Court Takes Up Law Used Against Traders

By Alan Sayre –
NEW ORLEANS – A law against reporting false information that might affect commodities prices could unfairly penalize people who make innocent mistakes, a federal appeals court was told Monday.
A three-judge panel of the 5th U.S. Circuit Court of Appeals heard arguments in the case of Michelle Valencia, a former trader for Dynegy Inc., who is accused of reporting false natural gas trades.

The government is appealing a judge’s ruling that part of the Commodity Exchange Act — dealing with reporting “false and misleading” information on commodity trades — is unconstitutionally broad because someone could be in violation even if they were unaware that the information was false. Prosecutors said that ruling would make it more difficult to prosecute traders under the law.
Chris Flood, an attorney representing Valencia, said Congress made an error in 1968 when it amended a law that made it a misdemeanor to “carelessly or knowingly” pass false information into the felony offense of “knowingly” passing false information. Flood said it had been congressional intent to decriminalize the unknowing passage of false information.
Valencia, who is charged with four counts of wire fraud and three counts of false reporting, was accused by a grand jury of reporting false natural gas trades to an industry publication from November 2000 to February 2001.
U.S. District Judge Nancy Atlas of Houston dismissed the reporting charges last year, but later reinstated them. She said she would allow prosecutors to try to prove the charges under a provision of the reporting law regarding “knowingly inaccurate reports.”
The government wants to be able to prosecute Valencia under the “false and misleading” provision of the law. “We want to be able to cover the gamut of conduct that Congress intended us to have,” said Assistant U.S. Attorney Kathloyn Snyder.
Judge Harold DeMoss, a member of the three-judge panel, said the problem seemed to be that “Congress did not put `knowingly’ before `false and misleading.'”
“Our contention is that they did not have to,” Snyder said. “Congress wanted to make sure nothing slipped through the cracks.”
As an example of what he contended was the overly broad nature of the law, Flood suggested that a television weather broadcaster who missed a prediction of a Florida freeze could be prosecuted if the price of orange juice concentrate was affected.
“I think it is a waste of time to argue that,” said Judge Edith Brown Clement.
Flood also argued that by passing an overly broad law, and possibly subjecting those outside the markets profession to prosecution for passing information they did not know to be false, Congress also committed a free-speech violation. To restrict free-speech rights, government must have a “compelling reason,” Flood said.
The outcome could affect possible charges against other energy traders. Valencia also asked the 5th Circuit to dismiss the charges entirely, something that Atlas refused to do.
The panel, which also included Judge James Dennis, did not indicate when it would rule.
Source: Yahoo News

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