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Amid the national fever over corporate fraud and misconduct, the courts have tossed an unnoticed bucket of ice water on one federal agency’s plans to crack down on mendacious advertisements and infomercials pitching commodities investments. Used to funnel suckers to crooked brokers, the ads and their authors became the subject of a regulatory test case brought in U.S. District Court in Miami five years ago by the Commodity Futures Trading Commission (CFTC). Last week, in an opinion upholding a previous decision by Judge Donald L. Graham, a three-judge panel of the 11th U.S. Circuit Court of Appeals in Atlanta declared the government had flunked the test. “Advertisers do not fall within the Commodity Exchange Act’s definition of an ‘introducing broker,’” says the unanimous decision written by Judge Stanley F. Birch Jr. “The CFTC may not validly enforce its anti-fraud regulation against advertisers.” The court’s determination that the CFTC went too far in trying to stretch its regulatory umbrella to cover advertising agencies, producers and copywriters is good news for both advertisers and those who publish their messages — though it leaves gullible investors vulnerable to bogus investment pitches. “The real fear was that this could logically have been extended to anyone,” says Miami defense attorney R. Lawrence Bonner, who argued against the government’s case at the trial and appellate levels. “The law didn’t recognize the different role between the producers or those who run their ads. The importance of this case is that the CFTC cannot now go to advertisers, newspapers, television stations or the like and make them responsible for the advertisements they run.” In 1997, the CFTC had sued Bonner’s clients, Miami businessman Rolando Nanasca and Nanasca’s two companies, Mass Media Marketing Inc. and Commodity Referral Service Inc. The three-count fraud complaint alleged they had “generated telemarketing leads” from across the nation to brokers “through fraudulent 60-second advertisements and 30-minute infomercials that tout heating oil, unleaded gasoline and other commodity options as a high-profit and low-risk investment.” In a news release, the CFTC touted its suit “as an effort to halt fraud at its source.” The agency asked that Nanasca’s one-stop advertising, video production and syndication shop be required to register as a broker, pay restitution to thousands of investors who lost money, and pay fines of up to $330,000. Nanasca, also known as Raleigh Nanasca, later denied the agency’s fraud accusations in an interview with The Wall Street Journal. He described himself as a “promoter, not a broker,” with a 6-year-old business that earned $2 million in revenues a year by attracting as many as 50 interested investors a day. The Journal reported that Mass Media hooked those viewers by telling them they had “a legitimate chance of doubling, tripling or even quadrupling” their money. The agency’s fraud allegations against Nanasca and his companies never made it to trial. In March 2001, Judge Graham summarily dismissed the case, holding that the agency’s registration and record-keeping requirements for brokers who offer or sell commodities don’t apply to those who advertise those services. The CFTC appealed. Among its claims: that by soliciting and referring prospective investors to hungry brokers, Nanasca’s operation was acting as an unregistered broker. But the appellate judges — Birch, Charles R. Wilson and David D. Dowd — disagreed. They said applicable federal law was ambiguous because it didn’t adequately define the term “soliciting,” noting an advertiser’s “primary goal” is to obtain leads for brokers, not orders for commodity futures. A CFTC spokesman in Washington, D.C., Dennis W. Holden, says the agency won’t comment on the appeals court’s ruling. He declined to say whether the agency was contemplating further legal action, or an appeal to Congress to change the law. But the CFTC’s stand did have one lasting effect. Nanasca shuttered his companies as a result of the agency’s legal action, says Bonner, a partner at Homer, Bonner & Delgado in Miami. “He didn’t appreciate being made a poster child by the CFTC,” says Bonner, who argued to the courts that the agency’s rules had infringed his client’s free speech rights under the First Amendment. Nanasca will now consider possible recourse against the government, Bonner says. Still, at a time when federal agents are escorting handcuffed CEOs on perp walks past TV cameras, the case of Commodity Futures v. Mass Media Marketing, et al., serves as a reminder about checks and balances and how they apply — even when fighting the nation’s bad guys. “This shows that the court has the ability, even in the climate we are in now, to carefully look at exactly what Congress has authorized an agency to do, and make sure that agencies don’t overstep their boundaries,” Bonner says.

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