Stoller v. CFTC

Manning Stoller (defendant) was an account executive for a commodities-brokerage firm. In early May 1976, Stoller sensed that the price of May 1976 Maine potato futures contracts was being artificially depressed. Stoller anticipated a small supply of potatoes to be available, which would cause the price to increase. Stoller therefore purchased fixed-price long contracts for the delivery of potatoes in May 1976. Because exchange regulations required that commodity deliveries be first made to the individuals who held their contracts the longest, there existed an arbitrage opportunity if it was likely that the market price could continue to rise during the delivery period. Therefore, on May 5 and 6, 1976, believing that the price of potatoes would increase throughout May, Stoller rolled forward his futures contracts. Stoller did so by selling his existing contracts, which carried earlier delivery dates, and replacing them one-for-one with contracts at similar prices as the ones that he sold. In June 1977, the Commodity Futures Trading Commission (CFTC) (plaintiff) brought an enforcement proceeding against Stoller, claiming that these sale-and-repurchase transactions constituted wash sales prohibited by the Commodity Exchange Act (CEA). In August 1979, the administrative-law judge (ALJ) ruled in Stoller’s favor, finding that there was a legitimate market purpose to the transactions, thus preventing them from being wash sales. The Division of Enforcement appealed to the Commission, which reversed the ALJ’s order and ruled against Stoller. The Commission’s decision, as modified, explained that Stoller had violated the wash-sale prohibition because his transactions had not exposed him to the risk of market fluctuation. Stoller petitioned the United States Court of Appeals for the Second Circuit for review of the Commission’s decision. Stoller argued that the CFTC had never given sufficient prior notice of its interpretation of the CEA’s prohibition on wash sales. The term was not defined in the CEA itself, and the CEA never promulgated any rules or interpretative statements. In 1948 the CFTC’s predecessor agency, the Commodity Exchange Authority, released a memorandum that referred to trading intended to “get behind the delivery line” as wash sales, but the document was not officially published as an interpretive release. Similar positions were taken in 1955, 1959, and 1971, but all in a manner that did not formally advise the public at large of this interpretation. Moreover, the alleged policy was unenforced for years, and roll-forward trading was commonplace in the industry.