CFTC v. Vartuli

228 F.3d 94 (2000)

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CFTC v. Vartuli

United States Court of Appeals for the Second Circuit
228 F.3d 94 (2000)

  • Written by Brett Stavin, JD

Facts

Beginning in 1989, AVCO Financial Corp. and its sole shareholder, Anthony Vartuli (collectively, AVCO) (defendants), marketed a system known as Recurrence, originally in book form, and later in the form of computer software. AVCO instructed its customers to obtain market prices for certain currency futures contracts and have the market information loaded into a computer fitted with the Recurrence program. Recurrence analyzed the market information and instructed users to buy or sell certain futures contracts. Recurrence was programmed to communicate with customers only if certain market conditions were present. Customers were instructed to make trades based on automation; the customer did not have to interpret any information, make any calculations, or analyze any fundamentals. The users were directed to follow Recurrence’s instructions with no second-guessing. AVCO advertised Recurrence as a program that made money automatically; those claims, however, were based on computer-generated hypothetical trades rather than real-world outcomes. The Commodity Futures Trading Commission (CFTC) (plaintiff) filed an action against AVCO in federal district court, alleging that AVCO’s publication and dissemination of Recurrence constituted a violation of the Commodity Exchange Act. The district court entered judgment against AVCO, holding that AVCO acted as a commodity trading advisor and was liable for not registering as such with the CFTC. The district court entered a permanent injunction enjoining AVCO from acting as a commodity trading advisor, including through the publication of Recurrence. AVCO appealed. On appeal, AVCO argued that if the publication of Recurrence constituted acting as a CTA, then the licensing requirement would be in violation of the First Amendment.

Rule of Law

Issue

Holding and Reasoning (Sack, J.)

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