Commodity Futures Trading Com'n v. Morse

• Decision Date: 13 May 1985
• Docket Number: No. 84-1886,A-P,84-1886
• Parties: COMMODITY FUTURES TRADING COMMISSION, and the State of Missouri, ex rel. John Ashcroft, Attorney General, and Joseph Schoeberi, Commissioner of Securities, Appellees, v. Thomas D. MORSE, Individually and d/b/a The Silver Coin Exchange of St. Louis, as American Precious Metals, and as Stamps-lenty, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 60

762 F.2d 60

COMMODITY FUTURES TRADING COMMISSION, and the State of Missouri, ex rel. John Ashcroft, Attorney General, and Joseph Schoeberi Commissioner of Securities, Appellees, v. Thomas D. MORSE, Individually and d/b/a The Silver Coin Exchange of St. Louis, as American Precious Metals, and as Stamps-A-Plenty, Appellants.

No. 84-1886.

United States Court of Appeals,

Eighth Circuit.

Submitted April 12, 1985.

Filed May 13, 1985.

Joseph F. Devereux, St. Louis, Mo., for appellants.

Debra Hackford, Washington, D.C., for appellees.

Before LAY, Chief Judge, McMILLIAN, Circuit Judge, and WOODS, ^* District Judge.

HENRY WOODS, District Judge.

This is an appeal from entry of a permanent injunction against Thomas D. Morse by the District Court, ¹ 587 F.Supp. 391 (1984). The action was commenced by the Commodity Futures Trading Commission (CFTC) and the State of Missouri, seeking injunctive relief to prohibit Thomas D. Morse, individually and d/b/a The Silver Coin Exchange of St. Louis, American Precious Metals, and Stamps-A-Plenty, from violating the anti-fraud provisions of The Commodity Exchange Act, 7 U.S.C. Sec. 6b. After a hearing, the motion for preliminary injunction was granted and a receiver was appointed to take charge of Morse's business affairs. Thereafter plaintiffs moved for summary judgment. The District Court found that summary judgment was not proper because plaintiffs' motion did not allege "the necessary element of intent." (Memorandum and Order dated October 31, 1983.) The parties thereafter agreed to submit the case on the record then before the District Court, including the transcript from the hearing on the motion for preliminary injunction and the report of the receiver. The District Court issued a permanent injunction granting all relief sought by the plaintiffs, and Morse timely appealed. Three issues are presented on appeal. First, did the District Court err in finding a violation of 7 U.S.C. Sec. 6b? Second, did denial of the motion for summary judgment preclude finding a violation of 7 U.S.C. Sec. 6b? Third, did the District Court, 595 F.Supp. 677 (1984), abuse its discretion in refusing to grant appellant's motion for attorney fees?

The facts of the case, as developed at the hearing on the motion for preliminary injunction, are basically as follows: Thomas D. Morse (Morse) is a resident of Missouri. He operates as sole proprietorships The Silver Coin Exchange of St. Louis, American Precious Metals, and Stamps-A-Plenty. Since June, 1981, Morse has been registered with the CFTC. Acting individually and through his three businesses, Morse offered various investment opportunities to the public. One type of investment was known as the "spot" program. A customer would purchase a controlling interest in gold or silver, at a price pegged to the prevailing commercial rate, but would pay only 30% of the purchase price to Morse. The rest was carried as a loan with daily interest calculated at the prevailing prime interest rate. Morse represented to "spot" program customers that he would hedge their investments by the purchase of equivalent futures contracts in gold or silver. Instead, Morse converted the funds which should have been used to hedge customer investments to his own use, speculating in other commodities and sometimes even trading opposite his customers in the gold and silver markets.

Morse first argues that the District Court erred in granting the permanent injunction because appellees failed to prove a knowing, intentional, or willful violation of 7 U.S.C. Sec. 6b. This argument has no support in the record or the case law. The District Court found, and the record supports that finding, that Morse told his customers he would hedge their investments in gold and silver, but instead, on numerous occasions, he took the hedging funds and applied them to his own personal use. Based on these facts, the District Court found that Morse "deliberately acted contrary to his representations; his actions were, therefore, unauthorized and contrary to the instructions of his customers." (Memorandum and Order dated June 14, 1984.) The District Court relied upon the case of Haltmier v. Commodity Futures Trading Com'n, 554 F.2d 556 (2d Cir.1977), which reasoned that such actions were sufficient to prove a violation of Sec. 6b:

Nor is it important that Haltmier may not have had an evil motive or an affirmative intent to injure his customer, or that he did not subjectively want to cheat or defraud Millet. It is enough that he acted deliberately, knowing that his acts were unauthorized and contrary to instructions. Such knowing, intentional conduct made his acts wilful, and therefore his violations of the statutory prohibition against cheating or defrauding the customer were wilful, in the accepted sense for infractions of this type.

554 F.2d at 562 (citations omitted). The reasoning of Haltmier...