A foreign currency trading firm was implicated in misconduct when a separate company it had traded with was investigated by a regulatory authority. The second company settled the investigation with the regulator, and the regulator published documents relating to the investigation and settlement on its website. The documents named the trading firm and implied that the firm had engaged in illegal practices. The trading firm sued the regulator, arguing that the regulator had violated its due process rights and defamed it in the documents on its website. The district court dismissed the action, finding that the trading firm had not exhausted its available administrative remedies. The appellate panel affirmed, and also found that the state-law claims for defamation were preempted by the federal regulatory scheme and not available as a remedy to the trading firm.
National Futures Association is a self-regulatory organization under the Commodities Futures Trading Commission Act of 1974. The Commodity Exchange Act requires that SROs set forth many types of regulations and rules, including rules that provide that its members and persons associated with its members shall be appropriately disciplined for any violation of its rules. The NFA is subject to the broad authority of the Commodity Futures Trading Commission. The authority includes review of NFA disciplinary actions or denials of membership.
Effex Capital, LLC is a closely held, foreign-currency trading firm managed and controlled by John Dittami. Effex operates as an institutional over-the-counter, foreign-exchange liquidity provider and engages solely in transactions with other eligible contract participants such as financial institutions or highly capitalized trading counterparts. Because of the nature of Effex’s trading, it is not subject to regulation by the NFA and is therefore not a member of the NFA.
In accordance with its responsibilities, the NFA initiated an investigation into an association member, FXCM, and found that the company had engaged in several practices that violated the NFA’s rules. FXCM chose to settle with the NFA, and in February 2017, the NFA released several documents related to the settlement, including NFA’s complaint, the decision of the NFA Business Conduct Committee, a publicly accessible narrative summarizing the decision, and a press release announcing the decision and directing the public to the narrative posted on the NFA’s website.
In these documents, the NFA claimed that Effex was involved in the misconduct allegedly committed by FXCM. The documents accepted the allegations against Effex as true. The narrative summarized the decision, including its statements about Effex. The press release contained no reference to Effex, but directed the public to the narrative on the NFA’s website. After the publication of these documents, Effex brought suit against the NFA. In its federal claims, Effex alleged that the NFA violated its due process rights by not providing it with notice of the investigation or an opportunity for a hearing before the publication of the settlement documents. Effex also alleged that the statements about it in the documents were defamatory. The district court held that Effex had failed to exhaust its remedies under the Commodity Exchange Act and dismissed without prejudice. Effex then appealed.
The appellate panel of the 7th U.S. Circuit Court of Appeals began by noting that in the Commodity Exchange Act, Congress had set forth, with significant precision, the remedies available to members of an SRO and to others. The panel stated that an entity that was not a party to the SRO proceeding was in a different position than a party to the proceeding. However, the panel continued, the difference was not so significant such that an entity could maintain a judicially created cause of action against the SRO for harms that the nonparty claimed it suffered as a result of the proceedings. The panel determined therefore that the district court did not err in concluding that Effex had failed to exhaust its administrative remedies.
The panel then turned to Effex’s state-law claims. The panel stated that Effex’s challenge was a challenge to the settlement of a disciplinary proceeding before the NFA that was within the NFA’s jurisdiction. Therefore, the panel reasoned, it did not matter whether Effex was a member or nonmember of the NFA or a party or nonparty to the proceedings. The panel found that allowing Effex to initiate a collateral attack on those proceedings would impair the NFA’s ability to enforce its rules and carry out its regulatory role. The panel then affirmed the decision of the district court.
You can review the entire opinion here.
Lubin Austermuehle’s defamation and slander lawyers near Glenview and Northbrook have more than three decades of experience helping business clients unravel the complexities of Illinois and out-of-state defamation, libel and slander laws. We assist businesses and owners who are the victims of defamatory and slanderous attacks on their businesses and reputations.
You can read the Court’s entire opinion here.
Our Cook County defamation attorneys defend individuals’ First Amendment and free speech rights to post on Facebook, Yelp and other websites information that criticizes businesses and addresses matters of public concern. You can view a federal court decision where we prevailed in a libel per se claim asserting the innocent infringer defense here. Here you can find an arbitration decision where we successfully defended our client’s right to post negative opinions on YouTube about a used car dealer. We recently required a defendant who publicized an allegedly false lawsuit concerning our client to provide an apology and full retraction as part of a confidential financial settlement following our filing of a $16,000,000.00 defamation per se suit in federal district court.
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