Futures Shock

If your knowledge of commodity markets comes mainly from the scene in Trading Places where Ralph Bellamy uses breakfast foods to educate Eddie Murphy, you probably are not familiar with Bullish Review, The Spread Investment Letter, or Dynamic Trader Weekly Report. But these arcane publications are at the center of a case that could affect your access to online information and self-help software.

Their publishers, who also produce books, Web sites, and computer programs for investors, recently convinced a federal judge that the First Amendment protects what they say. The need to obtain such a declaration is testimony to the overreaching ambitions of government regulators, who are always eager to assert control over new media.

The Commodity Futures Trading Commission (CFTC) claimed that newsletter publisher Frank Taucher and his co-plaintiffs had to register with the federal government as "commodity trading advisers" before they could talk about soy beans and pork bellies. Failing to register as a CTA is a felony punishable by a $500,000 fine and five years in prison.

In addition to filing an application and paying a $100 annual fee, CTAs have to undergo ethics training, maintain records that are subject to inspection by regulators, and submit reports requested by the CFTC. Taucher and the other publishers objected to the intrusiveness of the CFTC's audits, the burden of keeping extensive documentation related to their trading recommendations, and the violation of confidentiality represented by the commission's demand for subscriber lists.

More fundamentally, they did not think they should have to be licensed in order to exercise their right to free speech. The CFTC has the authority to deny or revoke a CTA's registration for "good cause," which the commission says includes "moral turpitude," "lack of honesty," and "potential disregard" of regulations.

Scott Bullock, an attorney with the Institute for Justice, the libertarian legal foundation that represented Taucher and the other publishers, argued that such discretion put the CFTC in the position of the British officials who used to license printing presses. While ostensibly protecting the public, the commission could discourage the expression of controversial opinions.

The CFTC did not dare to suggest that it had the power to license and regulate major media outlets, such as Barron's and Investor's Business Daily, because they provide information about commodity markets. It said such coverage was "incidental" and therefore did not trigger the registration requirement.

In addition to focusing on small, specialized publications, the CFTC seemed to think there was something particularly suspect about interactive services, perhaps because they were thought to resemble communications between investors and personal advisers. Arguing the government's case in the U.S. District Court for the District of Columbia, the commission's lawyers implied that software, Web sites, and electronic newsletters should be subject to greater regulation than other media.

That idea has far-reaching implications. Last January, for example, a federal judge in Texas upheld a state ban on the Quicken Family Lawyer program, agreeing that it amounts to the "unauthorized practice of law." Regulators could apply the same sort of reasoning to software and Web sites that answer medical questions or help people prepare their taxes.

The outcome of the CFTC case should make that prospect less likely. In rejecting the commission's attempt to license speech, U.S. District Judge Ricardo M. Urbina emphasized that none of the plaintiffs invested money for their customers, had any personal contact with them, or provided individually tailored advice. "Their calling," he said, "is the selling of ideas, not the trading of commodity futures."

Urbina concluded that the government had crossed "the line between the regulation of a profession and the regulation of speech." In essence, he said, "the CFTC is attempting to protect the public against false doctrine," a role the Constitution does not allow.

Urbina noted that the commission "seeks to prevent individuals from publishing information based solely on a fear that someone may publish advice that is fraudulent or misleading." He ruled that "such a prior restraint on fully protected speech cannot withstand the searching scrutiny of the First Amendment."

Perhaps the most encouraging thing about Urbina's decision was the absence of any suggestion that speech in cyberspace merits less protection than speech on paper. As Institute for Justice Managing Vice President John Keppler told the BNA news service, "His decision sends a strong message to the government–hands off the Internet."