## Facts

- Dennis Troyer invested hundreds of thousands of dollars in derivatives through firms that were members of the National Futures Association (NFA).
- Troyer began working with broker Thomas Heneghan after an unsolicited call in 2008 and invested more than $160,000 through 2011 under Heneghan’s advisement.
- Heneghan was an associated person of multiple NFA-member firms from 1983 to 2015; his relationship with Troyer continued despite firm changes.
- While Heneghan worked at Statewide FX, Inc. (an NFA member), the NFA investigated Heneghan in 2009 for alleged unauthorized trading but dropped the investigation for lack of evidence.
- The NFA separately disciplined Statewide and three traders (not Heneghan). Statewide resolved the matter by voluntarily withdrawing its NFA membership and agreeing not to reapply.
- Heneghan later worked at other NFA members, including Atlantic Trading Corp. and Portfolio Managing Inc. (PMI); the NFA investigated those firms without disciplining ATC.
- Around 2012, Troyer sent approximately $82,000 directly to Heneghan personally for purported trading benefits, without receiving or requesting account documentation.
- In 2015, when Troyer directed Heneghan to liquidate the fund, Troyer’s investment collapsed; in 2016 the NFA permanently barred Heneghan from membership.
- Troyer sued the NFA under Commodity Exchange Act (CEA) § 25(b), claiming the NFA, in bad faith, failed to enforce NFA Bylaw 301(a)(ii)(D) earlier, which allegedly would have prevented Troyer’s losses.

## Issues

1. Whether NFA Bylaw 301(a)(ii)(D) was triggered by Statewide’s disciplinary resolution and voluntary withdrawal such that the NFA was required to bar Heneghan from association with NFA members.
2. If the bylaw was triggered, whether the NFA’s alleged non-enforcement was in bad faith under CEA § 25(b).
3. If the bylaw was triggered and non-enforced in bad faith, whether that failure caused Troyer’s losses.

## Decision

- The Seventh Circuit affirmed summary judgment for the NFA.
- The court held Bylaw 301(a)(ii)(D) did not apply because Statewide’s voluntary withdrawal with a promise not to reapply was a distinct sanction from “expulsion” (or similar covered action) under the bylaw.
- Because the bylaw was not triggered, Troyer could not prove the threshold § 25(b) element that the NFA failed to enforce a bylaw it was required to enforce.
- With no required enforcement duty shown, Troyer’s § 25(b) claim failed as a matter of law, making the bad-faith and causation elements unavailable to salvage the claim.

## Legal Principles

- CEA § 25(b), 7 U.S.C. § 25(b), permits damages against a registered futures association only if the plaintiff proves: (1) failure to enforce a bylaw or rule the association is required to enforce, (2) bad faith, and (3) causation of loss.
- NFA Bylaw 301(a)(ii)(D) bars a person from becoming or remaining associated with an NFA member if, by the person’s conduct while associated with a member, the person was a cause of the member’s “suspension, expulsion, or order” within the bylaw’s meaning.
- A plaintiff cannot establish § 25(b) liability where the allegedly unenforced bylaw is inapplicable to the underlying disciplinary disposition.
- A voluntary withdrawal from membership (even with conditions such as an agreement not to reapply) is not necessarily equivalent to an “expulsion” for purposes of a bylaw that uses expulsion as a triggering predicate.

## Conclusion

The Seventh Circuit rejected the investor’s § 25(b) claim because the NFA bylaw allegedly requiring Heneghan’s earlier disqualification was not triggered by the member firm’s voluntary withdrawal, so the NFA had no enforceable duty under that bylaw that could support liability.


Troyer v. Nat'l Futures Ass'n, 981 F.3d 612 (7th Cir. 2020)