## Facts

- Theodore Purdy Sr. traded precious metals through Monex International, initially buying physical metals and later entering leveraged precious-metals transactions.
- In the early 1980s, Purdy sustained significant losses, including losses tied to a sharp decline in silver prices; he increased his positions rather than liquidating.
- In 1985, a Monex representative suggested hedging Purdy’s long positions with short positions; Purdy adopted the strategy.
- After market news suggesting a possible Brazilian default, Purdy authorized closing most short positions because they would limit gains if silver prices rose; Brazil did not default, and he did not reinstate the shorts.
- Over 1980–1985, Purdy paid Monex substantial amounts and incurred significant interest charges on leverage accounts, while withdrawing a lesser amount in metals or funds.
- Purdy filed a reparations complaint with the Commodity Futures Trading Commission alleging bucketing, fraud, and violations of the Commodity Exchange Act (CEA) and CFTC regulations.
- An Administrative Law Judge found Purdy failed to prove his claims by a preponderance of the evidence; the CFTC affirmed and denied reparations.

## Issues

1. Whether substantial evidence supported the CFTC’s affirmance that Purdy failed to prove Monex engaged in bucketing or fraud, or violated the CEA or CFTC regulations.
2. Whether the CFTC committed legal error in interpreting or applying the CEA and relevant regulations to Purdy’s allegations.
3. Whether the final reparations order should be set aside as arbitrary, capricious, or contrary to law.

## Decision

- The Fifth Circuit denied Purdy’s petition for review and affirmed the CFTC’s final order denying reparations.
- The court upheld the Commission’s determination that Purdy did not meet his burden of proving bucketing, fraud, or regulatory violations.
- The court concluded the Commission’s findings were supported by substantial evidence and reflected no reversible legal error.

## Legal Principles

- A court of appeals reviews a final CFTC reparations order deferentially, sustaining factual findings supported by substantial evidence and setting aside agency action only if arbitrary, capricious, or contrary to law.
- In CFTC reparations proceedings, the complaining customer bears the burden to prove alleged CEA and regulatory violations by a preponderance of the evidence.
- Large losses in leveraged or speculative commodity-related transactions, without proof of prohibited conduct (such as bucketing or actionable fraud), do not establish liability under the CEA.
- Reviewing courts generally do not reweigh evidence or second-guess credibility determinations adopted by the Commission when the record permits the agency’s conclusions.

## Conclusion

The Fifth Circuit affirmed the CFTC’s denial of reparations because the agency’s rejection of Purdy’s bucketing, fraud, and CEA violation claims rested on substantial evidence and involved no reversible error in applying the governing statute and regulations.


Purdy v. Commodity Futures Trading Comm’n, 968 F.2d 510 (5th Cir. 1992)