[Federal Register Volume 63, Number 64 (Friday, April 3, 1998)]
[Proposed Rules]
[Pages 16453-16464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8687]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 10


Rules of Practice; Proposed Amendments

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed amendments.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') requests comments on proposed amendments to its Rules of 
Practice (``Rules'') which govern most adjudicatory proceedings brought 
under the Commodity Exchange Act, as amended (``Act''), other than 
reparations actions. The proposed amendments are intended to improve 
the overall fairness and efficiency of the administrative process, as 
well as to facilitate use of the authority granted to the Commission by 
the Futures Trading Practices Act of 1992 (``FTPA'') to require the 
payment of restitution by respondents in administrative enforcement 
proceedings.
    The Commission has not attempted to revisit wholesale its Rules of 
Practice. Rather, the proposed amendments focus on a few key areas 
where case law and current practice suggest that clarification or 
revision may be most useful. Besides restitution, most of the 
substantive amendments being proposed relate to prehearing discovery. 
The other proposed changes are technical in nature, clarifying or 
updating existing rules to reflect recent Commission decisions and 
better accord with the current practices being followed by the 
Commission's Administrative Law Judges (``ALJs'').
    With respect to prehearing discovery, the Commission is proposing, 
among other revisions, to: clarify the obligations of its Division of 
Enforcement (``Division'') under existing Rule 10.42(b), by requiring 
production to respondents of specified information in the Division's 
investigative files; obligate all parties to produce prior statements 
of any witness whom they intend to call that relate to that witness's 
anticipated testimony; and allow all parties to subpoena documents for 
production prior to the scheduled hearing date. These and the other 
proposed changes regarding discovery will foster a greater exchange of 
relevant information between the Division and respondents and clarify 
the production obligations of each party, thus bringing about increased 
efficiency and fairness in CFTC administrative proceedings.
    The Commission is also proposing to put procedures in place to 
facilitate the restitution process in adjudicatory proceedings. A new 
provision would be added to existing Rule 10.84 that would be 
applicable to any proceeding in which an order requiring the payment of 
restitution may be entered. Under this provision, if the ALJ decides 
that restitution is an appropriate remedy, he or she would issue an 
order specifying the violations that form the basis for restitution, 
the customers or class of customers entitled to seek restitution and 
the method of calculating and, if then determinable, the amount of 
restitution to be paid.
    The actual administration of an ALJ's restitution order would be 
governed by a new subpart in the Rules of Practice that would allow the 
Division to recommend to the Commission or, at the Commission's 
discretion, to the presiding ALJ a procedure for notifying individual 
customers who may be entitled to restitution, receiving and evaluating 
customer claims, obtaining funds to be paid as restitution from the 
respondent and distributing such funds to qualified claimants. The 
respondent would be given notice of the Division's recommendations and 
afforded an opportunity to be heard before the procedure is 
implemented.
    Although largely technical in nature, the remaining changes being 
proposed by the Commission reflect matters raised in recent decisions 
issued by the Commission or its ALJs in enforcement cases, involving, 
for example, commencement of the proceeding, the service of complaints 
and other papers, amending complaints, advance rulings on the 
admissibility of evidence, the presentation of rebuttal evidence, and 
the filing of cross appeals, reply briefs (on appeal), petitions for 
reconsideration and stay applications. The Commission is also proposing 
to add an appendix to the Rules of Practice, setting forth the 
Commission's policy not to accept any offer of settlement in an 
administrative or a civil proceeding if the respondent or defendant 
wishes to continue to deny the allegations of the Commission's 
complaint (although they may continue to state that they neither admit 
nor deny the allegations).
    The Commission welcomes public comment on the proposed changes to 
its Rules of Practice. Suggestions on other changes that would improve 
or expedite the adjudicatory process are also invited.

DATES: Comments must be received on or before June 2, 1998.

ADDRESSES: Comments on the proposed amendments should be sent to Jean 
A. Webb, Secretary, Commodity Futures Trading Commission, Three 
Lafayette Center, 1155 21st Street, N.W., Washington, D.C. 20581. 
Comments may be sent by electronic mail to [email protected]. 
Reference should be made to ``Proposed Amendments to the Rules of 
Practice.''

FOR FURTHER INFORMATION CONTACT: Stephen Mihans, Office of Chief 
Counsel, Division of Enforcement, at (202) 418-5399 or David Merrill, 
Office of the General Counsel, at (202) 418-5120, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W., 
Washington, D.C. 20581.

SUPPLEMENTARY INFORMATION: The Commission is proposing for comment 
amendments to its Rules of Practice, 17 CFR 10.1-10.109, which were 
promulgated originally in 1976, shortly after the Commission was 
established as an independent agency. 41 FR 2508 (Jan. 16, 1976). 
Although the Commission's proposals are not intended to be sweeping or 
groundbreaking, they do represent the first major revision of the Rules 
in more than 20 years. Practices of the

[[Page 16454]]

Commission and its ALJs which evolved over that time are not 
necessarily reflected in the existing Rules. Moreover, procedural and 
other issues raised by litigants themselves suggest that, in a number 
of key areas, the Rules are in need of review and updating.
    Most of the substantive amendments to the Rules being proposed by 
the Commission relate to issues involving the Commission's procedures 
for conducting limited discovery in preparation for a hearing. More 
specifically, the Commission is proposing to amend Rule 10.42, which 
addresses pretrial materials, investigatory materials and admissions, 
and Rule 10.68, which governs subpoenas. The proposed amendments to 
these two rules will facilitate the exchange of relevant evidence 
between the parties to a proceeding and afford them a ready means for 
obtaining needed documents in advance of the scheduled hearing.
    The other existing Rules that the Commission proposes to amend, and 
the subject areas they cover, are Rule 10.1 (scope and applicability of 
rules of practice); Rule 10.12 (service and filing of documents; form 
and execution); Rule 10.21 (commencement of the proceeding); Rule 10.22 
(complaint and notice of hearing); Rule 10.24 (amendments and 
supplemental pleadings); Rule 10.26 (motions and other papers); Rule 
10.41 (prehearing conferences; procedural matters); Rule 10.66 (conduct 
of the hearing); Rule 10.84 (initial decision); Rule 10.102 (review of 
initial decision); and Rule 10.106 (reconsideration). In addition to 
these changes, the Commission is proposing to add to the rules a new 
subpart (proposed Subpart I) addressing the administration of 
restitution orders issued pursuant to Section 6(c) of the Act, 7 U.S.C. 
9 (1994), as well as a statement of policy with respect to settling 
with respondents and defendants in Commission-instituted administrative 
and civil proceedings (proposed Appendix A).
    The specific amendments to the Rules of Practice that the 
Commission is proposing are as follows.

I. Proposed Rule Changes Related To Discovery

Rule 10.42(a)--Pretrial Materials

    As currently written, Rule 10.42(a) authorizes the Commission's 
ALJs to require that each party to a proceeding submit any or all of 
the following information in the form of a prehearing memorandum or 
otherwise: (1) an outline of its case or defense; (2) the legal 
theories on which it will rely; (3) the identity of the witnesses who 
will testify on its behalf; and (4) copies or a list of documents which 
it intends to introduce at the hearing. The Commission proposes to 
amend Rule 10.42(a) in three respects.
    First, the information required to be included in each party's 
prehearing memorandum would be expanded to include the identity, and 
the city and state of residence, of each witness (other than an expert 
witness) who is expected to testify on the party's behalf, along with a 
brief summary of the matters to be covered by the witness's expected 
testimony. In practice, prehearing orders issued by the Commission's 
ALJs already require the parties to provide much of this information. 
As thus revised, Rule 10.42(a) would more fully accord with the current 
disclosure requirements found in Rule 26(a)(1) of the Federal Rules of 
Civil Procedure.
    Second, rather than allow the parties to provide either copies or a 
list of documents that they will introduce as evidence at the hearing, 
revised Rule 10.42(a) would require that each party furnish a list of 
such documents and copies of any documents which the other parties do 
not already have in their possession and to which they do not have 
reasonably ready access. Although this proposed change imposes a 
heavier burden on all parties in preparing their prehearing 
submissions, the corresponding benefit of securing, in advance of 
trial, copies of documents to be used as evidence by the opposing party 
would be significant.
    Third, the Commission proposes adding a new provision to Rule 
10.42(a) to require the submission of additional information concerning 
any expert witness whom a party expects to call at the hearing, 
including: (1) a statement of the qualifications of the witness; (2) a 
listing of any publications authored by the witness within the 
preceding ten years; (3) a listing of all cases in which the witness 
has testified as an expert, at trial or in deposition, within the 
preceding four years; (4) a complete statement of all opinions to be 
expressed and the basis or reasons for those opinions; and (5) a list 
of any documents, data or other written information considered by the 
witness in forming his or her opinion, along with copies of any such 
materials which are not already in the possession of the opposite 
parties and to which they do not have reasonably ready access. This 
proposed revision to existing Rule 10.42(a) generally accords with the 
current requirements of Rule 26(a)(2) of the Federal Rules of Civil 
Procedure. It is intended to eliminate unnecessary and inappropriate 
surprise from the proceeding and allow for a more rational fact-finding 
process.
    The proposed version of Rule 10.42(a) also would provide that the 
ALJ fashion a remedy which is just and appropriate for any failure to 
comply with the rule's requirements, taking into account all of the 
facts and circumstances. Thus, a minor, inadvertent failure to provide 
all of the required information would presumably require a less onerous 
remedy than a more significant, prejudicial failure, which might 
require a delay in the proceeding or an exclusion of witnesses or 
evidence.

Rule 10.42(b)--Investigatory Materials

    Although broadly captioned ``Investigatory Materials,'' Rule 
10.42(b), as currently written, requires the Division to produce only 
three categories of documents, all relating to witnesses or witness 
statements. These are ``transcripts of testimony, signed statements and 
substantially verbatim reports of interviews * * * from or concerning 
witnesses to be called at the hearing and all exhibits to those 
transcripts, statements and reports.''
    In practice, besides producing the witness statements referenced in 
existing Rule 10.42(b), the Division often provides respondents with 
prehearing access to documents obtained during the investigation that 
preceded the initiation of the complaint against them. To reflect this 
practice, and promote a fairer, more efficient hearing process, the 
Commission proposes two amendments to Rule 10.42(b).
    First, the existing version of Rule 10.42(b) would be replaced with 
a new ``investigatory materials'' provision. As proposed by the 
Commission, revised Rule 10.42(b) would obligate the Division of 
Enforcement to make available for inspection and copying by the 
respondents documents obtained during the investigation that preceded 
issuance of the complaint and notice of hearing against them. These 
materials would include (1) all documents that were subpoenaed or 
otherwise obtained by the Division from persons not employed by the 
Commission, and (2) all transcripts of investigative testimony taken by 
the Division, together with all exhibits to those transcripts.
    Under revised Rule 10.42(b), certain classes of documents would be 
exempt from disclosure. These include documents that would (1) reveal 
the identity of confidential sources, (2) disclose confidential 
investigatory techniques or procedures, or
    (3) disclose the business transactions or market positions of any 
person other than the respondents, unless such

[[Page 16455]]

information is relevant to the resolution of the proceeding.
    Nothing in revised Rule 10.42(b) would require the Division to turn 
over any internal memoranda, writings or notes prepared by Commission 
employees who will not appear as a Division witness at the hearing. Nor 
would the revised rule limit the ability of the Division to withhold 
documents or other information on the grounds of privilege or attorney 
work-product.
    As is now the case, production of investigatory materials under 
revised Rule 10.42(b) would occur prior to the scheduled hearing date, 
at a time to be fixed by the ALJ. Unless otherwise agreed by the 
Division, respondents would be given access to all documents being 
produced at the Commission office where they are ordinarily maintained. 
If respondents want copies made for themselves, they, and not the 
Division, would pay for the cost of reproduction.
    In order to prevent undue disruption of the administrative process, 
the proposed Rule 10.42(b) provides that, if after hearing or decision 
of the matter, it develops that the Division of Enforcement failed to 
comply in some manner with the production requirements of the rule, 
rehearing or reconsideration of the matter will not be required unless 
the respondent can show prejudice.

Rule 10.42(c)--Witness Statements

    To address witness statements, the subject matter covered by 
existing Rule 10.42(b), the Commission proposes to promulgate a new 
Rule 10.42(c).\1\ Under this new rule, all parties to a proceeding, 
including the Division, would be obligated to make available to the 
other parties any statement of any person whom the party calls, or 
expects to call, as a witness that relates to his or her anticipated 
testimony. Such statements would include: (1) transcripts of 
investigative or trial testimony given by the witness; (2) written 
statements signed by the witness; and (3) substantially verbatim notes 
of interviews with the witness, and all exhibits to such transcripts, 
statements and notes.
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    \1\ If, as proposed, a new Rule 10.42(c) is adopted to address 
witness statements, existing Rule 10.42(c), which governs 
admissions, would be redesignated as Rule 10.42(d).
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    Producible statements also would include memoranda and other 
writings authored by the witness that contain information directly 
relating to his or her anticipated testimony.\2\ The phrase 
``substantially verbatim'' requires that the notes fairly record the 
witness's exact words, subject to minor, inconsequential deviations. As 
now, production of witness statements under the new rule would take 
place prior to the scheduled hearing date, at a time designated by the 
ALJ.
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    \2\ In revising existing Rule 10.42(b), the Commission intends 
that notes prepared by a witness which clearly and unambiguously set 
forth the views of that witness relating to the subject matter of 
his or her testimony, even if not in the nature of a formal 
memorandum, would be produced to the other parties. Under the 
revised rule, however, fragmentary notes, jottings and other 
writings that might be part of the analytical work of a witness 
would not have to be turned over. Moreover, the revised rule would 
not mandate the production of notes prepared by persons other than 
the witness, including, for example, attorney notes (except to the 
extent that they are substantially verbatim notes of interviews with 
the witness). In addition, both proposed Rule 10.42(b) and Rule 
10.42(c) explicitly state that the parties, including the Division 
of Enforcement, can invoke privileges and work product to withhold 
materials otherwise producible under those rules.
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    The Commission's proposed ``witness statement'' provision generally 
accords with Rule 26.2 of the Federal Rules of Criminal Procedure, 
which places in the Federal Rules the substance of the Jencks Act, 18 
U.S.C. 3500. As now written, existing Rule 10.42(b) defines the term 
``witness statement'' more broadly than Rule 26.2 or the Jencks Act in 
two respects: (1) by seeming to call for the production of statements 
by persons other than the witness himself, and (2) by requiring the 
Division to make witness statements available regardless of whether the 
statements relate to the witness's testimony at trial (as long as they 
are ``from or concerning'' the witness). Also unlike Rule 26.2 of the 
Federal Rules of Criminal Procedure, existing Rule 10.42(b) only 
obligates the Division, rather than all parties, to produce witness 
statements.
    In the Commission's view, restricting the reach of existing Rule 
10.42(b) to prior statements relating to the subject matter of a 
witness's anticipated testimony is appropriate. A primary reason for 
requiring the production of prior witness statements has been the value 
of such statements for impeachment purposes. Statements that are 
unrelated to a witness's testimony and statements of persons other than 
the witness himself have little, if any, impeachment value.\3\
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    \3\ Compliance with the proposed rule will not necessarily 
satisfy the Division's obligation to produce exculpatory material. 
In re First National Monetary Corp., [1982-1984 Transfer Binder] 
Comm. Fut. L. Rep. (CCH) para. 21,853 at 27,581 (CFTC Nov. 13, 
1981). The scope of that obligation is not addressed by these 
proposed amendments to the Rules of Practice.
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    Requiring all parties, instead of only the Division, to produce 
prior statements made by the witnesses they intend to call would 
benefit the hearing process. Making the prior statements of a party's 
witness available to the other parties would likely result in more 
meaningful cross-examination. United States v. Nobles, 422 U.S. 225, 
231 (1975) (allowing prosecution to call upon court to compel the 
production of previously recorded witness statements will strengthen 
the truthfinding process and facilitate full disclosure of relevant 
facts).
    Unlike Rule 26.2 of the Federal Rule of Criminal Procedure or the 
Jencks Act, however, the new ``witness statement'' provision being 
proposed by the Commission would continue to require the production of 
witness statements before the start of the hearing, at a time to be 
fixed by the ALJ. This accords with the current practice of the 
Division of Enforcement, which generally turns over witness statements 
prior to a scheduled hearing either as a part of the Division's 
document production under existing Rule 10.42(b) or as part of its 
submission of prehearing materials pursuant to existing Rule 10.42(a).
    The proposed Rule 10.42(c) contains a provision similar to that 
contained in proposed Rule 10.42(b) to avoid undue disruption of the 
Commission's administrative process because of the discovery of a 
failure to comply with the production requirements of the rule after 
hearing or decision. As with proposed Rule 10.42(b), no rehearing or 
reconsideration of a matter already heard or decided shall be required, 
unless a party demonstrates prejudice.

Rules 10.42(e) and (f)--Admissions

    As currently written, existing Rule 10.42(c) permits ``any party 
[to] serve upon any other party * * * a written request for admission 
of the truth of any facts relevant to the pending proceedings set forth 
in the request, including the genuineness of any documents described 
therein.'' In addition to redesignating the existing rule as new Rule 
10.42(e),\4\ the Commission is proposing to revise and restructure the 
provision in order to discourage requests to admit that may be abusive 
in number or content.
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    \4\ Proposed Rule 10.42(d) would authorize ALJs to modify the 
production requirements provided for in subsections (a)-(c) of the 
rule under certain circumstances.
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    First, the number of admissions that any party to a proceeding may 
request from any other party would be limited. As proposed by the 
Commission, new Rule 10.42(e) would allow each party to serve 50 
requests to admit on any other party. To serve a larger number of 
requests, parties would have to obtain

[[Page 16456]]

prior approval from the ALJ; they would not be allowed to evade this 
limitation by framing requests for discrete and different admissions as 
``subparts'' or ``subparagraphs.'' By revising existing Rule 10.42(c) 
in this way, the Commission's aim is not to prevent parties from 
seeking appropriate admissions, but rather to provide scrutiny by the 
ALJ before the parties make potentially abusive use of this device.
    Second, requests to admit would be separated from questions 
involving the authenticity and admissibility of documents that the 
parties intend to introduce at the hearing. To accomplish this, the 
Commission proposes to promulgate a new Rule 10.42(f), modeled on Rule 
26(a)(3)(C) of the Federal Rules of Civil Procedure. Under the 
proposal, upon order of the ALJ, each party to a proceeding would be 
allowed to serve on the other parties a list of documents that it 
intends to introduce at the hearing. Upon receipt of the list, the 
other parties would have 20 days to file a response, disclosing any 
objections that they wish to preserve to the authenticity or 
admissibility of the documents thus identified.
    Like Rule 26(a)(3)(C) of the Federal Rules of Civil Procedure, 
proposed Rule 10.42(f) is intended to expedite the presentation of 
evidence at the hearing. It would, for example, eliminate the need to 
have witnesses available to provide foundation testimony for most items 
of documentary evidence. Moreover, although the ALJ would not be 
required to do so, he or she would be permitted to treat as a motion in 
limine any list served by a party pursuant to the proposed new rule, 
where any other party has filed a response objecting to the 
authenticity or the admissibility of any item listed. In that event, 
after affording the parties an opportunity to brief the motion, the ALJ 
could rule on objections to the authenticity or admissibility of 
documents in advance of trial, to the extent appropriate.

Rule 10.68--Subpoenas.

    The Commission is proposing three substantive amendments to 
existing Rule 10.68, which governs subpoenas. In addition to those 
amendments, minor changes are being made to paragraph (e).
    With respect to the substantive revisions proposed by the 
Commission, existing Rule 10.68(a)(2) would be revised to allow parties 
to apply for the issuance of subpoenas compelling the production of 
documents at any designated time, including prior to the hearing. Under 
the existing rule, ALJs are not permitted to issue subpoenas requiring 
documents to be produced before the hearing actually begins. Postponing 
compelled document production from the prehearing phase until the 
hearing, however, promotes surprise, lack of preparation and delay. By 
affording parties an opportunity to subpoena and review relevant 
documents before the start of a hearing, revised Rule 10.68(a)(2) will 
enable them to prepare questions relating to the information produced 
and to determine whether additional information will be needed, thereby 
making the hearing process both fairer and more expeditious.
    Second, the Commission proposes to amend Rules 10.68(a)(1) and 
10.68(a)(2) by requiring that all subpoena requests be submitted in 
writing and be served on all other parties, unless (1) the request is 
made on the record at the hearing or (2) the requesting party can 
demonstrate why, in the interest of fairness or justice, the 
requirement of a written submission or service should be waived. In the 
Commission's view, generally there is no undue prejudice in requiring 
disclosure to other parties of the fact that a subpoena is being sought 
or the identity of the person or documents being subpoenaed. On the 
contrary, by requiring requests for subpoenas to be served in writing 
on all parties, the proposed revision will facilitate the proper 
joining of any issue regarding the appropriateness of the requested 
subpoena.
    Third, the Commission is proposing to revise paragraph (f) of Rule 
10.68. Under that provision, if any person fails to comply with a 
subpoena issued at the request of a party, the requesting party may 
petition the Commission to institute a subpoena enforcement action in 
an appropriate United States District Court. As proposed by the 
Commission, a sentence would be added to Rule 10.68(f), providing that, 
when instituting an action to enforce a subpoena requested by the 
Division of Enforcement, the Commission, in its discretion, may 
delegate to the Director of the Division or any Commission employee 
under the Director's direction that he or she may designate, or to such 
other employee as the Commission may designate, authority to serve as 
the Commission's counsel in such action.
    Finally, the Commission proposes to delete from paragraphs (a)(1) 
and (b)(3) of Rule 10.68 references to the Director of the Office of 
Proceedings. At the same time, a referencing error in paragraph (e) 
would be corrected.

II. Other Proposed Rule Changes

Rule 10.1--Scope and Applicability of Rules of Practice

    Rule 10.1 identifies administrative proceedings that are subject to 
the Rules and those that are not. The Commission proposes to amend the 
list of proceedings governed by the Rules to reference specifically 
proceedings for the issuance of restitution orders pursuant Section 
6(c) of the Act, 7 U.S.C. 9 (1994), as amended by the FTPA in 1992.

Rule 10.12--Service and Filing of Documents; Form and Execution

    As currently written, Rule 10.12 authorizes the service of all 
pleadings subsequent to the complaint by personal service or by first-
class mail. The Commission proposes to revise paragraph (a)(2) of Rule 
10.12 to also allow service by a commercial package delivery service 
similar to the postal service and, provided that certain conditions are 
met, by facsimile machine. By referring to such commercial services, 
the Commission intends to include intercity package delivery services 
such as Federal Express and United Parcel Service. It does not intend 
to have this part of the service rule apply to intracity bicycle 
messengers and similar services, which would fall within the personal 
service part of the rule. As is now the case for service by mail, when 
documents are served by a commercial package delivery service similar 
to the postal service, an additional three days will be added to the 
time within which the party being served may respond to the pleading. 
Parties who wish to serve each other by facsimile machine must agree to 
do so in writing. The written agreement shall be filed with the 
Proceedings Clerk and must, at a minimum, (1) be signed by each party; 
and (2) specify the facsimile machine telephone numbers to be used, the 
hours during which the facsimile machine is in operation, and when 
service will be deemed complete (e.g., when the sender has completed 
transmission and his or her facsimile machine has produced a 
confirmation report indicating successful transmission).

Rule 10.21--Commencement of the Proceeding

    The Commission proposes to amend existing Rule 10.21 to state that 
an adjudicatory proceeding is commenced when a complaint is filed with 
the Commission's Office of Proceedings. As currently written, the rule 
deems the proceeding commenced ``when the Commission authorizes service 
of a

[[Page 16457]]

complaint and notice of hearing upon one or more respondents.''

Rule 10.22--Complaint and Notice of Hearing

    Existing Rule 10.22 addresses the content and service of the 
complaint and notice of hearing in an administrative proceeding before 
the Commission. With respect to service, the Commission proposes to add 
language to paragraph (b) of Rule 10.22 addressing those instances 
where a respondent is not found at his or her last known business or 
residence address and no forwarding address is available. Under those 
circumstances, additional service may be effected, at the discretion of 
the Commission, by publishing the complaint in one or more newspapers 
with general circulation where the respondent's last known business or 
residence address was located and, if ascertainable, where the 
respondent is believed to reside or do business currently. The 
complaint would be displayed simultaneously on the Commission's 
Internet web site. By adding these additional methods of service, the 
Commission does not intend to suggest that service at the respondent's 
last known address is not sufficient. Rather, the Commission is 
building into the rule the flexibility to provide additional methods of 
service where it deems they are warranted under particular 
circumstances.

Rule 10.24--Amendments and Supplemental Pleadings

    Under existing Rule 10.24, any party to a proceeding may amend his 
or her pleading once as a matter of course at any time before a 
responsive pleading is served or, if the pleading is one to which no 
responsive pleading is permitted, within 20 days after it is served. 
Otherwise, a party may amend his or her pleading only by leave of the 
ALJ, which ``shall be freely given when justice so requires.'' See 17 
CFR 10.24(a). The rule also provides that, upon motion by a party, the 
ALJ may permit that party to serve a supplemental pleading ``setting 
forth [relevant] transactions or occurrences or events which have 
happened since the date of the pleadings sought to be supplemented.'' 
See 17 CFR 10.24(b).
    By definition, the complaint issued by the Commission in an 
enforcement proceeding is a ``pleading'' for Part 10 purposes. See 17 
CFR 10.2(m). Because existing Rule 10.24 only permits a ``party'' to 
amend or supplement a pleading, however, the rule as currently worded 
creates some ambiguity as to whether the Commission has retained the 
authority to amend or supplement a complaint once the proceeding has 
commenced. To allay any confusion on this issue, the Commission is 
proposing to revise and restructure Rule 10.24.
    As revised, Rule 10.24 would grant the Commission exclusive and 
unlimited authority to amend a complaint. The only exception to this 
rule would be a proviso permitting the Division of Enforcement, upon 
motion to the ALJ and the other parties and with notice to the 
Commission, to correct typographical and clerical errors or to make 
similar technical, non-substantive revisions to the complaint. 
Otherwise, amendments to complaints could only be made by the 
Commission itself. The Rule also would make explicit the ALJ's 
authority, if the Commission exercises its authority to amend the 
complaint, to adjust the hearing and/or pre-hearing schedule so as to 
avoid any prejudice to any of the parties that might otherwise be 
caused by the filing of an amended complaint.
    Consistent with this proposed change, paragraph (b) of existing 
Rule 10.24, which deals with supplemental pleadings, would be deleted. 
In its place, the Commission proposes to insert a new paragraph (b), 
addressing (1) amendments to answers to complaints; and (2) any replies 
to such answers that may be permitted. The wording of this proposed 
paragraph generally tracks the current language of Rule 10.24(a). As a 
consequence of this revision, references to supplemental pleadings now 
found in paragraph (c) of Rule 10.24 also would be deleted.

Rule 10.26--Motions and Other Papers

    Existing Rule 10.26 governs motion practice before the Commission. 
As now written, paragraph (b) of the rule permits any party who is 
served with a motion to file a response within 10 days of service or 
within such other period as may be established by the ALJ or the 
Commission. The Commission proposes to delete the last sentence now 
found in paragraph (b), which requires that any party who does not file 
a response to a motion shall be deemed to have consented to the relief 
sought by the motion. The Commission believes that the failure to file 
a response should be considered by the ALJ in ruling on the motion, but 
should not automatically be treated as an affirmative consent to the 
relief being sought. Thus, the deleted sentence would be replaced with 
language allowing the ALJ or the Commission to consider a party's 
decision not to file a response when deciding whether or not to grant 
the relief requested in the motion.

Rule 10.41--Prehearing Conferences; Procedural Matters

    As currently written, Rule 10.41 authorizes the ALJ presiding over 
an administrative proceeding to hold prehearing conferences for a 
number of specific purposes set forth in the rule. Consistent with the 
proposed changes involving the discovery provisions of the Rules, the 
Commission is proposing to revise Rule 10.41 to allow its ALJs to hold 
prehearing conferences to consider objections to the introduction of 
documentary evidence and the testimony of witnesses identified in 
prehearing materials submitted by the parties. This proposed revision 
accords with Rule 16(c) of the Federal Rules of Civil Procedure, which 
was intended, among other purposes, to encourage better planning and 
management of litigation.

Rule 10.66--Conduct of Hearing

    As currently written, Rule 10.66, which governs the conduct of 
hearings, does not explicitly allow the Division, as plaintiff, to put 
on a rebuttal case, although it often is permitted to do so. The 
Commission is proposing to amend the rule to recognize this established 
practice, by adding language to paragraph (b) of Rule 10.66 expressly 
permitting the presentation of rebuttal evidence.
    In addition, the Commission is proposing adding language to 
paragraph (b) of Rule 10.66 to note explicitly the Commission's and the 
ALJ's existing authority to enforce the requirement that evidence 
presented in the proceeding be relevant and to limit cross-examination 
to the subject matter of direct examination and matters affecting 
credibility. See Fed. R. Evid. 611(b). Of course, the ALJ may also 
exercise his or her discretion to permit inquiry during cross-
examination into additional matters as if on direct examination if the 
circumstances so warrant, such as to avoid having to have a witness 
return to provide direct testimony during the cross-examining party's 
case-in-chief or rebuttal. See id.

Rule 10.84--Initial Decision

    The Commission is proposing two amendments to existing Rule 10.84, 
which deals with initial decisions. First, the rule would no longer 
require that the ALJ render his or her initial decision within 30 days 
after the parties file their posthearing submissions. The 30-day time 
limit is unrealistic in many cases and does not accord with the 
practice of other federal regulatory agencies.
    Second, a new provision would be added to paragraph (b), requiring 
that,

[[Page 16458]]

in any proceeding in which an order requiring restitution may be 
entered, the ALJ shall determine, as part of his initial decision, 
whether restitution is appropriate. In the event that it is, the 
initial decision would include an order of restitution specifying: (1) 
the violations that form the basis for restitution; (2) the particular 
persons, or class of persons, who suffered damages proximately caused 
by such violations; and
    (3) the method of calculating and, if then determinable, the amount 
of damages to be paid as restitution.
    In deciding whether or not restitution is an appropriate remedy, 
the ALJ would be given broad latitude. Under revised Rule 10.84(b), the 
ALJ would be able to consider: (1) the degree of complexity likely to 
be involved in establishing individual claims; (2) the likelihood that 
such claimants can obtain compensation through their own efforts; (3) 
the ability of the respondent to pay claimants damages that his 
violations have caused; (4) the availability of resources to administer 
restitution; and (5) any other matters that justice may require.
    In most cases, the ALJ's Initial Decision would not address how or 
when restitution would be paid. Instead, the Commission proposes adding 
to the Rules a new and separate Subpart I, which would govern the 
implementation of required restitution. Under this proposal, after an 
order requiring restitution becomes effective (i.e., becomes final and 
is not stayed), the Commission would direct the Division of Enforcement 
to recommend to the Commission or, at the Commission's discretion, the 
ALJ a procedure for implementing restitution. Each respondent who will 
be required to pay restitution will be afforded notice of the 
Division's recommendations and an opportunity to be heard.
    Based on the Division's recommendations, the Commission or, at the 
Commission's discretion, the ALJ would establish a procedure for: (1) 
identifying and notifying individual claimants who may be entitled to 
restitution; (2) receiving and evaluating claims; (3) obtaining funds 
to be paid as restitution from the respondent; and (4) distributing 
such funds to qualified claimants. If appropriate, the Commission or 
the ALJ would be permitted to appoint any person, including a 
Commission employee, to administer, or assist in administering, 
restitution. Unless otherwise ordered by the Commission, all fees and 
other costs incurred in administering an order of restitution will be 
paid from the restitution funds obtained from the respondent. If the 
administrator is a Commission employee, however, no fee shall be 
charged for his or her services or for services performed by other 
Commission employees working under his or her direction.
    Finally, any order issued by an ALJ directing or authorizing 
payment of restitution to individual claimants would be deemed to be a 
final order for appeal purposes and thus be subject to review by the 
Commission pursuant to Sec. 10.102(a).
    The Commission expects that this bifurcated procedure would be 
followed in most proceedings. However, the proposed amendments would 
allow the bifurcated proceedings to be combined into one proceeding 
under limited circumstances, upon motion of the Division of Enforcement 
or where the resolution of the issues regarding implementation of the 
restitution would not materially delay the resolution by the ALJ of the 
rest of the proceeding. The Commission anticipates that this 
alternative procedure would be used only where the issues relating to 
the implementation of restitution were sufficiently simple--for 
instance, where there are only a handful of potential recipients of 
restitution and the calculation of each individual's claim is not 
complex--that combining the proceedings would not add much time either 
to the hearing of the matter or to the rendering of the Initial 
Decision.

Rule 10.101--Interlocutory Appeals

    Rule 10.101 addresses the circumstances under which interlocutory 
appeals may be taken from rulings of the Administrative Law Judges and 
the procedures to be followed in doing so. Paragraph (a) sets forth the 
circumstances under which the Commission may permit interlocutory 
appeals. Subparagraphs (1)-(4) of that paragraph identify particular 
circumstances which, if present, would allow a party to ask the 
Commission directly to consider interlocutory review. Subparagraph (5) 
provides for interlocutory appeal based upon certification by the 
Administrative Law Judge that certain circumstances are presented by 
the issue on which review is to be sought.
    Subparagraph (b) sets the time deadlines for the filing of an 
Application for review with the Commission. It provides that an 
application is to be filed within five days of notice of the 
Administrative Law Judge's ruling on which review is to be sought under 
subparagraphs (a)(1)-(4), or within five days of the Judge's ruling on 
a certification request made under subparagraph (a)(5).
    As currently worded, paragraph (b) creates an ambiguity as to the 
applicable deadlines if a party believes that it may have a basis to 
seek interlocutory review under subparagraphs (a)(1)-(4), but is also 
seeking certification from the Administrative Law Judge under 
subparagraph (a)(5). The Commission proposes to revise subparagraph (b) 
to eliminate that ambiguity. Under the revised rule, if a party seeks 
certification under subparagraph (a)(5) within five days of the 
Administrative Law Judge's ruling on which review will be sought, that 
party would have five days after the Judge's ruling on the request for 
certification to file an application for review under any of the 
subparagraphs of paragraph (a).

Rule 10.102--Review of Initial Decisions

    Existing Rule 10.102 gives any party to an administrative 
proceeding the right to appeal an ALJ's initial decision to the 
Commission. The appeal is initiated by filing a notice of appeal within 
15 days after service of the initial decision. The appeal then must be 
perfected through the filing of an appeal brief within 30 days after 
the notice of appeal is filed. Within 30 days after being served with 
an appeal brief, the opposite party may file an answering brief. No 
further briefs are permitted.
    The Commission proposes to amend Rule 10.102 in two respects. 
First, a new provision allowing for cross appeals would be added to 
paragraph (a) of Rule 10.102. Pursuant to this provision, if a timely 
notice of appeal is filed by one party, any other party would be 
permitted to file a notice of appeal within 15 days after service of 
the first notice or within 15 days after service of the initial 
decision or other order terminating the proceeding, whichever is later. 
In the event that a notice of cross appeal were to be filed, the 
Commission, to the extent practicable, would adjust the briefing 
schedule and any page limitations otherwise applicable to allow for 
consolidated briefing by all parties.
    Second, paragraph (b) of existing Rule 10.102 would be revised to 
permit reply briefs, which would have to be filed within 14 days after 
service of an answering brief. Under the Commission's proposal, reply 
briefs would be strictly confined to matters raised in the answering 
brief and be limited to 15 pages in length.

Rule 10.106--Reconsideration

    Rule 10.106 deals with petitions for reconsideration of Commission 
opinions and orders. Although the rule specifically provides that the 
filing of a petition for reconsideration shall not

[[Page 16459]]

operate to stay the effectiveness of the Commission's opinion or order, 
it does not otherwise address stay applications. In the past, when 
considering requests to stay the effective date of its opinions and 
orders pending judicial review, the Commission has generally relied on 
standards developed by federal courts. Under those standards, a 
respondent seeking to stay governmental action pending appeal must 
establish, along with irreparable injury, that he or she is likely to 
succeed on the merits of his or her appeal and that neither the public 
interest nor the interest of any other party would be adversely 
affected if a stay is granted.
    The Commission proposes to add a new paragraph to Rule 10.106 
codifying the standards it has relied upon in considering stay 
applications, as described above. In addition, the Commission proposes 
to require any respondent seeking to stay the imposition of a civil 
monetary penalty to post a surety bond with the Commission in the 
amount of any penalty imposed plus interest. If neither the public 
interest nor the interest of any other party would be adversely 
affected, imposition of the civil monetary penalty would be stayed once 
the bond is posted. The bond requirement would assure that, should the 
Commission prevail on appeal, the civil monetary penalty would be paid. 
In this way, the proposed rule would reduce the harm to the public 
interest which otherwise could result from the granting of a stay.
    Additionally, the Commission proposes to add a new paragraph (c) to 
existing Rule 10.106, dealing with responses to petitions for 
reconsideration or stay applications. Under the proposed provision, no 
response would be filed unless requested by the Commission. Based on 
the Commission's experience, petitions for reconsideration and stay 
applications normally do not necessitate a response in order for the 
Commission to rule.

Appendix A--Commission Policy Relating to the Acceptance of 
Settlements in Administrative and Civil Proceedings

    The Commission proposes to add to the Rules an appendix setting 
forth the policy of the Commission not to accept any offer of 
settlement submitted by any respondent or defendant in an 
administrative or civil proceeding if the settling respondent or 
defendant wishes to continue to deny the allegations of the complaint. 
In accepting a settlement and entering an order finding violations of 
the Act and/or regulations promulgated under the Act, the Commission 
makes uncontested findings of fact and conclusions of law. The 
Commission does not believe it would be appropriate for it to be making 
such uncontested findings of violations if the party against whom the 
findings and conclusions are to be entered is continuing to deny the 
alleged misconduct.
    The refusal of a settling respondent or defendant to admit the 
allegations in a Commission-instituted complaint shall be treated as a 
denial, unless the party states that he neither admits nor denies the 
allegations. In that event, the offer of settlement, consent or consent 
order submitted to the Commission shall include a provision stating 
that, by neither admitting nor denying the allegations, the settling 
respondent or defendant agrees that neither he nor any of his agents or 
employees under his authority or control shall take any action or make 
any public statement denying, directly or indirectly, any allegation in 
the complaint or creating, or tending to create, the impression that 
the complaint is without a factual basis; provided, however, that 
nothing in such provision shall affect the settling respondent's or 
defendant's testimonial obligation, or right to take legal positions, 
in other proceedings to which the Commission is not a party.
    This policy reflects the current practice of the Commission.

III. Related Matters

    The proposed rules relate solely to agency organization, procedure 
and practice. Therefore, the provisions of the Administrative Procedure 
Act, 5 U.S.C. 553, generally requiring notice of proposed rulemaking 
and opportunity for public comment, are not applicable to them. 
However, because these proposed amendments represent significant 
changes in the Commission's current rules of practice, the Commission 
is inviting public comment on the rules as proposed and suggestions for 
any other changes that would improve the procedures used in 
adjudicatory administrative proceedings instituted by the Commission.
    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611 (1994), 
requires that agencies, in proposing rules, consider the impact of 
those rules on small businesses. Section 3(a) of the RFA defines the 
term ``rule'' to mean ``any rule for which the agency publishes a 
general notice of proposed rulemaking pursuant to section 553(b) of 
this title * * * for which the agency provides an opportunity for 
notice and public comment.'' 5 U.S.C. 601(2). Since the proposed rules 
are not being effected pursuant to section 553(b), they are not 
``rules'' as defined in the RFA, and the analysis and certification 
process certified in that statute do not apply. In any event, the 
Chairperson certifies, on behalf of the Commission, that the proposed 
rules, which seek to improve the overall efficiency and fairness of the 
administrative process, will not have a significant economic impact on 
a substantial number of small entities.

List of Subjects in 17 CFR Part 10

    Administrative practice and procedure, Commodity futures.

    In consideration of the foregoing, the Commission proposes to amend 
Chapter I of Title 17 of the Code of Federal Regulations as follows:

PART 10--RULES OF PRACTICE

    1. The authority citation for part 10 continues to read as follows:

    Authority: Pub. L. 93-463, sec. 101(a)(11), 88 Stat. 1391; 7 
U.S.C. 4a(j), unless otherwise noted.

    2. Section 10.1 is amended by deleting the third ``and'' from 
paragraph (d), redesignating paragraphs (e), (f), (g) and (h) as 
paragraphs (f), (g), (h) and (i), respectively, and adding a new 
paragraph (e), to read as follows.


10.1  Scope and applicability of rules of practice.

* * * * *
    (e) The issuance of restitution orders pursuant to section 6(c) of 
the Act, 7 U.S.C. 9; and
 * * * * *
    3. Section 10.12 is amended by revising paragraph (a)(2) to read as 
follows:


Sec. 10.12  Service and filing of documents; form and execution.

    (a) Service by a party or other participant in a proceeding. * * *
    (2) How service is made. Service shall be made by:
    (i) Personal service;
    (ii) Delivering the documents by first-class United States mail or 
a similar commercial package delivery service; or
    (iii) Transmitting the documents via facsimile machine.
    Service shall be complete at the time of personal service or upon 
deposit in the mails or with a similar commercial package delivery 
service of a properly addressed document for which all postage or fees 
have been paid to the mail or delivery service. Where a party effects 
service by mail or similar package delivery service, the time within 
which the party being served may respond shall be extended by three 
days. Service by facsimile machine shall

[[Page 16460]]

be permitted only if all parties to the proceeding have agreed to such 
an arrangement in writing and a copy of the written agreement, signed 
by each party, has been filed with the Proceedings Clerk. The agreement 
must specify the facsimile machine telephone numbers to be used, the 
hours during which the facsimile machine is in operation, and when 
service will be deemed complete.
* * * * *
    4. Section 10.21 is revised to read as follows:


Sec. 10.21  Commencement of the proceeding.

    An adjudicatory proceeding is commenced when a complaint and notice 
of hearing is filed with the Office of Proceedings.
    5. Section 10.22 is amended by adding a new sentence at the end of 
paragraph (b) and adding new paragraphs (b)(1) and (b)(2) to read as 
follows:


Sec. 10.22  Complaint and notice of hearing.

* * * * *
    (b) Service. * * * If a respondent is not found at his last known 
business or residence address and no forwarding address is available, 
additional service may be made, at the discretion of the Commission, as 
follows:
    (1) By publishing a notice of the filing of the proceeding and a 
summary of the complaint, approved by the Commission or the 
Administrative Law Judge, once a week for three consecutive weeks in 
one or more newspapers having a general circulation where the 
respondent's last known business or residence address was located and, 
if ascertainable, where the respondent is believed to reside or be 
doing business currently; and
    (2) By continuously displaying the complaint on the Commission's 
Internet web site during the period referred to in paragraph (b)(1) of 
this section.
    6. Section 10.24 is amended by revising paragraphs (a), (b) and (c) 
to read as follows.


Sec. 10.24  Amendments and supplemental pleadings.

    (a) Complaint and notice of hearing. The Commission may, at any 
time, amend the complaint and notice of hearing in any proceeding. If 
the Commission so amends the complaint and notice of hearing, the 
Administrative Law Judge may, at his discretion, adjust the scheduling 
of the proceeding so as to avoid any prejudice to any of the parties to 
the proceeding. Upon motion to the Administrative Law Judge and with 
notice to all other parties and the Commission, the Division of 
Enforcement may amend a complaint to correct typographical and clerical 
errors or to make other technical, non-substantive revisions within the 
scope of the original complaint.
    (b) Other pleadings. Except for the complaint and notice of 
hearing, a party may amend any pleading once as a matter of course at 
any time before a responsive pleading is served or, if the pleading is 
one to which no responsive pleading is permitted, he may amend it 
within 20 days after it is served. Otherwise a party may amend a 
pleading only by leave of the Administrative Law Judge, which shall be 
freely given when justice so requires.
    (c) Response to amended pleadings. Any party may file a response to 
any amendment to any pleading, including the complaint, within ten days 
after the date of service upon him of the amendment or within the time 
provided to respond to the original pleading, whichever is later.
* * * * *
    7. Section 10.26 is amended by revising the last sentence in 
paragraph (b) to read as follows:


Sec. 10.26  Motions and other papers.

* * * * *
    (b) Answers to motions. * * * The absence of a response to a motion 
may be considered by the Administrative Law Judge or the Commission in 
deciding whether to grant the requested relief.
* * * * *
    8. Section 10.41 is amended by redesignating paragraphs (f) and (g) 
as paragraphs (g) and (h), respectively, and by adding a new paragraph 
(f) to read as follows.


Sec. 10.41  Prehearing conferences; procedural matters.

* * * * *
    (f) Considering objections to the introduction of documentary 
evidence and the testimony of witnesses identified in prehearing 
materials filed or otherwise furnished by the parties pursuant to 
Sec. 10.42;
* * * * *
    9. Section 10.42 is amended by revising paragraph (a); by 
redesignating paragraphs (b) and (c) as paragraphs (c) and (e); by 
revising newly redesignated paragraphs (c) and (e)(1); and by adding a 
new paragraph (b), a new paragraph (d) and a new paragraph (f), to read 
as follows.


Sec. 10.42  Discovery.

    (a) Pretrial Materials.--(1) In general. Unless otherwise ordered 
by an Administrative Law Judge, the parties to a proceeding shall 
furnish to all other parties to the proceeding on or before a date set 
by the Administrative Law Judge in the form of a prehearing memorandum 
or otherwise:
    (i) An outline of its case or defense;
    (ii) The legal theories upon which it will rely;
    (iii) The identity, and the city and state of residence, of each 
witness, other than an expert witness, who is expected to testify on 
its behalf, along with a brief summary of the matters to be covered by 
the witness's expected testimony;
    (iv) A list of documents which it intends to introduce at the 
hearing, along with copies of any such documents which the other 
parties do not already have in their possession and to which they do 
not have reasonably ready access.
    (2) Expert witnesses. Unless otherwise ordered by the 
Administrative Law Judge, in addition to the information described in 
paragraph (a)(1) of this section, any party who intends to call an 
expert witness shall furnish to all other parties to the proceeding on 
or before a date set by the Administrative Law Judge:
    (i) A statement identifying the witness and setting forth his 
qualifications;
    (ii) A list of any publications authored by the witness within the 
preceding ten years;
    (iii) A list of all cases in which the witness has testified as an 
expert, at trial or in deposition, within the preceding four years;
    (iv) A complete statement of all opinions to be expressed by the 
witness and the basis or reasons for those opinions; and
    (v) A list of any documents, data or other written information 
which were considered by the witness in forming his opinions, along 
with copies of any such documents, data or information which the other 
parties do not already have in their possession and to which they do 
not have reasonably ready access.
    (3) The foregoing procedures shall not be deemed applicable to 
rebuttal evidence submitted by any party at the hearing.
    (4) In any action in which a party fails to comply with the 
requirements of this paragraph (a), the Administrative Law Judge may 
make such orders in regard to the failure as are just, taking into 
account all of the relevant facts and circumstances of the failure to 
comply.
    (b) Investigatory materials. (1) In general. Unless otherwise 
ordered by the Commission or the Administrative Law Judge, the Division 
of Enforcement shall make available for inspection and copying by the 
respondents prior to the

[[Page 16461]]

scheduled hearing date any of the following documents that were 
obtained by the Division prior to the institution of proceedings in 
connection with the investigation that led to the complaint and notice 
of hearing:
    (i) All documents that were produced pursuant to subpoenas issued 
by the Division or were otherwise obtained from persons not employed by 
the Commission; and
    (ii) All transcripts of investigative testimony and all exhibits to 
those transcripts.
    (2) Documents that may be withheld. The Division of Enforcement may 
withhold any document which would:
    (i) Reveal the identity of a confidential source;
    (ii) Disclose confidential investigatory techniques or procedures; 
or
    (iii) Separately disclose the market positions, business 
transactions, trade secrets or names of customers of any persons other 
than the respondents, unless such information is relevant to the 
resolution of the proceeding.
    (3) Nothing in paragraphs (b)(1) and (b)(2) of this section shall 
limit the ability of the Division of Enforcement to withhold documents 
or other information on the grounds of privilege or work product.
    (4) Index of withheld documents. The Administrative Law Judge may, 
at the request of any respondent or upon his own motion, require the 
Division of Enforcement to submit for review an index of documents 
withheld pursuant to paragraphs (b)(2) or (b)(3) of this section.
    (5) Arrangements for inspection and copying. Documents subject to 
inspection and copying pursuant to this section shall be made available 
to the respondents at the Commission office where they are ordinarily 
maintained or any other location agreed upon by the parties in writing. 
Upon payment of the appropriate fees set forth in appendix B to part 
145 of this chapter, any respondent may obtain a photocopy of any 
document made available for inspection. Without the prior written 
consent of the Division of Enforcement, no respondent shall have the 
right to take custody of any documents that are made available for 
inspection and copying, or to remove them from Commission premises.
    (6) Failure to make documents available. In the event that the 
Division of Enforcement fails to make available documents subject to 
inspection and copying pursuant to this section, no rehearing or 
reconsideration of a matter already heard or decided shall be required, 
unless the respondent demonstrates prejudice caused by the failure to 
make the documents available.
    (7) Requests for confidential treatment; protective orders. If a 
person has requested confidential treatment of information submitted by 
him or her, either pursuant to rules adopted by the Commission under 
the Freedom of Information Act (part 145 of this chapter) or under the 
Commission's Rules Relating To Investigations (part 11 of this 
chapter), the Division of Enforcement shall notify him or her, if 
possible, that the information is to be disclosed to parties to the 
proceeding and he or she may apply to the Administrative Law Judge for 
an order protecting the information from disclosure. In considering 
whether to issue a protective order, the Administrative Law Judge shall 
weigh the burden on the person requesting the order if no order is 
granted against the burden on the public interest and any party to the 
proceeding if the order is granted. No protective order shall be 
granted which will prevent the introduction of material evidence by the 
Division of Enforcement or impair a respondent's ability to defend 
adequately.
    (c) Witness statements. (1) In general. Each party to an 
adjudicatory proceeding shall make available to the other parties any 
statement of any person whom the party calls, or expects to call, as a 
witness that relates to the witness's anticipated testimony and is in 
the party's possession. Such statements shall include the following:
    (i) Transcripts of investigative deposition, trial or similar 
testimony given by the witness,
    (ii) Written statements signed by the witness, and
    (iii) Substantially verbatim notes of interviews with the witness, 
and all exhibits to such transcripts, statements and notes. For 
purposes of this paragraph (c), ``substantially verbatim notes'' means 
notes that fairly record the witnesses exact words, subject to minor, 
inconsequential deviations. Such statements shall include memoranda and 
other writings authored by the witness that contain information 
directly relating to his anticipated testimony. The production of 
witness statements pursuant to this paragraph shall take place prior to 
the scheduled hearing date, at a time to be designated by the 
Administrative Law Judge.
    (2) Nothing in paragraph (c)(1) of this section shall limit the 
ability of a party to withhold documents or other information on the 
grounds of privilege or work product.
    (3) Index of withheld documents. The Administrative Law Judge may, 
at the request of any party or upon his own motion, require a party to 
submit for review an index of documents withheld pursuant to paragraph 
(c)(2) of this section.
    (4) Failure to produce witness statements. In the event that a 
party fails to make available witness statements subject to production 
pursuant to this section, no rehearing or reconsideration of a matter 
already heard or decided shall be required, unless another party 
demonstrates prejudice caused by the failure to make the witness 
statements available.
    (d) Modification of Production Requirements. The Administrative Law 
Judge shall modify any of the requirements of paragraphs (a) through 
(c) of this section that any party can show is unduly burdensome or is 
otherwise inappropriate under all the circumstances.
    (e) Admissions. (1) Request for admissions. Any party may serve 
upon any other party, with a copy to the Proceedings Clerk, a written 
request for admission of the truth of any facts relevant to the pending 
proceeding set forth in the request. Each matter of which an admission 
is requested shall be separately set forth. Unless prior written 
approval is obtained from the Administrative Law Judge, the number of 
requests shall not exceed 50 in number including all discrete parts and 
subparts.
* * * * *
    (f) Objections to authenticity or admissibility of documents. (1) 
Identification of documents. Upon order of the Administrative Law 
Judge, any party may serve upon the other parties, with a copy to the 
Proceedings Clerk, a list identifying the documents that it intends to 
introduce at the hearing and requesting the other parties to file and 
serve a response disclosing any objection, together with the factual or 
legal grounds therefor, to the authenticity or admissibility of each 
document identified on the list. A copy of each document identified on 
the list shall be served with the request, unless the party being 
served already has the document in his possession or has reasonably 
ready access to it.
    (2) Objections to authenticity or admissibility. Within 20 days 
after service of the list described in paragraph (f)(1) of this 
section, each party upon whom it was served shall file a response 
disclosing any objection, together with the factual or legal grounds 
therefor, to the authenticity or admissibility of each document 
identified on the list. All objections not raised may be deemed waived.

[[Page 16462]]

    (3) Rulings on objections. In his or her discretion, the 
Administrative Law Judge may treat as a motion in limine any list 
served by a party pursuant to paragraph (f)(1) of this section, where 
any other party has filed a response objecting to the authenticity or 
the admissibility on any item listed. In that event, after affording 
the parties an opportunity to file briefs containing arguments on the 
motion, the ALJ may rule on any objection to the authenticity or 
admissibility of any document identified on the list in advance of 
trial, to the extent appropriate.
    10. Section 10.66 is amended by revising paragraph (b) to read as 
follows:


Sec. 10.66  Conduct of the hearing.

* * * * *
    (b) Rights of parties. Every party shall be entitled to due notice 
of hearings, the right to be represented by counsel, and the right to 
cross-examine witnesses, present oral and documentary evidence, submit 
rebuttal evidence, raise objections, make arguments and move for 
appropriate relief. Nothing in this paragraph limits the authority of 
the Commission or the Administrative Law Judge to exercise authority 
under other provisions of the Commission's rules, to enforce the 
requirement that evidence presented be relevant to the proceeding, or 
to limit cross-examination to the subject matter of the direct 
examination and matters affecting the credibility of the witness.
* * * * *
    11. Section 10.68 is amended by revising paragraphs(a)(1), (a)(2) 
and (b)(3); by revising the second sentence in paragraph (e)(1); and by 
adding a new sentence to the end of paragraph (f), to read as follows.


Sec. 10.68  Subpoenas.

    (a) Application for and issuance of subpoenas.--(1) Application for 
and issuance of subpoena ad testificandum. Any party may apply to the 
Administrative Law Judge for the issuance of a subpoena requiring a 
person to appear and testify (subpoena ad testificandum) at the 
hearing. All requests for the issuance of a subpoena ad testificandum 
shall be submitted in duplicate and in writing and shall be served upon 
all other parties to the proceeding, unless the request is made on the 
record at the hearing or the requesting party can demonstrate why, in 
the interest of fairness or justice, the requirement of a written 
submission or service on one or more of the other parties is not 
appropriate. A subpoena ad testificandum shall be issued upon a showing 
by the requesting party of the general relevance of the testimony being 
sought and the tender of an original and two copies of the subpoena 
being requested, except in those situations described in Sec. 10.68(b), 
where additional requirements are set forth.
    (2) Application for subpoena duces tecum. An application for a 
subpoena requiring a person to produce specified documentary or 
tangible evidence (subpoena duces tecum) at any designated time or 
place may be made by any party to the Administrative Law Judge. All 
requests for the issuance of a subpoena ad testificandum shall be 
submitted in duplicate and in writing and shall be served upon all 
other parties to the proceeding, unless the request is made on the 
record at the hearing or the requesting party can demonstrate why, in 
the interest of fairness or justice, the requirement of a written 
submission or service on one or more of the other parties is not 
appropriate. Except in those situations described in Sec. 10.68(b), 
where additional requirements are set forth, each application for the 
issuance of a subpoena duces tecum shall contain a statement or showing 
of general relevance and reasonable scope of the evidence being sought 
and be accompanied by an original and two copies of the subpoena being 
requested, which shall describe the documentary or tangible evidence to 
be subpoenaed with as much particularity as is feasible.
* * * * *
    (b) Special requirements relating to application for and issuance 
of subpoenas for Commission records and for the appearance of 
Commission employees or employees of other agencies. * * *
    (3) Rulings. The motion shall be decided by the Administrative Law 
Judge and shall provide such terms or conditions for the production of 
the material, the disclosure of the information, or the appearance of 
the witness as may appear necessary and appropriate for the protection 
of the public interest.
* * * * *
    (e) Service of subpoenas. (1) How effected. * * * Service of a 
subpoena upon any other person shall be made by delivering a copy of 
the subpoena to him as provided in paragraph (e)(2) or (e)(3) of this 
section, as applicable, and by tendering to him the fees for one day's 
attendance. * * *
    (f) Enforcement of subpoenas. * * * When instituting an action to 
enforce a subpoena requested by the Division of Enforcement, the 
Commission in its discretion may delegate to the Director of the 
Division or any Commission employee designated by the Director and 
acting under his or her direction, or to any other employee of the 
Commission, authority to serve as the Commission's counsel in such 
subpoena enforcement action.
    12. Section 10.84 is amended by revising paragraph (b) to read as 
follows:


Sec. 10.84  Initial decision.

* * * * *
    (b) Filing of initial decision. (1) In general. After the parties 
have been afforded an opportunity to file their proposed findings of 
fact, proposed conclusions of law and supporting briefs pursuant to 
Sec. 10.82, the Administrative Law Judge shall prepare upon the basis 
of the record in the proceeding and shall file with the Proceedings 
Clerk his decision, a copy of which shall be served by the Proceedings 
Clerk upon each of the parties.
    (2) Restitution. In any proceeding in which an order requiring 
restitution may be entered, the Administrative Law Judge shall, as part 
of his initial decision, determine whether restitution is appropriate. 
If it is, the ALJ shall issue an order specifying: all violations that 
form the basis for restitution; the particular persons, or class of 
persons, who suffered damages proximately caused by each such 
violation; and the method of calculating and, if then determinable, the 
amount of damages to be paid as restitution.
    (3) In deciding whether restitution is appropriate, the 
Administrative Law Judge, in his discretion, may consider: the degree 
of complexity likely to be involved in establishing claims; the 
likelihood that claimants can obtain compensation through their own 
efforts; the ability of the respondent to pay claimants damages that 
his violations have caused; the availability of resources to administer 
restitution; and any other matters that justice may require.
* * * * *
    13. Section 10.101 is amended by revising paragraph (b)(1) to read 
as follows.


Sec. 10.101  Interlocutory appeals

* * * * *
    (b) Procedure to obtain interlocutory review. (1) In general. An 
Application for interlocutory review may be filed within five days 
after notice of the Administrative Law Judge's ruling on a matter 
described in paragraph (a)(1), (a)(2), (a)(3) or (a)(4) of this 
section, except if a request for certification under paragraph (a)(5) 
of this section has been filed with the Administrative Law Judge within 
five days after notice of the Administrative Law Judge's ruling

[[Page 16463]]

on the matter. If such a request has been filed, an Application for 
interlocutory review under paragraphs (a)(1) through (a)(5) of this 
section may be filed within five days after notification of the 
Administrative Law Judge's ruling on the request for certification.
* * * * *
    14. Section 10.102 is amended by revising paragraphs (a), (d)(2) 
and the first sentence of paragraph (e)(2); by redesignating paragraph 
(b)(3) as paragraph (b)(4) and revising it; by adding a new sentence 
between the third and fourth full sentences of paragraph (e)(1); and by 
adding a new paragraph (b)(3) and a new paragraph (b)(5), to read as 
follows.


Sec. 10.102  Review of initial decision.

    (a) Notice of appeal. (1) In general. Any party to a proceeding may 
appeal to the Commission an initial decision or a dismissal or other 
final disposition of the proceeding by the Administrative Law Judge as 
to any party. The appeal shall be initiated by serving and filing with 
the Proceedings Clerk a notice of appeal within 15 days after service 
of the initial decision or other order terminating the proceeding; 
where service of the initial decision or other order terminating the 
proceeding is effected by mail or commercial carrier, the time within 
which the party served may file a notice of appeal shall be increased 
by three days.
    (2) Cross appeals. If a timely notice of appeal is filed by one 
party, any other party may file a notice of appeal within 15 days after 
service of the first notice or within 15 days after service of the 
initial decision or other order terminating the proceeding, whichever 
is later.
    (3) Confirmation of filing. The Proceedings Clerk shall confirm the 
filing of a notice of appeal by mailing a copy thereof to each other 
party.
    (b) Briefs: time for filing. * * *
    (3) Reply brief. Within 14 days after service of an answering 
brief, the party that filed the first brief may file a reply brief.
    (4) No further briefs shall be permitted, unless so ordered by the 
Commission on its own motion.
    (5) Cross appeals. In the event that any party files a notice of 
cross appeal pursuant to paragraph (a)(2) of this section, the 
Commission shall, to the extent practicable, adjust the briefing 
schedule and any page limitations otherwise applicable under this 
section, so as to accommodate consolidated briefing by the parties.
* * * * *
    (d) Briefs: content and form. * * *
    (2) The answering brief generally shall follow the same style as 
prescribed for the appeal brief but may omit a statement of the issues 
or of the case if the party does not dispute the issues and statement 
of the case contained in the appeal brief. Any reply brief shall be 
confined to matters raised in the answering brief and shall be limited 
to 15 pages in length.
* * * * *
    (e) Appendix to briefs. (1) Designation of contents of appendix.  * 
* * Any reply brief filed by the appellant may, if necessary, 
supplement the appellant's previous designation. * * *
    (2) Preparation of the appendix. Within 15 days after the last 
answering brief or reply brief of a party was due to be filed, the 
Office of Proceedings shall prepare an appendix to the briefs which 
will contain a list of the relevant docket entries filed in the 
proceedings before the Administrative Law Judge, the initial decision 
and order of the Administrative Law Judge, the pleadings filed on 
behalf of the parties who are participating in the appeal and such 
other parts of the record designated by the parties to the appeal in 
accordance with the procedures set forth in paragraph (e)(1) of this 
section. * * *
* * * * *
    15. Section 10.106 is amended by revising the section heading; by 
designating the existing text as paragraph (a) and adding a paragraph 
heading to it; and by adding a new paragraph (b) and a new paragraph 
(c) to read as follows.


Sec. 10.106  Reconsideration; stay pending judicial review.

    (a) Reconsideration. * * *
    (b) Stay pending judicial appeal. (1) Application for stay. Within 
15 days after service of a Commission opinion and order imposing upon 
any party any of the sanctions listed in Secs. 10.1(a) through 10.1(e), 
that party may file an application with the Commission requesting that 
the effective date of the order be stayed pending judicial review. The 
application shall state the reasons why a stay is warranted and the 
facts relied upon in support of the stay. Any averments contained in 
the application must be supported by affidavits or other sworn 
statements or verified statements made under penalty of perjury in 
accordance with the provisions of 28 U.S.C. 1746.
    (2) Standards for issuance of stay. The Commission may grant an 
application for a stay pending judicial appeal upon a showing that:
    (i) The applicant is likely to succeed on the merits of his appeal;
    (ii) Denial of the stay would cause irreparable harm to the 
applicant; and
    (iii) Neither the public interest nor the interest of any other 
party will be adversely affected if the stay is granted.
    (3) If neither the public interest nor the interest of any other 
party will be adversely affected, the Commission shall grant any 
application to stay the imposition of a civil monetary penalty if the 
applicant has filed with the Proceedings Clerk a surety bond 
guaranteeing payment of the penalty plus interest, in the event that 
the Commission's opinion and order is sustained or the applicant's 
appeal is not perfected or is dismissed for any reason. This bond shall 
be in the form of an undertaking by a surety company on the approved 
list of sureties issued by the Treasury Department of the United 
States, and the amount of interest shall be calculated in accordance 
with 28 U.S.C. 1961(a) and (b), beginning on the date 30 days after the 
Commission's opinion and order was served on the applicant.
    (c) Response. Unless otherwise requested by the Commission, no 
response to a petition for reconsideration pursuant to Sec. 10.106(a) 
or an application for a stay pursuant to Sec. 10.106(b) shall be filed. 
The Commission shall set the time for filing any response at the time 
it asks for a response. The Commission shall not grant any such 
petition or application without providing other parties to the 
proceeding with an opportunity to respond.
    15. A new subpart I is added to part 10, to read as follows.

Subpart I--Administration of Restitution Orders

Sec.
10.110  Recommendation of procedure for implementing restitution.
10.111  Administration of restitution.
10.112  Right to challenge distribution of funds to customers.
10.113  Accelaration of establishment of restitution procedure.


Sec. 10.110  Recommendation of procedure for implementing restitution.

    Except as provided in Sec. 10.113, after such time as any order 
requiring restitution becomes effective (i.e., becomes final and is not 
stayed), the Division of Enforcement shall petition the Commission for 
an order directing the Division of Enforcement to recommend to the 
Commission or, in its discretion, the Administrative Law Judge a 
procedure for implementing restitution. Each party that has been 
ordered to pay restitution shall be afforded an opportunity to review 
the

[[Page 16464]]

Division of Enforcement's recommendations and be heard.


Sec. 10.111  Administration of restitution.

    Based on the recommendations submitted by the Division of 
Enforcement pursuant to Sec. 10.110, the Commission or the 
Administrative Law Judge, as applicable, shall establish, in writing, a 
procedure for identifying and notifying individual persons who may be 
entitled to restitution, receiving and evaluating claims, obtaining 
funds to be paid as restitution from the party and distributing such 
funds to qualified claimants. As necessary or appropriate, the 
Commission or the Administrative Law Judge may appoint any person, 
including an employee of the Commission, to administer, or assist in 
administering, such restitution procedure. Unless otherwise ordered by 
the Commission, all costs incurred in administering an order of 
restitution shall be paid from the restitution funds obtained from the 
party who was so sanctioned; provided, however, that if the 
administrator is a Commission employee, no fee shall be charged for his 
or her services or for services performed by any other Commission 
employee working under his or her direction.


Sec. 10.112  Right to challenge distribution of funds to customers.

    Any order of an Administrative Law Judge directing or authorizing 
the distribution of funds paid as restitution to individual customers 
shall be considered a final order for appeal purposes and be subject to 
Commission review under Sec. 10.102.


Sec. 10.113  Acceleration of establishment of restitution procedure.

    The procedures provided for by Secs. 10.110 through 10.112 may be 
initiated prior to the issuance of an Initial Decision in a proceeding, 
and may be combined with the hearing in the proceeding, upon motion of 
the Division of Enforcement or if presentation, consideration and 
resolution of the issues relating to the restitution procedure will not 
materially delay the conclusion of the hearing or the issuance of an 
Initial Decision in the proceeding.
    16. A new appendix A is added to part 10, to read as follows.

Appendix A--Commission Policy Relating to the Acceptance of 
Settlements in Administrative and Civil Proceedings

    It is the policy of the Commission not to accept any offer of 
settlement submitted by any respondent or defendant in an 
administrative or civil proceeding, if the settling respondent or 
defendant wishes to continue to deny the allegations of the 
complaint. In accepting a settlement and entering an order finding 
violations of the Act and/or regulations promulgated under the Act, 
the Commission makes uncontested findings of fact and conclusions of 
law. The Commission does not believe it would be appropriate for it 
to be making such uncontested findings of violations if the party 
against whom the findings and conclusions are to be entered is 
continuing to deny the alleged misconduct.
    The refusal of a settling respondent or defendant to admit the 
allegations in a Commission-instituted complaint shall be treated as 
a denial, unless the party states that he or she neither admits nor 
denies the allegations. In that event, the proposed offer of 
settlement, consent or consent order must include a provision 
stating that, by neither admitting nor denying the allegations, the 
settling respondent or defendant agrees that neither he or she nor 
any of his or her agents or employees under his authority or control 
shall take any action or make any public statement denying, directly 
or indirectly, any allegation in the complaint or creating, or 
tending to create, the impression that the complaint is without a 
factual basis; provided, however, that nothing in this provision 
shall affect the settling respondent's or defendant's testimonial 
obligation, or right to take legal positions, in other proceedings 
to which the Commission is not a party.

    Issued in Washington, D.C., on March 16, 1998 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 98-8687 Filed 4-2-98; 8:45 am]
BILLING CODE 6351-01-P