837 F.2d 847 (9th Cir. 1988), 86-7540, Dohmen-Ramirez v. Commodity Futures Trading Com'n

• Docket Number: 86-7725.,86-7540
• Date: 20 January 1988
• Citation: 837 F.2d 847
• Parties: Bert DOHMEN-RAMIREZ and Wellington Advisory, Inc., Petitioners, v. COMMODITY FUTURES TRADING COMMISSION and Ronald Ho, Respondents.
• Court: U.S. Court of Appeals — Ninth Circuit

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837 F.2d 847 (9th Cir. 1988)

Bert DOHMEN-RAMIREZ and Wellington Advisory, Inc., Petitioners,

v.

COMMODITY FUTURES TRADING COMMISSION and Ronald Ho, Respondents.

Nos. 86-7540, 86-7725.

United States Court of Appeals, Ninth Circuit

January 20, 1988

Argued and Submitted Nov. 3, 1987.

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Richard A. Graham, Washington, D.C., for petitioners.

James T. Kelly, CFTC, Washington, D.C., for respondents.

Daniel Goodman, Asst. General Counsel, CFTC, Washington, D.C., for respondent CFTC.

Glenn M. Miyajima, Honolulu, Hawaii, for respondent Ronald Ho.

Appeal from the Final Order of the Commodity Futures Trading Commission.

Before BROWNING, Chief Judge, and WRIGHT and LEAVY, Circuit Judges.

LEAVY, Circuit Judge:

This is a petition for review of an order of the Commodity Futures Trading Commission (CFTC or Commission) issued in a reparations proceeding. The CFTC upheld the decision of its Administrative Law Judge (ALJ), made after a full hearing, that Wellington Advisory, Inc. and Bert Dohmen-Ramirez, Wellington's president and owner, were liable for the fraudulent acts of their agent, Jon Handy, under 7 U.S.C. Sec. 4. Handy was found to have violated 7 U.S.C. Sec. 6b, an anti-fraud provision of the Commodity Exchange Act (CEA), by trading the Wellington-managed commodities account of respondent Ronald Ho contrary to promises made by Dohmen-Ramirez to Ho, without disclosing this to Ho.

FACTS

Bert Dohmen-Ramirez is the president and owner of Wellington Advisory, Inc. of Honolulu. Both are registered with the CFTC as commodity trading advisors. Ronald Ho is a terminal agent at the Honolulu airport.

Occasionally Dohmen-Ramirez, representing Wellington, conducted seminars for prospective clients. In April 1979, Ho attended his first Wellington seminar. After the seminar, Ho signed up for a one year subscription to the Wellington Letter, an investment advisory letter written by Dohmen-Ramirez.

On July 18, 1979, Ho attended his second Wellington investment seminar, at which Jon Handy was the guest speaker. Dohmen-Ramirez introduced Handy as a professional commodities trader. Handy's biography was distributed, and Handy presented computer printouts and other documents showing that he performed well as a trader and his accounts showed significant gains.

Handy operated an office on Maui. He was an "associated person" of Murlas Brothers Commodities, Inc., a Chicago-based futures commission merchant. Although Handy never signed an agent agreement with Murlas, he traded his commodities accounts through Murlas. Murlas considered Handy to be a trading advisor, and Murlas adopted Handy's computerized trading system, called "DataComm." Ho did not learn at the seminar about the relationship between Handy and Murlas.

At the close of the second seminar, participants were encouraged to call upon the

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Wellington office to open a commodities account. Following this suggestion, Ho scheduled an appointment with Dohmen-Ramirez at the Wellington office. Ho testified before the ALJ that the meeting occurred on July 20, 1979, and that Handy was present. However, Dohmen-Ramirez testified that the meeting took place on July 19, and that Handy was not present, having already returned to Maui.

At the meeting, Ho told Dohmen-Ramirez and Handy that he was interested in a long term, conservative approach to the commodities market, not "short term, in and out trading." Ho testified that Dohmen-Ramirez told Ho that Dohmen-Ramirez and Handy were partners, that they would confer on all trades, and that no trade would be made unless both agreed. Dohmen-Ramirez also allegedly told Ho that Handy would be entering the trade orders for Ho's account.

Ho testified that he informed Dohmen-Ramirez and Handy that he was interested in retaining Wellington as his commodities trading advisor, but that he first wanted to visit Handy's office "to see what type of operation Handy was running in Maui." Ho made an appointment at that time to visit Handy the following Monday, July 23. Dohmen-Ramirez and Handy gave Ho some Wellington agreement forms to read over the weekend.

On July 23, 1979, Ho visited Handy at his office on Maui and was satisfied with the operation. Ho testified that he again told Handy that he wanted to establish an account with Wellington as his commodities advisor. Since Ho had left his Wellington forms at home, Handy produced the appropriate Wellington forms for Ho to sign. Ho had already read these forms over the weekend. He signed them in Handy's presence. Handy also produced some Murlas forms. Handy did not explain the purpose of these, but said they were necessary to open the account and instructed Ho to sign them, which Ho did.

He signed the following documents on July 23, 1979, at Handy's office:

1) Wellington Advisory Agreement, which provided for the deposit of Ho's funds with the Murlas brokerage firm. It described the nature of Wellington's advisory authority and specified the fee schedule. The Agreement stated that Wellington would trade Ho's account "directly or through subcontracted advisors." Handy also signed this, on behalf of Wellington.

2) Wellington Managed Commodity Account Agreement, which provided that Wellington, as Ho's advisor, would manage Ho's trading account at Murlas. It also provided that Wellington's fees would be paid automatically out of Ho's account at Murlas.

3) Murlas Managed Account Authorization, which provided that Handy, as a Murlas trader, was authorized to trade Ho's account. Handy also signed this, on behalf of Murlas.

4) Murlas Affidavit of Trading Risk Understanding, which warned of the high risks in commodities trading and high commission charges.

On July 25, Ho sent a check for $20,000 to Murlas in Chicago to open his account, with a letter stating that "[a]ll of the necessary papers and trading instructions will by [sic] given to you by Jon Handy of Kula, Maui."

Ho testified he understood that Murlas was the broker who would enter the trading orders in his account, but that Wellington was his commodities trading advisor. Ho believed that Dohmen-Ramirez and Handy together constituted Wellington, and that they would confer on all trades. Ho did not believe that Handy was a Murlas broker or associated person. He expected that Handy would be compensated only out of the Wellington management fee, and not from the Murlas commissions.

At Handy's suggestion, in July 1979, Leroy J. Gordon, the president of Murlas, visited Dohmen-Ramirez to discuss the possibility of the latter operating a Murlas office in Honolulu. Dohmen-Ramirez declined. However, according to Gordon, Handy and Dohmen-Ramirez planned to work out an agreement whereby Dohmen-Ramirez would place some Wellington clients with Handy. Handy would place

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the trade orders with Murlas, and Handy and Dohmen-Ramirez would split the commissions and advisory fees. These clients would remain Wellington clients, not Murlas clients.

On July 24, 1979, Dohmen-Ramirez wrote a letter to Murlas stating that Wellington "will be managing commodity accounts using Mr. Handy as a subcontracted advisor. We intend to place a number of these accounts with Murlas Brothers Commodities because it facilitates Mr. Handy's work." He enclosed some Wellington forms for approval and modification, if necessary, by Murlas.

On July 31, 1979, Murlas replied to Dohmen-Ramirez. Murlas found one Wellington form, the trading advisor disclosure form, to be unacceptable, and provided an acceptable form. Murlas advised Dohmen-Ramirez that his accounts with them could not be traded until the new disclosure forms were sent to his clients. Dohmen-Ramirez sent this new form to two Wellington clients whom he had already placed with Handy. However, he did not at that time send the new form to Ho. The Murlas letter also advised Dohmen-Ramirez that his relationship with Murlas was not yet final, but that Handy or another Murlas representative would be contacting him about it shortly.

Approximately one week after Ho opened his account, he began receiving trade confirmation statements. He immediately noticed that the trading appeared to be excessive and the trades were short term, contrary to his understanding with Dohmen-Ramirez and the Wellington letter recommendations. The commissions were higher than those described at Dohmen-Ramirez' investment seminar. The account statements revealed that Ho was experiencing trading losses.

Because Ho viewed his account as a Wellington-managed account, he quickly scheduled a meeting with Dohmen-Ramirez, on August 7, to complain about the handling of it. At the meeting, Ho learned that contrary to his understanding, Handy had not consulted with Dohmen-Ramirez concerning the trades in Ho's account. Ho had to provide Dohmen-Ramirez with copies of his trade confirmation statements.

Dohmen-Ramirez testified to a different version of this meeting. He testified that Ho scheduled the meeting to request help from Dohmen-Ramirez, because Ho had independently established his own account with Murlas through Handy. Contrary to Ho's impression, Dohmen-Ramirez claims that it was at this time that Ho first asked him to become involved with Ho's account, but that he agreed only to look into the matter.

They agree that at the August 7 meeting, Dohmen-Ramirez counseled Ho to be patient, explaining that commodities accounts sometimes start out with losses but become profitable. Ho testified that Dohmen-Ramirez never said anything to indicate that Handy lacked authority to open a Wellington account for Ho. He also testified that Dohmen-Ramirez told him he would contact Handy to reduce the number of transactions and emphasize different trading areas.

Ho's account statements continued to reflect a high level of trading, large commissions, and growing losses. On August 16, Dohmen-Ramirez sent Ho a...