CFTC v. Mass Media Marketing, Inc.

Mass Media Marketing Inc. and Commodity Referral Service Inc. (collectively, Mass Media) (defendants) were marketing companies that provided advertising services in a variety of industries. In 1995 Mass Media began operating in the commodity futures sector, creating commercials and infomercials touting the benefits of investing in commodity futures. These advertisements were typically written by Mass Media’s president, who was not a registered commodity broker and had no particular expertise in the market. The advertisements claimed that futures contracts presented legitimate opportunities for investors to double, triple, or quadruple their investments. Viewers were encouraged to call a toll-free number to learn more about how to profit from such investments. Once a viewer called the toll-free number and confirmed her interest in investing in commodities, the operator would collect her contact information, thereby generating a lead. Some of the advertisements were sponsored, meaning that they were commissioned by a specific commodity broker registered with the Commodity Futures Trading Commission (CFTC) (plaintiff), known as an introducing broker. In these sponsored advertisements, the introducing broker’s name would be featured in the advertisement, and Mass Media would sell a certain number of leads to that introducing broker. Excess leads could be sold to others. Mass Media’s compensation for each lead did not depend on whether the lead later resulted in an order. In a nonsponsored, or blind, advertisement, Mass Media would not feature any introducing broker’s name, and all leads could be sold to any introducing broker. In 1997 Mass Media learned that the National Futures Association, a self-regulatory organization in the commodity futures industry, frowned on blind advertisements. Mass Media then ceased to produce blind advertisements, but it continued to produce sponsored advertisements. Consequently, the CFTC filed suit in federal district court against Mass Media, claiming that Mass Media acted as an unregistered introducing broker in violation of the Commodity Exchange Act (CEA). Mass Media argued that it could not be considered an introducing broker, because it only generally solicited customers and did not invite or accept the placement of orders.