Troyer v. National Futures Association

Thomas Heneghan was an associated person of various commodities-trading firms between 1983 and 2015, each of which was a member of the National Futures Association (NFA) (defendant), the self-regulatory organization tasked with oversight of the derivatives industry. Dennis Troyer (plaintiff) was a longtime investor in the derivatives market. In 2008, after receiving an unsolicited phone call from Heneghan, Troyer became one of Heneghan’s customers. From October 2008 through March 2011, Troyer invested more than $160,000 under Heneghan’s advisement. Initially, from 2007 through 2010, Heneghan was employed by Statewide FX, Inc. (Statewide). Heneghan then transitioned to work for Atlantic Trading Corp. (ATC), working there from 2010 through 2012. Troyer remained Heneghan’s client throughout Heneghan’s change in employment. Heneghan made trades only if specifically authorized by Troyer and provided regular investment statements to Troyer, although Troyer was not apprised of every detail. In 2009, during Heneghan’s employment with Statewide, he was the subject of an NFA investigation for making unauthorized trades, but the investigation was dropped because of lack of evidence. The NFA also investigated Statewide and ultimately took disciplinary action against Statewide and three of its traders, none of whom were Heneghan. Pursuant to the disciplinary action, Statewide voluntarily withdrew its NFA membership, and it later agreed to never reapply for NFA membership. Heneghan was unaffected. During the Statewide investigation, Heneghan moved to ATC. The NFA also investigated ATC for wrongdoing, but it ultimately did not take disciplinary action. In 2012 Heneghan once again switched employers, moving to Portfolio Managing Inc. (PMI). At this time, Troyer started to send Heneghan money personally so that Heneghan could trade using firm-employee discounts. Troyer did not receive investment statements for these back-channel investments. Once again, an NFA investigation soon followed. By summer 2015, Troyer attempted to withdraw his investment with Heneghan, but the attempt to cash out resulted in a situation in which all hell broke loose. The NFA permanently barred Heneghan from NFA membership. Subsequently, Troyer filed an action in federal district court against the NFA, claiming that the NFA had violated § 25(b) of the Commodities Exchange Act (CEA) by failing to enforce its own bylaw. The district court granted summary judgment to NFA and denied summary judgment to Troyer. Troyer appealed, arguing that the NFA had failed to enforce bylaw 301(a)(ii)(D), which barred a person from being a member of the NFA if his or her actions had caused an NFA expulsion.