Jaison Francisco v. CFTC

decision, see 7 U.S.C. § 18(e), but we conclude that the Commission's decision was supported by substantial evidence, and we therefore deny Francisco's petition.

Background

Tastytrade is registered with the Commission as an "introducing broker," which is a person or entity that solicits or accepts orders for commodity futures transactions.

7 U.S.C. § 1a(31)(A). As an introducing broker, Tastytrade provides a platform that its customers use to place and manage orders for commodity-futures contracts, securities, and other financial products. See id. Tastytrade does not provide trading advice to its customers, see id. § 1a(12) (defining "commodity trading advisor"), nor does it hold customer funds, see id. § 1a(28) (defining "futures commission merchant"). In August 2023, Francisco opened a trading account with Tastytrade that allowed him to trade both traditional securities and commodity futures.¹Trading futures required Francisco to open "individual margin" accounts, which meant he could trade on leverage and using margin.²Francisco completed forms indicating that he had an extensive knowledge of futures, that he opened the account for speculative purposes, and that his investment objective was to speculate by "[t]aking larger risks, usually by

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frequent trading, with hope of higher than-average gain." Francisco also signed agreements containing detailed disclosures of the risks associated with trading on an electronic system, trading with leverage or margin, the general risks of futures trading, and the specific risk of incurring negative balances.

Before Francisco funded his Tastytrade account, he emailed a customer support agent requesting to take advantage of a promotional advertisement promising a $2,000 bonus for deposits of $100,000 or more. The agent told Francisco how to apply a promotional code to his account to receive the bonus but did not confirm that the bonus would be credited upon deposit.

Francisco deposited $138,100 into his Tastytrade account on September 11, 2023. The same day, Francisco requested "no leverage" for his security account, so that he wouldn't "borrow anything from Tasty[trade]" or pay any interest charges. Francisco indicated that he would also like to trade stocks without leverage. Francisco then began placing trades for stocks and taking futures positions.

On September 15, Francisco emailed Tastytrade support asking about fees, interest rates, and commission "when shorting futures" such as WTI Crude Oil. A Tastytrade agent gave Francisco the information he requested. The agent's response also explained that Francisco did not have "Intraday Futures Margin" enabled on his account and provided a link with more information about that feature.³Francisco asked about the consequences of not using "the 4X intraday Margin" and whether his current Crude Oil futures position would be liquidated at the end of the trading day. The representative told Francisco that if he wanted to hold his position overnight, he had enough funds. He also explained that using the intraday margin is optional and that if Francisco enabled it, he would have four times leverage during the daytime trading session. Francisco replied that he understood that he expected his position to be preserved, and that he would not use the intraday margin for now. Francisco never enabled the account feature.

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Francisco maintains that a few weeks later, on September 26, he opened his account and saw a negative balance of $696,134.32. He attributes this loss to Tastytrade applying "hidden leverage" to his account and claims that when he tried to sell his position, the platform prevented him from doing so. Francisco submits that the erroneous balance was suddenly corrected and his trading losses were approximately $87,837, leaving a balance in his account of approximately $50,263. Three days later, on September 29, Francisco emailed Tastytrade and accused them of "trading against customers." Tastytrade responded that in its role as an introducing broker, it could not trade on the other side of client orders. Ten minutes later, Francisco sent an email stating that his "wife wants to commit suicide," which resulted in Tastytrade closing his account that day. Hours later, Francisco "apologize[d] for everything" and explained that he became upset that morning when he lost $4,000. He stated, "I understand my fault I am just human. I will accept any losses and be respectful moving forward." On October 2, Francisco withdrew the remaining $50,259.16 from his account, which represented $87,837 in losses. Francisco then filed a reparations complaint with the CFTC's Proceedings Office alleging that Tastytrade violated the Commodity Exchange Act and "proximately caused" his losses. See 7 U.S.C. § 18(a)(1). Francisco alleged that Tastytrade: (1) failed to disclose that his account was traded on leverage; (2) inappropriately advised him; (3) prevented him from making trades at key times or showed misleading displays; (4) traded against him; and (5) failed to provide him the promised $2,000 promotional bonus. Notably, Francisco did not identify any provision of the Act or any Commission Rule that Tastytrade violated. Tastytrade filed a counterclaim against Francisco alleging fraud. The parties eventually filed cross-motions for summary disposition. With respect to Francisco's claims, the Administrative Law Judge granted summary disposition to Tastytrade under Commission Rule 12.310(e) because (1) there was no genuine issue as to any material fact; (2) there was no need to develop additional facts in the record; and (3) Tastytrade was entitled to a decision as a matter of law. See 17 C.F.R. § 12.310(e). The ALJ further concluded that the Commission did not have jurisdiction over Tastytrade's counterclaim against Francisco because Francisco was not a person required to be registered under the Act. See 7 U.S.C. § 18(a)(1) (allowing petitions for damages against "any person who is registered"); 17 C.F.R. § 12.13(a). And, in any event, Tastytrade's allegations regarding damages ("losses that Complainant has refused to pay for," other "monetary losses," and "other harm") were too vague to support relief.

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Francisco appealed the ALJ's initial decision to the Commission under 17 C.F.R. § 12.401. The Commission reviewed the briefs and the record as whole, concluded that the initial decision was "substantially correct" and that Francisco's arguments on appeal did not "raise any important question of law or policy," and entered a final order summarily affirming the initial decision under Commission Rule 12.406. See id. § 12.406(b). Francisco now petitions for review of the Commission's final order. 7 U.S.C. § 18(e).

Analysis

We review the Commission's final order under Section 706 of the Administrative Procedure Act, 5 U.S.C. § 706. See Witter v. Commodity Futures Trading Comm'n, 832 F.3d 745, 748-49 (7th Cir. 2016). And we will set aside the Commission's determinations only if they are "arbitrary, capricious, or not supported by substantial evidence." Smith v. Garland, 103 F.4th 1244, 1252 (7th Cir. 2024) (citing 5 U.S.C. § 706(2)). Agency action is arbitrary and capricious if the agency fails to consider relevant record evidence or does not provide a reasonable explanation for its decision. Id. (citing Motor Vehicle Mfrs. Ass'n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) and Fed. Commc'ns Comm'n v. Prometheus Radio Project, 592 U.S. 414, 423 (2021)). When reviewing agency factfinding, the distinction between "arbitrary and capricious" or § 706(2)(E)'s

"substantial evidence" standard is immaterial when, as here, the Commission's factual findings are supportable under either standard. See Witter, 832 F.3d at 749. We turn first to Francisco's argument that the ALJ failed to consider evidence of his instructions to Tastytrade to execute futures trades without using margin, or "no leverage," because the ALJ did not acknowledge his September 11 email. But the APA does not require the ALJ to expressly discuss every piece of evidence; it is sufficient for the decision to rest on consideration of the entire record. Cox v. Commodity Futures Trading Comm'n, 138 F.3d 268, 276 (7th Cir. 1998).

Although the ALJ did not specifically mention the excerpt of the September 11 email, the record as a whole shows that she considered other evidence to determine that Francisco's claim was "either unsupported or contradicted by the record" and that Francisco knew he was trading on leverage. Francisco opened a margin account, which enabled him to trade futures, and signed account opening documents containing several disclosures regarding trading on margin and using leverage. The ALJ also considered several emails Francisco sent to Tastytrade where Francisco knew his futures trades used margin ("I changed my mind, please do not enable intraday futures margin anymore. I just want to keep the default margin."), and that he was using leverage ("I expect my leverage to [be only] 50%"). Finally, the ALJ recognized that the

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record evidence did not show that Francisco ever traded with 1:4 leverage, and that Francisco's responses to Tastytrade's Request for Admissions admitted the same. The ALJ concluded that Francisco never used intraday futures margin, did not incur any losses related to it, and could not prove actual damages. That the ALJ did not explicitly discuss Francisco's September 11 email does not establish that the Commission's decision lacks the support of substantial evidence.⁴See Cox, 138 F.3d at 276. Francisco next argues that the ALJ discounted material evidence and mischaracterized as a "simulation" two videos he submitted as evidence, purportedly showing that Tastytrade's electronic platform prevented him from executing transactions when he saw an inaccurate negative account balance. The ALJ reviewed both videos. The first is a screen recording of Francisco's account ostensibly displaying the negative balance of $696,134.32 and revealing his inability to trade.⁵The video shows that Francisco received a pop-up notification:

"Failed to send order operation. Limit orders require a price."⁶The ALJ determined that the messages indicated that Francisco either never entered a price or entered a price that did not conform with the exchange's trading rules on limit orders. Based on this evidence, the ALJ reasoned it was more likely that Francisco's error prevented him from trading, rather than Tastytrade's fault. The ALJ's interpretation of the evidence was permissible, as was the weight she accorded to it. Francisco's disagreement does not establish that her conclusions were arbitrary or capricious.

As to the second video, Francisco described it in his complaint as his attempt to

"simulate" Tastytrade's explanation that a network error inhibited him from trading when he saw a negative balance. Francisco made another screen recording showing his account when he deliberately disconnected his computer from the internet.⁷The ALJ considered that video as well as Tastytrade's evidence that Francisco's IP address had

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connectivity issues. From this, she concluded that Francisco's video was not evidence that Tastytrade caused his network lag to disable him from trading. More importantly, the ALJ recognized that introducing brokers like Tastytrade are not directly involved in executing trades. See 17 C.F.R. § 1.57(a)(2)(i). The ALJ's remark describing Francisco's second video as a simulation is based on Francisco's complaint and is not inconsistent with the evidence he presented. The ALJ's conclusion is again supported by the record and is not arbitrary or capricious.

Francisco's final argument is that the ALJ wrongly characterized the $2,000 promotional offer as a breach-of-contract claim and that the claim should have been adjudicated under the anti-fraud provision of the Act. See 7 U.S.C. § 6b. But Francisco did not allege that the promotion violated the Act, and the ALJ considered that the terms of the offer required eligible customers to maintain a brokerage account for at least twelve months but Francisco had a futures account for only two months. Based on this evidence, the ALJ reasoned that Francisco appeared not to have satisfied the terms of the offer. But without any violation of the Act at issue, the ALJ determined that the claim was beyond her jurisdiction. This finding was not arbitrary or capricious because it is consistent with Commission Rule 12.13(a), which requires that a reparations complaint state "a violation of any provision of the Act or a rule, regulation or order of the Commission[.]" 17 C.F.R. § 12.13(a).

We have considered Francisco's other arguments, and they do not merit discussion.

DENIED

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