## Facts

- Manning Stoller, a registered commodities account executive, traded May 1976 Maine potato futures on the New York Mercantile Exchange.
- Believing prices were artificially depressed and would rise during delivery, Stoller bought long fixed-price contracts.
- Exchange delivery rules made earlier-held positions advantageous in the delivery queue, creating incentives to adjust delivery timing while maintaining a long position.
- On May 5–6, 1976, Stoller executed “roll forward” transactions by selling contracts with earlier delivery dates and replacing them one-for-one with contracts at substantially the same price for the same commodity, quantity, and delivery month in accounts he controlled.
- The CFTC’s Division of Enforcement commenced an administrative enforcement action in June 1977 alleging, among other counts, that the roll-forward trades were prohibited wash sales under Commodity Exchange Act (CEA) § 4c(a)(A), 7 U.S.C. § 6c(a)(A).
- An Administrative Law Judge found the transactions had a legitimate market purpose and were not wash sales.
- On review, the CFTC reversed, concluding the transactions were wash sales because they were virtually simultaneous and structured to eliminate meaningful exposure to price movement between the sale and repurchase.
- Stoller sought judicial review in the Second Circuit, arguing the CFTC’s interpretation amounted to an undisclosed standard applied without fair notice.

## Issues

1. Whether Stoller’s virtually simultaneous sale-and-repurchase roll-forward transactions at substantially the same price constituted “wash sales” prohibited by CEA § 4c(a)(A).
2. Whether due process barred the CFTC from imposing sanctions based on a “wash sale” interpretation (focused on elimination of market risk) that had not been adequately disclosed to regulated parties at the time of the conduct.

## Decision

- The Second Circuit granted the petition for review and set aside the CFTC’s decision and order.
- The court held that imposing sanctions on Stoller violated due process because he lacked fair notice of the CFTC’s newly applied “no market risk” wash-sale standard.
- The court emphasized that “wash sale” was not defined by statute or governing regulations and that the agency had not issued clear, publicly disseminated guidance covering the challenged roll-forward practice.
- The court noted the CFTC’s reliance on informal, unpublished predecessor memoranda and the agency’s long period of non-enforcement amid widespread industry use of roll-forward trading.
- The court did not foreclose that the CFTC’s interpretation could be permissible prospectively; it rejected retroactive sanctioning without adequate notice.

## Legal Principles

- Due process requires fair warning before an agency may impose sanctions based on its interpretation of an ambiguous statutory prohibition.
- When a statutory term is undefined, regulated parties are not deemed to have notice from internal, unpublished agency memoranda, particularly where the agency has not consistently enforced the asserted interpretation.
- In assessing fair notice, courts may consider the absence of formally promulgated rules or interpretive releases, the agency’s enforcement history, and the prevalence of the challenged practice in the regulated industry.
- An agency may not retroactively penalize conduct under a newly articulated enforcement theory when regulated parties lacked reasonable notice that the conduct was prohibited.

## Conclusion

The Second Circuit set aside the CFTC’s wash-sale sanctions against Stoller because the agency applied an undeclared “no market risk” standard to common roll-forward futures transactions without providing fair notice required by due process.


Stoller v. Commodity Futures Trading Comm’n, 834 F.2d 262 (2d Cir. 1987)