified notice date. The delivery date was always ten months from the purchase date.

More important, however, than the degree to which Co Petro's Agency Agreements conform to the precise features of standardized futures contracts is the rationale for standardization in futures trading. Standardized form contracts facilitate the formation of offsetting or liquidating transactions. The ability to form offsetting contracts is essential, since investors rarely take delivery against the contracts.12 Pursuant to provisions in Co Petro's Agency Agreements, Co Petro was obliged to perform an offsetting service for its customers by reselling contracts for their accounts. Customers also could liquidate their positions in the face of adverse price movements by cancelling their contracts with Co Petro and paying only the liquidated damages provided for in the Agency Agreements.13 Therefore, Co Petro's customers, like customers who trade on organized futures exchanges, could deal in commodity futures without the forced burden of delivery. Disregarding form for substance, Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 553, 19 L.Ed.2d 564 (1967), we find without merit Co Petro's argument that its Agency Agreement represents a radical departure from the classic elements of a standardized futures contract. We also reject Co Petro's final contention that, contrary to the practice in organized futures markets where price is established by public auction, it negotiated prices directly with its Agency Agreement customers. The evidence indicates that, for the most part, Co Petro unilaterally set prices for its products according to the then-prevailing market rates, with the spot market determining resale prices to subsequent purchasers. Moreover, the fact that public auction did not determine Co Petro's prices is merely a result of Co Petro's failure to seek Commission licensing for organized exchange trading in petroleum futures.

In determining whether a particular contract is a contract of sale of a commodity for future delivery over which the Commission has regulatory jurisdiction by virtue of 7 U.S.C. § 2 (1976), no bright-line definition or list of characterizing elements is determinative. The transaction must be viewed as a whole with a critical eye toward its underlying purpose. The contracts here represent speculative ventures in commodity futures which were marketed to those for whom delivery was not an expectation. Addressing these circumstances in the light of the legislative history of the Act, we conclude that Co Petro's contracts are "contracts of sale of a commodity for future delivery." 7 U.S.C. § 2 (1976).

We further decline to accept Co Petro's contention that sections 4 and 4h of the Act, 7 U.S.C. §§ 6, 6h (1976), have no application to its activities. We note first that Co Petro did not properly raise this contention in district court. Normally an appellant may not present arguments in the Court of Appeals that it did not properly raise below, Rothman v. Hospital Service, 510 F.2d 956, 960 (9th Cir. 1975), but application of that rule is discretionary with the appellate court. Singleton v. Wulff, 428 U.S. 106, 121, 96 S.Ct. 2868, 2877, 49 L.Ed.2d 826 (1976). It is well-settled in this circuit that where the new issue is purely a legal one, the injection of which would not have caused the parties to develop new or different facts, it is proper to resolve it on appeal. Hansen v. Morgan, 582 F.2d 1214, 1218 (9th Cir. 1978); United States v. Patrin, 575 F.2d 708, 712 (9th Cir. 1978). Because the question here is purely one of statutory construction that is both central to this case and important to the public, we exercise our discretion to decide it.

Section 4 of the Act, 7 U.S.C. § 6 (1976), makes it "unlawful for any person to deliver ... any offer to make ... any contract of sale of commodity for future delivery on or subject to the rules of any board of trade in the United States, or ... to make or execute such contract of sale, ... except ... where such contract is made by or through a member of a board of trade which has been designated by the Commission as a 'contract market.' " (emphasis added). Co Petro contends that even if it were selling commodity futures contracts, the statutory language demonstrates that section 4 only prohibits transactions in futures contracts which currently are on or subject to the rules of a commodity exchange, as that institution is commonly understood. The statutory definition of "board of trade," however, is broad enough to encompass Co Petro's activities here. Section 2(a)(1) of the Act, 7 U.S.C. § 2 (1976), defines "board of trade" to "include or mean any exchange or association, whether incorporated or unincorporated, of persons who shall be engaged in the business of buying or selling commodity or receiving the same for sale on consignment." Where Congress has, as here, intentionally and unambiguously drafted a particularly broad definition, it is not our function to undermine that effort. Consumer's Union v. Heimann, 589 F.2d 531, 533 (D.C.Cir.1978). Co Petro clearly was an association of persons engaged in the business of selling commodities (petroleum products) within the plain meaning of the statute defining "board of trade." Where the statutory definition is clear on its face we need not delve into legislative history unless it is brought to our attention "that there is within the legislative history something so probative of the intent of Congress as to require a reevaluation of the meaning of the statutory language." Heppner v. Alyeska Pipeline Service, Co., 665 F.2d 868, 871 (9th Cir. 1981). See Watt v. Alaska, 451 U.S. 259, 266, 101 S.Ct. 1673, 1678, 68 L.Ed.2d 80 (1981). We have not been shown nor have we found any persuasive legislative history indicating that Congress intended the definition of "board of trade" to be narrower than the plain meaning of the statutory language.14

Because section 4 prohibits any board of trade from selling futures contracts unless the Commission has designated that board as a contract market, Co Petro has violated the Act. Co Petro points out, however, that since the Commission has not designated a contract market for the futures it sold, it could not comply with section 4. It argues strenuously that Congress could not have intended to make unlawful that which could not be done. We note, however, that section 6(a) of the Act, 7 U.S.C. § 8 (1976), places the burden of seeking contract market designation on the board of trade desiring such status. That section provides in part: "(A)ny board of trade desiring to be designated a 'contract market' shall make application to the Commission for such designation and accompany the same with a showing that it complies with the conditions of section 7 of this title, and with a sufficient assurance that it will continue to comply with the requirements of such section 7."15 Co Petro never sought contract market status and cannot complain of the consequences of its absence.

We hold that Co Petro was a board of trade as defined by section 2(a)(1) of the Act, 7 U.S.C. § 2 (1976), and that its failure to trade futures contracts through a designated contract market was in violation of section 4, 7 U.S.C. § 6 (1976). We also hold that Co Petro violated section 4h(1) of the Act, 7 U.S.C. § 6h(1) (1976). This section makes it illegal to conduct a futures business "if such orders, contracts, or dealings are executed or consummated otherwise than by or through a member of a contract market." Therefore, Co Petro's operation of a futures business off of a designated contract market was a clear violation of this section.

Ancillary to the permanent injunction prohibiting Co Petro from dealing in petroleum futures contracts, the district court ordered the appointment of a receiver, an accounting, and disgorgement16. We disagree with Co Petro's contention that the court was without statutory authority to grant the ancillary relief. Under section 6c of the Act, 7 U.S.C. § 13a-1 (1976), the Commission is empowered to bring an action to enforce compliance with the Act or to enjoin conduct violative of it. Upon a proper showing, the district court is empowered to issue permanent or temporary injunctions or restraining orders, writs of mandamus or orders affording like relief, including orders to take such action as is necessary to remove the danger of violation. Id. We note that several courts have found ancillary relief pursuant to section 6c proper. Commodity Futures Trading Commission v. Hunt, 591 F.2d 1211 (6th Cir.), cert. denied, 442 U.S. 921, 99 S.Ct. 2848, 61 L.Ed.2d 290 (1979) (disgorgement); Commodity Futures Trading Commission v. Muller, 570 F.2d 1296 (5th Cir. 1978) (order prohibiting defendant from concealing or disposing of his assets). We have not previously considered the propriety of ancillary relief under section 6c of the Act. In Cell Associates, Inc. v. National Institutes, 579 F.2d 1155 (9th Cir. 1978), however, we held that where a statute provides specific remedies for enumerated kinds of misconduct, the specified remedies are exclusive. Id. at 1160, 1162. In Cell Associates, we dealt with the civil remedies section of the Privacy Act, 5 U.S.C. § 552a (1976). In that section, Congress authorized equitable relief for two forms of agency misconduct and monetary relief for two other types of misconduct. Plaintiffs sought an injunction where the statute authorized only money damages. In affirming the district court's denial of an injunction, we found it unlikely that Congress would go to the trouble of specifying which remedy was to be applied to which type of misconduct if it had intended injunctive relief across the board. Id. at 1160. Unlike the statute at issue in the Cell Associates case, section 6c is very broad. It does not list specific types of misconduct and specific remedies for each; instead, it provides the court with authority to issue a broad variety of orders. Cell Associates, then, is not dispositive of the issue before us.

The starting point for interpretation of a statute, of course, is the statutory language itself. Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980). We have little difficulty in finding that section 6c is broad enough to authorize the appointment of a receiver, an order requiring that the receiver have access to the firm's books and records, and an order for an accounting. Section 6c authorizes the Commission to bring an action to "enforce compliance" with the Act and empowers the court to order "such action as is necessary to remove the danger of violation." 7 U.S.C. § 13a-1 (1976). Ancillary to the permanent injunction, the district court could have found that a receiver and an accounting were justified as a means of assuring that Co Petro would not go back into the futures business in violation of the injunction. Similarly, the order of disgorgement may serve to deter future violations. As the Supreme Court has noted in a similar context: "Future compliance may be more definitely assured if one is compelled to restore one's illegal gains."17 Porter v. Warner Holding Co., 328 U.S. 395, 400, 66 S.Ct. 1086, 1090, 90 L.Ed. 1332 (1946). We also note that unless a statute specifically or by inescapable inference commands the contrary, we are not to deny the inherent equitable powers of a court to afford complete relief. Id. at 398, 66 S.Ct. at 1089. See Mitchell v. DeMario Jewelry, Inc., 361 U.S. 288, 290-92, 80 S.Ct. 332, 334-35, 4 L.Ed.2d 323 (1960); Cell Associates, Inc. v. National Institutes, 579 F.2d 1155, 1160 (9th Cir. 1978).

Finally, we conclude that it would frustrate the regulatory purposes of the Act to allow a violator to retain his ill-gotten gains. Commodity Futures Trading Commission v. Hunt, 591 F.2d 1211, 1223 (6th Cir.), cert. denied, 442 U.S. 921, 99 S.Ct. 2848, 61 L.Ed.2d 290 (1979); SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301, 1308 (2d Cir.), cert. denied, 404 U.S. 1005, 92 S.Ct. 561, 30 L.Ed.2d 558 (1971). Thus we affirm the district court's award of ancillary relief.

We find no error in the district court's taking judicial notice of two consent judgments entered against defendant Goldstein in 1972 and 1973, and of a 1973 conviction of Goldstein. All three proceedings arose out of Goldstein's illegal sales of commodity options. The evidence was relevant to show Goldstein's familiarity with commodities laws and was admissible to rebut Goldstein's contention that Co Petro's actions were, at worst, innocent, technical violations. Fed.R.Evid. 403, 404(b).

The decision of the district court is affirmed.

RUSSELL E. SMITH, District Judge, dissenting.

I dissent.

In my opinion it was not proved that the defendants violated either Sections 4 or 4h (7 U.S.C. §§ 6 and 6h) of the Commodity Exchange Act (7 U.S.C. §§ 1-24) and are, under the facts shown, subject to the jurisdiction of the Commodity Futures Commission, which was established by the Act of October 23, 1974, Pub.L. 93-463, 88 Stat. 1389.

I turn first to that portion of Section 4 relating to boards of trade (7 U.S.C. § 6). Section 4 of the Act forbids the doing of certain acts in connection with "any contract of sale of commodity for future delivery on or subject to the rules of any board of trade in the United States." Section 2(a)(1) of the Act (7 U.S.C. § 2) defines "board of trade" as follows: "The words 'board of trade' shall be held to include and mean any exchange or association, whether incorporated or unincorporated, of persons who shall be engaged in the business of buying or selling commodity or receiving the same for sale on consignment." This definition, with the exception that the word "commodity" has been substituted for the word "grain," is the exact definition appearing in the Futures Trading Act, ch. 86, § 2, 42 Stat. 187 (1921), and in the Grain Futures Act, ch. 369, § 2(a), 42 Stat. 998 (1922), and there is no reason to believe that the phrase meant anything different in 1974 than it did in 1921 and 1922.

I believe that the term "board of trade" means an organized board of trade or mercantile exchange, such as the Chicago Board of Trade, which is described in Hill v. Wallace, 259 U.S. 44, 42 S.Ct. 453, 66 L.Ed. 822 (1922), and which has members who are traders and rules which govern the details of trading. When the Futures Trading Act of 1921 was enacted, there were big markets through which substantial parts of the grain production of America was bought and sold. The practice of trading in futures developed on those markets because of the very practical values of such practice to producers and users of commodities in determination of price and in hedging, i.e., insuring against risk of loss by reason of price fluctuation. These values were specifically recognized by Congress in Section 3 of the Grain Futures Act of 1922 and in Section 3 of the Commodity Exchange Act (7 U.S.C. § 5). Speculators and manipulators, however, did get into the market and did cause rapid and widespread price fluctuations unrelated to the factors of supply and demand. Congress specifically articulated its concern about these evils in Section 3 of the Grain Futures Act. These evils arose out of what was being done on boards of trade and mercantile exchanges across the nation. In private contracts for future delivery differences in the necessary details obscured the price. On the organized exchanges standardized contracts supplied identical details to each buyer and seller, and the price named reflected the value of the grain and not the details of the trade. A farmer could hedge and insure the price of his grain by private treaty if he could find a buyer who would agree with him in all of the details of the trade and who was financially sound, but it was much simpler to hedge at the market where many buyers dealt in standardized contracts and where there was no solvency problem. The benefits and evils with which Congress was concerned in 1921, 1922, and 1974 were the benefits and evils growing out of organized exchanges-boards of trade. It was these organized exchanges which Congress sought to regulate. The Supreme Court thought so in 1922 when it decided Hill v. Wallace. The Court stated: "The act is in essence and on its face a complete regulation of boards of trade with a penalty of 20 cents a bushel on all 'futures' to coerce boards of trade and their members into compliance." 259 U.S. at 66, 42 S.Ct. at 457. The Senate Committee which passed on the Commodity Exchange Act thought so in 1974 when it said the following:

The Grain Futures Act of 1922 was designed mainly to enable the Government to deal with the exchanges themselves, rather than with individual traders. To conduct futures trading lawfully, the grain exchanges were required to be federally licensed or "designated" as "contract markets." A condition of such designation was that the exchanges themselves would take major responsibility for the prevention of price manipulation by their members.

S.Rep.No.93-1131, 93d Cong., 2d Sess., reprinted in (1974) U.S.Code Cong. & Ad.News 5843, 5855 (emphasis added).

There is other evidence confirming the thought that Congress has used the term "board of trade" as the equivalent of "organized exchange."

(a) No contract for the sale of onions for future delivery shall be made on or subject to the rules of any board of trade in the United States. The terms used in this section shall have the same meaning as when used in this chapter.

(Emphasis added.) It was the congressional intent to prohibit speculation in onion futures. In dealing with this subject the Senate and House used the terms "boards of trade" and "organized exchanges" interchangeably. Thus, the Committee report states as follows:

The Committee on Agriculture and Forestry, to whom was referred the bill (H.R. 376) to amend the Commodity Exchange Act to prohibit trading in onion futures in commodity exchanges, having considered the same, report thereon with a recommendation that it do pass with amendments.

This bill would prohibit trading in onion futures on any board of tr