Petitioner Ronald P. Hlavinka seeks this Court's review of the Commodity Futures Trading Commission (CFTC) order affirming an Administrative Law Judge's denial of his reparations action against futures commission merchant Blunt, Ellis & Loewi, Inc. (Blunt Ellis) and its agents for losses he and his wife incurred in trading silver futures contracts. We deny Hlavinka's petition for review.

In 1980, Hlavinka opened a non-discretionary commodity futures trading account with Blunt Ellis, a registered futures commission merchant in Milwaukee, Wisconsin. In doing so, Hlavinka signed a customer risk disclosure statement as required under the CFTC's Rules. See 17 C.F.R. Sec. 1.55. During the next year, he traded futures contracts and silver bullion. He discontinued trading in October 1981 but retained his account with Blunt Ellis. After the account executive who had been assigned to Hlavinka's account left Blunt Ellis in 1982, another of its employees, John Fromm, contacted Hlavinka to interest him in resuming his investments. As a result, he began trading again in August 1982.

In late 1982, Hlavinka expressed interest in trading 5000-ounce silver futures contracts. These contracts were traded on the Commodity Exchange (COMEX) in New York.1 Fromm did not recommend this strategy but agreed to process Hlavinka's orders.2 On January 10, 1983, Hlavinka purchased his first 5000-ounce COMEX silver futures contract. As of February 14, 1983, Hlavinka had profitably completed six additional trades.

On Friday, February 18, 1983, Hlavinka established a new position in the 5000-ounce contract market by entering a "limit" order for one "long" May 1983 contract.3 This order was filled at a price of $14.84 per ounce. The market was closed on the following Monday due to President's Day. Significantly, the market opened on Tuesday, February 22, at a lower price than the previous Friday's closing price. Under COMEX rules, the price of a given commodity can only fluctuate within a certain range in one trading day; for silver futures, the limit was then set at 50 cents.4 By Tuesday's end, the market closed at the lower limit allowed under COMEX rules, or 50 cents down.

On Wednesday, February 23, the market opened in a "locked"5 position, an indication that the market price of the silver was still declining. Hlavinka's wife (with his consent) entered a limit order to purchase one long May 1983 contract at $13.81 or better, and this order was filled.6 Hlavinka and his wife now held two long May 1983 5000-ounce silver futures contracts. At the end of trading on February 23, the market had closed down 50 cents for the second consecutive trading day.

On February 24, 1983, Blunt Ellis received an opening call report from its COMEX agent, ACLI, listing the day's expected price movement limits for each COMEX contract. The ACLI report erroneously stated that the maximum price movement limit for a COMEX 5000-ounce silver futures contract would be 50 cents. In fact, the limit for the day was 75 cents.7

In a telephone conference on February 24, Hlavinka and Fromm decided to liquidate one of the Hlavinkas' two long positions at a price of $13.91. Fromm placed the limit order seven minutes before the COMEX market closed. However, the order was not executed because the market price did not reach $13.91 during the remaining time. The order expired at the end of the market day and, as a result, the Hlavinkas retained both contracts.

In its opening call report for Friday, February 25, 1983, ACLI again incorrectly reported to Blunt Ellis that the price movement limit for the day would be 50 cents. As the market opened, the market price for silver futures remained relatively stable. However, the price later dropped sharply at about the time Mary Hlavinka, petitioner's wife, called Fromm for a price report. When Fromm informed her that the price had dropped 52 cents from the opening quote, she questioned how this could have happened. Fromm was also troubled by the news, since he had understood that there was a 50-cent limit for the day. Fromm contacted ACLI and learned of the 75-cent expanded limit rule. When Fromm telephoned Mr. Hlavinka to explain the expanded price limit situation, he placed a market order to liquidate both his and Mary's contracts.8 This order was not filled, however, since the market had already locked at the down limit price.

ACLI's opening call report for the next trading day (on Monday, February 28), correctly reflected a price movement limit of $1.00. At 8:45 in the morning (C.S.T.), Hlavinka placed a market order to sell both contracts, an order which remained unfilled since the market opened in a locked position and remained that way throughout the entire day. On Tuesday, March 1, Hlavinka placed a market order to liquidate the contract he acquired on February 18. Mrs. Hlavinka held onto the other contract in the belief that the market would be "corrected." Hlavinka's sell order was filled. Later on the same day, he directed Fromm to liquidate the second contract. By the time this order was placed, the market had already locked down. The second sell order was eventually filled the next day, March 2, at a price of $10.83.

The Hlavinkas lost $35,184.60 in trading the two contracts. He lost an additional $281.06 in trading a 1000-ounce silver contract on March 7, 1983. On December 2, 1983, he initiated a reparations action under Section 14 of the Commodity Exchange Act (CEA), codified at 7 U.S.C. Sec. 18, against Blunt Ellis, Peter J. Pfeffer (Fromm's supervisor), and Fromm for damages. He asserted that the broker and its agents knew or should have known about the expanded limit rule, and that the failure to disclose this information caused him to suffer substantial losses. Specifically, Hlavinka claims that had he known of the rule, his wife would not have entered into the February 23 contract, and that he would have closed both positions on February 24. He also charged that the broker should have advised him to spread his position to offset potential losses.9

The Administrative Law Judge (ALJ) who considered the case concluded that Blunt Ellis and its agents had not violated the anti-fraud provision of the CEA, see 7 U.S.C. Sec. 6b quoted in n. 11 infra, and that information concerning the expanded price limit was not material. Hlavinka v. Blunt, Ellis & Loewi, Inc., [1986-1987 Transfer Binder] COMM.FUT.L.REP. (CCH) p 23,324 (Oct. 22, 1986). The ALJ observed that Hlavinka had been familiar with the market's price limits. In light of Hlavinka's awareness of market fluctuations and the risks of commodity trading, the ALJ was not persuaded by Hlavinka's assertion that he would have altered his investment strategy had he known of the expanded limit rule. Moreover, the ALJ pointed to a letter written by Hlavinka on March 4, 1983 in which the petitioner admitted that he had been told of the market's expanded limits on February 25, 1983. These factors caused the ALJ to rule against materiality.

The ALJ concluded that Hlavinka failed to establish causation between the omission and the market positions he and his wife had taken. The ALJ also ruled that no calculable damages resulted from the failure to advise Hlavinka to spread positions. Accordingly, the action was dismissed on October 22, 1986, and Hlavinka appealed to the CFTC. On September 18, 1987, the CFTC affirmed the ALJ's ruling without opinion. This appeal followed.

The exchange of commodity futures is governed by the CEA, codified at 7 U.S.C. Sec. 1 et seq.10 Under the Act, an aggrieved customer can institute a reparations action against a futures commission merchant and its agents. 7 U.S.C. Sec. 18; Commodity Futures Trading Commission v. Schor, 478 U.S. 833, 836, 106 S. Ct. 3245, 3250, 92 L. Ed. 2d 675. Hlavinka's reparations action was brought under the anti-fraud provision, Section 4b of the CEA.11 When reparations actions are reviewed by this Court, the CFTC's factual findings, "if supported by the weight of [the] evidence," are taken as conclusive. 7 U.S.C. Sec. 9; Dohmen-Ramirez v. Commodity Futures Trading Commission, 837 F.2d 847, 856 (9th Cir.1988); Drexel Burnham Lambert, Inc. v. Commodity Futures Trading Commission, 850 F.2d 742, 746-747 (D.C.Cir.1988). Indeed, the standard of review is very narrow:

The function of this court is something other than that of mechanically reweighing the evidence to ascertain in which direction it "preponderates"; it is rather to review the record for the purpose of determining whether the finder of fact--here the ALJ--was justified.

Chapman v. United States Commodity Futures Trading Commission, 788 F.2d 408, 410 (7th Cir.1986) (per curiam) (citations omitted).

Hlavinka does not argue that the broker willfully withheld information. Rather, he claims that Fromm breached his fiduciary duty and acted negligently.12 Hlavinka points to the fact that he always carried a "beeper" with him as proof of his intent and ability to make instantaneous market decisions. Since Blunt Ellis is not a discount brokerage firm, Hlavinka maintains that the firm had a duty to advise him fully of the market's changes and its attendant risks, and that he relied on respondents to do so. Hlavinka also complains that Fromm should have directed him to spread his and his wife's positions in order to minimize losses. Accordingly, he contends that the ALJ should not have dismissed his claims.

In this case, the ALJ found no breach of fiduciary duty. Whether an advisor's role is that of a fiduciary depends on:

whether the customer is relying on [the commodity professional's] expertise and judgment in either entering the market or in making trading decisions. Where the professional's role is not of that nature, such as where the customer makes his own independent trading decisions and the professional's role is therefore largely clerical, the duty to disclose material facts is less....

2 P. Johnson, Commodities Regulation Sec. 5.49, at 353-354 (1982). The ALJ noted that Hlavinka did not rely entirely on Fromm's advice in conducting his trading. In fact, the decision to speculate in the 5000-ounce silver market was Hlavinka's alone, and there was evidence that at least one of the executed orders was "unsolicited" by Fromm. The ALJ also determined that Hlavinka knew of the risks involved in trading silver futures, and that he had learned of the expanded price limit rule on February 25. In these circumstances there is no need to disturb the ALJ's finding that Hlavinka failed to establish a breach of fiduciary duty.

There is also no basis for Hlavinka's claim of negligence. As we have recently held, "for commodities fraud, negligence is not enough." Tamari v. Bache & Company (Lebanon) S.A.L., 838 F.2d 904, 908 (7th Cir.1988). To the same effect see also Hill v. Bache Halsey Stuart Shields Inc., 790 F.2d 817, 822 (10th Cir.1986). Of course, Hlavinka could prevail by showing that the broker was reckless and that the withheld information was material. Drexel Burnham Lambert, Inc., 850 F.2d at 748; First Commodity Corporation of Boston v. Commodity Futures Trading Commission, 676 F.2d 1 (1st Cir.1982); see also Flaxman v. Commodity Futures Trading Commission, 697 F.2d 782, 787 (7th Cir.1983) (standard of "willfulness" includes careless disregard).13 However, this possibility was foreclosed because, as the ALJ properly ruled, the expanded limit rule was not material information in the present case.

The critical inquiry for materiality is what effect the failure to apprise Hlavinka of the expanded limit rule might have had on his decision to stay in the market. See TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S. Ct. 2126, 2132, 48 L. Ed. 2d 757 (materiality is determined by whether there was a "substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable [investor]").14 The ALJ's conclusion that Hlavinka's losses were not caused by the broker's failure to tell him of the expanded limit rule was appropriate. The ALJ correctly observed that while price limits have a restraining effect on volatile price movements, they do not cause the movements. The Hlavinkas' losses were due to the declining price of silver futures, not to the rule's application. "[I]t may be impossible for [the customer] to liquidate his position on market days when trading is inactive due to the fact that the price has risen or fallen to the exchange's daily maximum allowed change for that day." 1 P. Johnson, supra, Sec. 3.107, at 552. While application of the expanded limit rule allows a market greater range in which to operate, when the market is declining (as occurred here), the price will soon lock down. As one commentator noted,

[D]aily price fluctuation limits do not necessarily affect the market trend, ... and it frequently happens that, when a major market development occurs, a futures contract will experience successive "limit up" or "limit down" days until the price adjusts fully to that news. A serious side effect of successive limit up or limit down days is that persons suffering losses may be unable to liquidate their positions as trading promptly reaches the maximum price limit and, with market participants unwilling to accept a price within the permissible range, trading ceases until the next day when the new limit is in force. This experience can be repeated for a number of trading sessions and losses can be greatly amplified.

1 P. Johnson, supra, Sec. 2.20, at 244-245 (emphasis in original). Furthermore, although Hlavinka attempted to liquidate once he learned of the expanded limit situation, he later decided to retain one of the contracts. Thus it is clear that Hlavinka's market strategy was not influenced by his knowledge of the expanded limit rule.

Finally, the ALJ was correct in finding that no fraud occurred in the failure to direct Hlavinka to spread his investment. In fact, such a strategy is not always effective in reducing an investor's loss, as indicated in the risk disclosure statement given to Hlavinka by Blunt Ellis. See also Hill, 790 F.2d at 824 (noting that courts are reluctant to find fraud where customers have received risk disclosure documents). For these reasons, Hlavinka's petition for review is denied.