Commodity Trend v. CFTR ( 2000 )

  • In the
    United States Court of Appeals
    For the Seventh Circuit
    Nos. 99-4142, 99-4143 & 00-3734
    Commodity Trend Service, Inc.,
    Commodity Futures Trading Commission,
    Commodity Futures Trading Commission,
    Dennis Blitz and Nick Van Nice,
    Appeals from the United States District Court
    for the Northern District of Illinois, Eastern
    Nos. 97 C 2362 & 98 C 6057--Wayne R. Andersen,
    In Re:
    CTS Financial Publishing, Inc.,
    f/k/a Commodity Trend Service, Inc.,
    Dennis Blitz, Nick Van Nice, and
    Dearborn Financial Publishing, Inc.,
    Petition for Writ of Injunction against the
    Commodity Futures Trading Commission
    No. 00-34
    Argued November 9, 2000--Decided November 28,
      Before Flaum, Chief Judge, and Ripple and
    Kanne, Circuit Judges.
      Flaum, Chief Judge. Plaintiff Commodity
    Trend Service, Inc., now known as CTS
    Financial Publishing, Inc. ("CTS"),
    appeals the determination that it is
    subject to the antifraud provisions of
    the Commodity Exchange Act ("CEA"). The
    principals of CTS, Dennis Blitz and Nick
    Van Nice, appeal the enforcement of an
    administrative subpoena issued by the
    Commodity Futures Trading Commission
    ("CFTC"). For the reasons stated herein,
    we affirm both of the district court’s
    I.   Background
      CTS provides impersonal advice about the
    commodities markets to its customers
    through a number of publications and
    other means, such as faxes and telephone
    messages. CTS does not tailor its advice
    based on the particular circumstances or
    financial goals of its customers, nor
    does it execute any trades on their
    behalf. In addition to these products,
    CTS distributes advertisements that
    provide both information regarding its
    wares and testimonials about the profits
    that can be generated by following CTS’s
    recommendations. In July 1996, the CFTC
    began investigating CTS to determine
    whether the business should be required
    to register as a commodity trading
    advisor ("CTA") under 7 U.S.C. sec. 6m.
    The CFTC sought to subpoena a wide range
    of documents from Nice and Blitz
    regarding CTS’s advertisements,
    publications, and other products. CTS
    filed a complaint claiming on First
    Amendment grounds that the CEA’s
    registration requirements were both
    overbroad and could not be applied to
    CTS. The district court held that CTS’s
    claims were unripe, but we reversed in
    the first decision regarding this case.
    See Commodity Trend Serv. v. CFTC, 
    149 F.3d 679
     (7th Cir. 1998).
      On remand, CTS continued its facial and
    as-applied First Amendment challenges to
    the registration requirements and added
    new arguments attacking 7 U.S.C. sec. 6b
    and 7 U.S.C. sec. 6o, which are antifraud
    provisions of the CEA, as well as 17
    C.F.R. sec. 4.41, which is an antifraud
    regulation promulgated by the CFTC that
    applies to advertising. After considering
    CTS’s arguments, the district court found
    that the registration requirements of the
    CEA as applied to an impersonal advisor
    such as CTS are a prior restraint that
    violates the Constitution. However, the
    court also held that sec. 6o and
    Regulation 4.41 apply to CTS, rejecting
    CTS’s statutory and constitutional
    arguments (the court did not reach the
    question of whether sec. 6b covers CTS).
    On the basis of its decision, the
    district court granted the CFTC’s motion
    to enforce its administrative subpoenas
    to the extent that the CFTC was seeking
    to investigate CTS regarding activities
    prohibited by the CEA’s antifraud laws.
    The court denied CTS’s motion to stay the
    enforcement of the subpoenas pending this
    appeal, and CTS was required to turn over
    various products and documents to the
      CTS appeals the district court’s
    decision that it is subject to the CEA’s
    antifraud provisions, and Nice and Blitz
    appeal the subpoena enforcement based on
    that decision./1 CTS does not challenge
    the determination that it falls within
    the definition of a CTA. Shortly before
    oral argument in this case, the CFTC, in
    part because of the materials discovered
    through its subpoenas, issued a complaint
    against CTS, initiating an administrative
    enforcement proceeding. CTS filed a
    motion to enjoin these proceedings until
    this court decided the instant case.
    CTS’s request for an injunction is
    rendered moot by this decision.
    II.    Discussion
      This case presents three stages of
    analysis. Initially, we must determine
    whether CTS’s challenges are ripe for
    resolution by the courts. If this case is
    ripe, then we must consider if two
    provisions of the CEA and one CFTC
    regulation apply to CTS as a matter of
    statutory interpretation. Finally, if CTS
    is covered by any of these statutes or
    regulations, we must determine whether
    these laws are constitutional as applied
    to CTS.
    A.    Ripeness
      The CFTC argues that neither CTS’s
    statutory and as-applied First Amendment
    challenges nor its identical claims in
    the subpoena enforcement proceeding are
    ripe for judicial decision. Analyzing
    each case under the applicable legal
    standards, we reject the CFTC’s
    contentions and find that both cases are
    susceptible of judicial resolution with
    the exception of one constitutional issue
    discussed below.
      1.   CTS’s complaint.
      The legal standards for determining when
    an as-applied constitutional challenge is
    ripe are set forth in Commodity Trend
    Service, 149 F.3d at 688-90, and need not
    be reiterated at length here. An
    administrative determination is ripe for
    review if (1) it is fit for judicial
    resolution, and (2) the parties would
    endure hardship from the withholding of
    court consideration. See Ohio Forestry
    Ass’n v. Sierra Club, 
    523 U.S. 726
    , 733
    (1998) (citing Abbott Labs. v. Gardner,
    387 U.S. 136
    , 149 (1967)). CTS is still
    suffering from the same hardships of
    curbing the content of its publications,
    being chilled from engaging in speech,
    and undergoing costly compliance with the
    CFTC’s investigation that we previously
    found sufficient to satisfy the hardship
    prong of the Abbott Laboratories test.
    149 F.3d at 689-90. Thus, the second part
    of the ripeness test is satisfied.
      The CFTC focuses its challenge on the
    first part of the ripeness determination.
    The CFTC claims that this case presented
    a purely legal question the first time
    because CTS admitted that it was covered
    by the registration requirements of sec.
    6m, and so no facts were in dispute. By
    contrast, in the current stage of this
    litigation, CTS does not admit that it is
    committing fraud punishable under the
    relevant provisions of the CEA. The CFTC
    argues that further factual development
    through administrative procedures in
    order to determine whether CTS is
    committing fraud is necessary before a
    court should intervene.
      The CFTC’s argument is foreclosed by
    this court’s prior decision, where we
    held that a case is ripe under Abbott
    Laboratories when Babbitt v. United Farm
    Workers Nat’l Union, 
    442 U.S. 289
    is satisfied. 149 F.3d at 687 & n.3. In
    Babbitt, the plaintiffs challenged a
    statute that made "dishonest, untruthful,
    and deceptive publicity" an unfair labor
    practice when used to discourage
    consumers from purchasing agricultural
    products. 442 U.S. at 301. The plaintiffs
    alleged that they did not deliberately
    intend to publicize falsely, but that
    erroneous statements are inevitable in
    the course of public speaking. These
    innocent falsehoods could subject the
    plaintiffs to prosecution under the
    statute, which could be avoided only by
    the plaintiffs curtailing the exercise of
    their First Amendment rights. The Supreme
    Court stated that these circumstances
    were sufficient for the plaintiffs to
    have a reasonable fear of prosecution and
    that no further factual development was
    necessary. The Court thus held that the
    challenge in Babbitt was ripe. Id. at
      CTS’s position is identical in all
    relevant respects to the Babbitt
    plaintiffs. CTS alleges that it does not
    intend to make false statements about the
    commodities markets, but given the volume
    of its publications some misstatements
    are inevitable. Such falsehoods would
    subject them to administrative
    investigation and proceedings by the
    CFTC. Because CTS had a reasonable fear
    of being subject to administrative
    proceedings at the time CTS filed
    itscomplaint, given CFTC’s investigation
    and subpoenas, no further factual
    development is necessary. We hold that
    the purely legal question presented by
    CTS’s challenge--namely, is an impersonal
    trading advisor subject to the fraud
    provisions of the CEA--combined with
    these facts showing a reasonable fear of
    prosecution satisfy the first part of the
    Abbott Laboratories test. Thus, CTS’s
    complaint is ripe.
      2.   Subpoena enforcement proceedings.
      A court exercises only limited review of
    an agency’s actions in a subpoena
    enforcement proceeding and does not
    normally consider the merits of a party’s
    claim that it has not violated a statute
    administered by the agency. As a general
    rule, courts enforce an administrative
    subpoena if: (1) it reasonably relates to
    an investigation within the agency’s
    authority, (2) the specific inquiry is
    relevant to that purpose and is not too
    indefinite, (3) the proper administrative
    procedures have been followed, and (4)
    the subpoena does not demand information
    for an illegitimate purpose. See CFTC v.
    153 F.3d 474
    , 477 (7th Cir.
    1998); EEOC v. Quad/Graphics, Inc., 
    63 F.3d 642
    , 645 (7th Cir. 1995). An agency
    may investigate to determine whether it
    has jurisdiction over a party as long as
    the party’s conduct superficially appears
    to bring it within the jurisdiction of
    the agency, that is, as long as the
    agency is not engaged in impermissible
    overreaching. See Tokheim, 153 F.3d at
    477-78. However, this general rule of
    limited judicial scrutiny of
    administrative subpoenas is subject to
    certain exceptions. In particular,
    judicial review to determine whether a
    party has violated the statute or
    regulations is appropriate at the
    subpoena enforcement stage if the
    investigation is excessively burdensome
    so as to threaten the normal operation of
    the party’s business. See id. at 478;
    Quad/Graphics, 63 F.3d at 648-49.
      We hold that the CFTC’s subpoenas
    satisfy the four-part test, but that the
    excessive burden exception applies. 7
    U.S.C. sec. 12(a) gives the CFTC the
    power to investigate persons that are
    covered by the CEA; CTS does not contest
    that it is a CTA and so subject to the
    CEA. The subpoenas are reasonably
    definite in requesting materials from CTS
    that are relevant to investigating
    whether the CEA’s antifraud provisions
    have been violated. There is no
    allegation that the CFTC has not followed
    the proper procedures or is acting in bad
    faith. However, the issuance of the
    subpoenas has altered the normal
    operations of CTS’s business, as related
    in this court’s first opinion, and their
    enforcement would (and did) exacerbate
    these effects. 149 F.3d at 689-90. CTS
    has diluted its current publications, and
    has decided to abandon plans to expand
    its business to produce additional
    products. Between 1996 and 1998, CTS’s
    sales decreased by more than twenty-five
    percent, a drop that CTS attributes to
    the CFTC’s investigation and subpoenas.
    CTS has been forced to phase out three of
    its employee positions in response to its
    declining revenues. In addition, two of
    CTS’s columnists have refused to write
    articles for fear of government reprisal.
    Such facts demonstrate that the subpoenas
    have changed the normal operations of
    CTS’s business, and thus the merits of
    CTS’s legal challenge can be considered
    at the subpoena enforcement stage./2
    B.   Statutory Interpretation
      Having found that CTS’s challenges are
    ripe, we address its statutory arguments.
    CTS claims that the antifraud provisions
    of the CEA do not apply to impersonal
    commodity advisors as a matter of
    interpretation. The CFTC’s construction
    of the CEA is entitled to Chevron
    deference. See CFTC v. Schor, 
    478 U.S. 833
    , 844 (1986); Indosuez Carr Futures,
    Inc. v. CFTC, 
    27 F.3d 1260
    , 1264 (7th
    Cir. 1994); Geldermann, Inc. v. CFTC, 
    836 F.2d 310
    , 315 (7th Cir. 1987). Under
    Chevron, we first determine whether
    Congress has addressed the question at
    issue. See FDA v. Brown & Williamson
    Tobacco Corp., 
    529 U.S. 120
    120 S. Ct. 1291
    , 1300 (2000). If not, then we defer
    to the CFTC’s construction of the CEA as
    long as it is reasonable. Id.
      1. 7 U.S.C. sec. 6o and 17 C.F.R. sec.
      7 U.S.C. sec. 6o(1) states in relevant
    It shall be unlawful for a commodity
    trading advisor . . . by use of the mails
    or any means or instrumentality of
    interstate commerce, directly or
    (A) to employ any device, scheme, or
    artifice to defraud any client . . . or
    prospective client . . .; or
    (B) to engage in any transaction,
    practice, or course of business which
    operates as a fraud or deceit upon any
    client . . . or prospective client . . .
    The relevant part of 17 C.F.R. sec.
    4.41(a) contains nearly identical
    language and prohibits CTAs from
    advertising in a manner that violates
    sec. 6o(1). Both the statute and the
    regulation speak of defrauding "clients."
    CTS argues that the plain meaning of
    "client" is one who receives personalized
    advice within a fiduciary relationship or
    one on whose behalf a broker executes
    trades. Because CTS provides only
    impersonal advice and is not a broker,
    CTS claims that holding it liable under
    sec. 6o or Regulation 4.41 would be
    contrary to the intent of Congress. Under
    the first step of Chevron, we must
    determine whether the word "client" as
    used in the statute is ambiguous./3 CTS
    provides a number of reasons as to why
    "client" unambiguously refers to only
    brokers or those who provide personalized
    advice, but none of these is convincing.
      CTS first argues that the Supreme Court
    has held that "client" is limited to
    personalized relationships or to brokers
    in a similar statute. Lowe v. SEC, 
    472 U.S. 181
     (1985) held that impersonal
    advisors are exempt from regulation under
    the Investment Advisers Act ("IAA"). The
    Court stated that two factors were
    "significant" in reaching its conclusion
    that the IAA applies only to those "who
    provide personalized advice attuned to a
    client’s concerns." Id. at 207-08 & n.54,
    210 n.57. First, the Court noted that the
    IAA "repeatedly refers to ’clients,’ not
    ’subscribers.’" Id. at 208 n.54; see also
    id. at 201 n.45. Second, the SEC did not
    establish that Lowe and the other
    petitioners had "authority over the funds
    of subscribers," "been delegated
    decisionmaking authority to handle
    subscribers’ portfolios or accounts," or
    "individualized, investment-related
    interactions" with their subscribers. Id.
    at 210 n.57. Also, the Court concluded by
    stating that Lowe and his corporations
    were presumptively not within the IAA as
    long as "the communications between
    petitioners and their subscribers remain
    entirely impersonal and do not develop
    into the kind of fiduciary, person-to-
    person relationships . . . that are
    characteristic of investment adviser-
    client relationships." Id. at 210.
      However, at least two reasons exist for
    deciding that the word "client" in the
    CEA is not limited to personalized
    relationships or brokers. First, the CEA
    has a broader scope than the IAA. In
    Lowe, the Supreme Court held that
    impersonal advisors are excluded from the
    key definition of "investment adviser"
    ("IA") in the IAA because they fit within
    the exception for publishers. 15 U.S.C.
    sec. 80b-2(a) (11)(D); 472 U.S. at 206.
    While some persons are excluded from the
    definition of an IA only if their advice
    concerning securities is solely
    incidental to their other activities, the
    exceptions for publishers is not so
    limited. 15 U.S.C. sec. 80b-2(a)(11).
    Thus, bona fide publishers are not IAs
    even if their entire business concerns
    giving impersonal securities trading
    advice. Moreover, because impersonal
    advisors are excluded from the definition
    of IAs, they are wholly exempt from the
    IAA because the antifraud and other
    provisions of that Act apply only to IAs.
      By contrast, the CEA exempts publishers
    from the definition of CTA only if their
    giving of advice concerning the
    commodities markets is solely incidental
    to their publishing business. 7 U.S.C.
    sec. 1a(5). Impersonal publishers such as
    CTS, whose commodities advising is
    conceded to be more than solely
    incidental to its publishing activities,
    are included within the definition of
    CTA, even though an analogous publisher
    would be excluded from the definition of
    IA. Because CTS is a CTA, all of the
    provisions of the CEA regarding CTAs,
    including sec. 6o and Regulation 4.41,
    are applicable to CTS. If the antifraud
    provisions did not apply to CTS because
    the use of the word "client" limited
    these provisions only to personalized
    relationships, then CTS would be subject
    to the CEA because of its status as a
    CTA, but almost none of the CEA’s
    provisions would apply to it (the
    significance of the one part of the
    statute that appears to draw a
    distinction between "subscribers" and
    "clients" is addressed below). This
    anomalous result casts doubt on CTS’s
    claim that "client" refers only to those
    with whom an advisor has a personalized
    relationship or for whom a person serves
    as a broker.
      Second, in the CEA section that
    announces congressional findings,
    Congress states that CTAs’ "advice,
    counsel, publications, writings,
    analyses, and reports . . . and
    theircontracts, solicitations,
    subscriptions, agreements, and other
    arrangements with clients" are affected
    with a national public interest. 7 U.S.C.
    sec. 6l. The breadth of the language used
    in this statement indicates that Congress
    intended to include impersonal advisors
    within the definition of CTA and intended
    to subject such advisors to the antifraud
    provisions of the CEA. In particular,
    this section shows that "subscriptions"
    are a kind of arrangement with "clients,"
    indicating that even those who merely
    subscribe to impersonal publications are
    "clients" of a CTA. Admittedly, this
    section does not explicitly state that
    clients include those who receive
    impersonal advice, but its broad language
    brings the opposite assertion into
      CTS’s second claim is that the
    definition of "client" in everyday
    language includes only those with whom
    one has a personalized or fiduciary
    relationship. The CEA does not define
    client, so we assume that Congress
    intended the word to have its ordinary
    meaning. See, e.g., Williams v. Taylor,
    ___ U.S. ___, 
    120 S. Ct. 1479
    , 1488
    (2000). The primary definition of
    "client" in modern dictionaries is a
    person who receives services or advice
    from a professional such as an attorney,
    indicating personalized advice. However,
    dictionaries also include "customer,"
    which is one who simply purchases a
    product without any personalization, as a
    definition of "client." See Encarta World
    English Dictionary 340-41 (1999)
    ("CUSTOMER a person or organization to
    whom goods or services are provided and
    sold"); The American Heritage Dictionary
    356 (3d. ed. 1992) ("A customer or
    patron: clients of the hotel"); 3 The
    Oxford English Dictionary 320 (2d. ed.
    1989) ("a customer"); The Random House
    Dictionary 386 (2d. ed. 1987) ("a
    customer"); Webster’s Third New
    International Dictionary (1981) ("PATRON,
    CUSTOMER") (all capitalization and
    italics in originals). "The existence of
    alternative dictionary definitions of" a
    word, "each making some sense under the
    statute, itself indicates that the
    statute is open to interpretation" and
    the word is ambiguous as between the two
    meanings. National R.R. Passenger Corp.
    v. Boston & Maine Corp., 
    503 U.S. 407
    418 (1992); see also MCI Telecomms. Corp.
    v. AT & T Co., 
    512 U.S. 218
    , 226-27
      The use of both "client" and
    "subscriber" in one provision of the CEA,
    7 U.S.C. sec. 6n(3)(A), and in some of
    the CFTC’s regulations, 17 C.F.R.
    sec.sec. 4.33(a), 166.1(c), forms the
    basis of CTS’s third contention. CTS
    claims that "subscriber" covers customers
    who receive only impersonal advice while
    "client" means customers who receive
    personal advice. If "client" includes
    those who receive impersonal advice, then
    "subscriber" will be rendered mere
    surplusage in contravention of the
    interpretive canon that all words in a
    statute should, if possible, be given
    effect. See Dunn v. CFTC, 
    519 U.S. 465
    472 (1997); Bailey v. United States, 
    516 U.S. 137
    , 145-46 (1995). However, the
    surrounding context of the statute can
    overcome the presumption of a canon. See,
    e.g., Dewsnup v. Timm, 
    502 U.S. 410
    , 417
    (1992). As described above, 7 U.S.C. sec.
    6l indicates that subscriptions are a
    type of arrangement with clients for the
    purposes of the CEA and so "subscribers"
    are a type of "client." Thus, the
    statutory text implies that the word
    "subscriber" is subsumed by the word
    "client," which is sufficient to rebut
    the canon that each word or phrase in a
    statute should be given independent
    meaning. Therefore, the presumption
    against treating statutory terms as
    surplusage does not aid CTS.
      CTS’s fourth argument is that
    interpreting "client" to include
    impersonal advisors would lead to absurd
    results because the CFTC has interpreted
    the CEA’s antifraud provisions to impose
    fiduciary duties. CTS posits examples
    such as parties on opposite sides of a
    commodities transaction each relying on
    CTS’s products, in which case CTS would
    have violated its duty of loyalty to both
    parties. The CFTC agrees that the CEA
    imposes fiduciary obligations, but claims
    that the content of these duties varies
    depending on the type of CTA.
      However, the CEA does not impose
    fiduciary duties on impersonal advisors.
    The leading authority for the proposition
    that the CEA imposes fiduciary
    obligations on all CTAs is Savage v.
    548 F.2d 192
    , 197 (7th Cir. 1977).
    However, Savage cannot be read so
    broadly; the party in that case offered
    personalized advice, id. at 194, and so
    would be considered a fiduciary under the
    common law. Nothing in sec. 6o indicates
    an intent on the part of Congress to
    impose fiduciary duties on impersonal
    advisors. Section 17(a) of the Securities
    Act of 1933, 15 U.S.C. sec. 77q(a), which
    contains language similar to 7 U.S.C.
    sec. 6o, does not impose fiduciary
    duties. See Trussell v. United
    Underwriters, Ltd., 
    228 F. Supp. 757
    , 762
    (D. Colo. 1964); see also SEC v. Maio, 
    51 F.3d 623
    , 631 (7th Cir. 1995) (holding
    that a breach of a fiduciary duty
    connected with trading on material
    nonpublic information is necessary for a
    violation of sec. 17(a), indicating that
    sec. 17(a) does not impose any
    independent fiduciary duties by its own
    language). Similarly, sec. 206 of the
    IAA, 15 U.S.C. sec. 80b-6, does not
    impose any new fiduciary duties, but only
    enforces already existing duties between
    clients and IAs. As the Supreme Court
    held in Lowe, the definition of IAs is
    limited to personalized advisors who have
    fiduciary relationships with their
    clients as a matter of common law. See
    SEC v. Capital Gains Research Bureau,
    375 U.S. 180
    , 194 (1963) ("Congress
    recognized the investment adviser to be"
    "a fiduciary."); id. at 201 ("The
    statute, in recognition of the adviser’s
    fiduciary relationship to his clients,
    requires that his advice be
    disinterested.") (emphasis added). An
    analogous interpretation applies to the
    CEA, which effectuates the extant
    fiduciary duties of personalized advisors
    and other agents but does not impose
    fiduciary obligations on impersonal
    advisors. See generally Hlavinka v. CFTC,
    867 F.2d 1029
    , 1033 (7th Cir. 1989)
    (stating that a commodities advisor is
    not a fiduciary for purposes of the CEA
    where the customer makes his own
    independent trading decisions); CFTC v.
    Heritage Capital Advisory Servs., Ltd.,
    823 F.2d 171
    , 173 (7th Cir. 1987)
    (rejecting breach of fiduciary duty claim
    under the CEA because only brokers who
    operate discretionary accounts are
    fiduciaries). Section 6o does not permit
    the CFTC to impose fiduciary duties on
    impersonal CTAs such as CTS. Rather,
    these provisions permit the CFTC to bring
    proceedings against impersonal CTAs who
    commit fraud or engage in practices that
    operate as fraud and impose remedies to
    correct such violations. Thus, CTS’s fear
    of being subjected to wide-ranging
    fiduciary duties is not a persuasive
    reason to decide that "client"
    unambiguously refers only to those who
    provide personal advice.
      Fifth and finally, CTS claims that the
    antifraud provisions of the CEA raise
    serious constitutional questions and we
    should interpret the statute to avoid
    such issues. See, e.g., Jones v. United
    526 U.S. 227
    , 239-40 (1999).
    However, the parts of the CEA at issue do
    not present such grave questions that the
    constitutional avoidance canon should be
    employed. See Rust v. Sullivan, 
    500 U.S. 173
    , 191 (1991); see also Almendarez-
    Torres v. United States, 
    523 U.S. 224
    237-38 (1997) (stating that the avoidance
    canon must be applied judiciously in
    order to avoid distorting policy choices
    of elected representatives). CTS claims
    that constitutional questions led the
    Supreme Court in Lowe to hold that the
    IAA applies only to impersonal advisors.
    To the extent that constitutional
    concerns motivated the majority’s opinion
    in Lowe, these were directed at the IAA’s
    registration requirements. 472 U.S. at
    210. Registration for impersonal advisors
    raises much more serious constitutional
    questions than antifraud provisions
    because registration operates as a form
    of prior restraint, which bears a strong
    presumption of unconstitutionality. See
    Schultz v. City of Cumberland, 
    228 F.3d 831
    , 851 (7th Cir. 2000). Because of the
    CFTC’s recent regulation exempting imper
    sonal advisors from registration under
    the CEA, 17 C.F.R. sec. 4.14(a)(9), the
    constitutional issues that concerned the
    Supreme Court in Lowe are not present in
    the instant case. We find that the
    antifraud provisions alone, detached from
    the registration requirement, do not
    raise the grave constitutional concerns
    that would require this court to
    determine that "client" unambiguously
    refers to only those receiving
    personalized advice. See R&W Technical
    Servs. Ltd. v. CFTC, 
    205 F.3d 165
    , 175-76
    (5th Cir. 2000).
      None of CTS’s contentions demonstrates
    that the word "client" as used in the CEA
    unambiguously means only those who
    receive personalized advice. Instead, the
    definition of "client" is uncertain
    because it can refer to merely those who
    receive tailored advice from
    professionals or those who receive any
    kind of service regardless of whether it
    is personalized. Thus, the first step of
    Chevron is satisfied in favor of the CFTC
    and we proceed to the second step:
    determining whether the agency’s
    interpretation is reasonable. CTS does
    not make any arguments on this point, and
    we find no reason to conclude that the
    CFTC’s construction is unreasonable. 7
    U.S.C. sec. 6l indicates that Congress
    intended for the CEA to have a broad
    reach, and the CFTC appears to be
    effectuating that purpose. Thus, we defer
    to the CFTC’s interpretation of "client"
    in applying the CEA and conclude that
    sec. 6o and Regulation 4.41 can be
    applied to CTS.
     2.   sec. 6b.
      The relevant part of 7 U.S.C. sec. 6b(a)
    states that:
    It shall be unlawful . . . (2) for any
    person, in or in connection with any
    order to make, or the making of, any
    contract of sale of any commodity for
    future delivery, made, or to be made, for
    or on behalf of any other person if such
    contract for future delivery is or may be
    used for . . . (B) determining the price
    basis of any transaction in interstate
    commerce in such commodity . . . --[to
    commit fraud, willful deception, or
    certain manipulative acts].
    CTS claims that the "for or on behalf of"
    language relates back to "any person."
    According to CTS, sec. 6b only applies to
    people who make contracts "for or on
    behalf of" other people, that is, brokers
    and other agents. The CFTC claims that
    this key phrase relates back to "any
    contract," and thus any person, not just
    a broker, who commits fraud in connection
    with a contract made for another person
    has violated sec. 6b./4
      CTS is correct regarding the meaning of
    sec. 6b. The CFTC’s reading would render
    the "for or on behalf of" language mere
    surplusage. According to the CFTC, this
    phrase only specifies that the contract
    must be made on behalf of someone other
    than the party committing fraud. Since a
    person cannot defraud him or herself
    through contract or otherwise, Congress
    could have omitted "for or on behalf of"
    and the statute would have the exact same
    meaning as the CFTC now proposes. Thus,
    the CFTC’s construction contravenes the
    aforementioned canon that each word or
    phrase in a statute should be given
    effect if possible. See Dunn, 519 U.S. at
    472. Unlike in the above discussion of
    sec. 6n(3)(A), where the CFTC pointed to
    sec. 6l as indicating that a subscriber
    is a type of client, the CFTC does not
    provide any evidence that Congress
    intended "for or on behalf of" to be
    subsumed by some other part of sec.
    6b(a). Thus, "for or on behalf"
    unambiguously refers to "any person," and
    therefore the provision applies only to
    brokers or others who have an agency
    relationship with their clients./5
    Because CTS does not have such a
    relationship with its customers, sec. 6b
    cannot be applied to CTS.
    C. Constitutionality
      Because sec. 6o and Regulation 4.41 as
    reasonably construed by the CFTC apply to
    CTS’s activities, we must consider CTS’s
    constitutional claims. CTS contends that
    sec. 6o and Regulation 4.41 cannot be
    applied to an impersonal speaker on a
    public topic, such as the commodities
    markets, consistent with the First
    Amendment because parts of these
    provisions lack a scienter requirement.
    CTS also objects on constitutional
    grounds to any attempt by the CFTC to
    force CTS to make affirmative
    disclosures, claiming that this compelled
    speech violates CTS’s First Amendment
    rights. We first examine whether the
    antifraud provisions can be used to
    punish CTS for speaking, and then
    consider whether CTS can be forced to
     1.   Restricted speech.
        a) Overview of fraud and the First
      The case law regarding fraudulent speech
    and the First Amendment establishes a
    number of general principles which guide
    this court’s inquiry. Laws directly
    punishing fraudulent speech survive
    constitutional scrutiny even where
    applied to pure, fully protected speech.
    See McIntyre v. Ohio Elections Com’n, 
    514 U.S. 334
    , 357 (1995); Riley v. National
    Fed’n of the Blind of N.C., Inc., 
    487 U.S. 781
    , 795, 800 (1988); Village of
    Schaumburg v. Citizens for a Better
    444 U.S. 620
    , 637 (1980);
    Schneider v. State, 
    308 U.S. 147
    , 164
    (1939); CFTC v. Vartuli, 
    228 F.3d 94
    , 110
    (2d Cir. 2000); R&W Technical Servs., 205
    F.3d at 175. Fraud is normally defined as
    requiring that the speaker act with
    scienter. See Capital Gains, 
    375 U.S. 180
    , 192 (1963); Black’s Law Dictionary
    670-71 (7th ed. 1999). The government is
    not limited only to explicit antifraud
    measures to prevent its citizens from
    being defrauded; certain other narrowly
    tailored measures with a direct
    relationship to preventing fraud may be
    used as well. See McIntyre, 
    514 U.S. 334
    349-51, 353; Riley, 487 U.S. at 795, 800;
    Village of Schaumburg, 444 U.S. at 637-
    38. However, the government cannot
    overreach in its attempts to protect the
    public from fraud. Laws that primarily
    prohibit fully protected speech along
    with potentially fraudulent speech often
    violate the First Amendment, even if the
    law’s stated purpose is to prevent fraud;
    instead, more precise measures must be
    used. See McIntyre, 514 U.S. at 343-44,
    350-51, 357; Riley, 487 U.S. at 795;
    Village of Schaumburg, 444 U.S. at 637.
    Likewise, the government cannot label
    certain speech as fraudulent so as to
    deprive it of First Amendment protection.
    See Riley, 487 U.S. at 794 n.8; Secretary
    of State of Md. v. Joseph H. Munson Co.,
    467 U.S. 947
    , 966-67 (1984); Village of
    Schaumburg, 444 U.S. at 637.
      Commensurate with its subordinate
    position within the First Amendment
    hierarchy, advertising receives less pro
    tection from regulation than fully
    protected speech. Misleading or deceptive
    advertising may be prohibited in addition
    to fraudulent commercial speech. See
    Florida Bar v. Went For It, Inc., 
    515 U.S. 618
    , 623-24 (1995); Edenfield v.
    507 U.S. 761
    , 768 (1993); Virginia
    State Bd. of Pharm. v. Virginia Citizens
    Consumer Council, Inc., 
    425 U.S. 748
    771-72 (1976). Statutes that prohibit
    truthful and nonmisleading commercial
    speech in addition to fraudulent or
    deceptive speech survive constitutional
    scrutiny if the restriction is narrowly
    drawn and directly and materially
    advances a substantial state interest.
    See Went For It, 515 U.S. at 624;
    Edenfield, 507 U.S. at 768-69.
        b) The CEA provision and the CFTC’s
      To understand CTS’s challenge, a
    distinction between the two parts
    contained in both sec. 6o(1) and
    Regulation 4.41(a) must be recognized.
    The first part of each of the CEA
    provision and CFTC regulation prohibit a
    CTA from employing "any device, scheme,
    or artifice to defraud." 7 U.S.C. sec.
    6o(1) (A); 17 C.F.R. sec. 4.41(a)(1).
    This language requires that a CTA act
    with scienter before being punished for
    violating the statute. See Aaron v. SEC,
    446 U.S. 680
    , 696 (1980); Messer v. E.F.
    Hutton & Co., 
    847 F.2d 673
    , 677-78 (11th
    Cir. 1988)./6 The second part of each
    law punishes "any transaction, practice,
    or course of business which operates as a
    fraud or deceit." 7 U.S.C. sec. 6o(1)(B);
    17 C.F.R. sec. 4.41(a) (2). This language
    focuses upon the effect a CTA’s conduct
    has on its investing customers rather
    than the CTA’s culpability, and so does
    not require a showing of scienter. See
    Aaron, 446 U.S. at 696-97; Messer, 847
    F.2d at 679. CTS argues that any
    impersonal, public speech about a topic
    of public interest cannot be punished by
    the government absent a showing of
    scienter. Because certain parts of the
    CEA do not have such a requirement, CTS
    asserts that applying these provisions to
    it would be unconstitutional.
      Applying the principles elaborated in
    the previous section to the CEA antifraud
    laws, we hold that all of the provisions
    challenged by CTS pass constitutional
    muster. Section 6o(1)(A) and Regulation
    4.41(a)(1) require scienter and do no
    more than prohibit common law fraud in
    commodities transactions. Explicit
    antifraud measures such as these do not
    violate the First Amendment. While the
    remaining two provisions do not require
    scienter, both are of limited scope. Each
    prohibits only certain activities that
    deceive or defraud a CTA’s customers,
    Messer, 847 F.2d at 679-80, and a showing
    of negligence is required, see SEC v.
    Hughes Capital Corp., 
    124 F.3d 449
    , 454
    (3d Cir. 1997). Section 4.41(a)(2) is
    constitutional because it applies only to
    advertising, which is to say commercial
    speech./7 The government can directly
    regulate deceptive advertising without
    any further justification. Section
    6o(1)(B) is constitutional because it is
    a narrowly tailored measure that is
    directly related to preventing fraud in
    statements that purport to convey factual
    information. The provision is narrow
    because it targets only a certain group
    of deceptive activities and requires
    negligence, and is directly related to
    fraud because it punishes only a limited
    group of activities that deceive or
    defraud a CTA’s customers or potential
      On the limited record before us, we must
    assume that the CFTC intends to regulate
    CTS only within the limits prescribed by
    these provisions. If the CFTC were to
    apply these laws more broadly to restrict
    protected speech that cannot be shown to
    be fraudulent as a matter of fact, then a
    different case would be presented. In
    particular, if the CFTC were to attempt
    to punish statements that are more a
    matter of opinion or belief, rather than
    statements that could be empirically
    shown to be false or deceptive, then more
    serious constitutional issues would
    exist. Cf. Riley, 487 U.S. at 803
    (Scalia, J., concurring) ("It is
    axiomatic that, although fraudulent
    misrepresentations of facts can be
    regulated, the dissemination of ideas
    cannot be regulated to prevent it from
    being unfair or unreasonable.")
    (citations omitted); Argello v. City of
    143 F.3d 1152
     (8th Cir. 1998)
    (holding that city’s interest in
    preventing fraud could not justify
    municipal ordinance against fortune-
      2.   Compelled speech.
      CTS seeks to prevent the CFTC from
    imposing any affirmative disclosure
    obligations on its publications. The
    judicial tests for compelled speech, as
    elaborated below, require that a court
    know the specific reason why the
    disclosure was required and the content
    of the disclosure. Because we have
    neither of these facts, we hold that
    CTS’s challenges are unripe. We divide
    the discussion between commercial speech
    and non-commercial speech.
       The government can impose affirmative
    disclosures in commercial advertising if
    these are reasonably related to
    preventing the public from being deceived
    or misled. See Zauderer v. Office of
    Disciplinary Counsel, 
    471 U.S. 626
    , 651
    (1985); Vartuli, 228 F.3d at 108. Such a
    disclosure must be no broader than
    necessary to prevent the deceptive or
    misleading advertising engaged in by the
    party. See Encyclopaedia Britannica, Inc.
    v. FTC, 
    605 F.2d 964
    , 972 (7th Cir.
    1979); Porter & Dietsch, Inc. v. FTC, 
    605 F.2d 294
    , 307 (7th Cir. 1979); National
    Comm’n on Egg Nutrition v. FTC, 
    570 F.2d 157
    , 164 (7th Cir. 1977). This inquiry is
    inherently fact-intensive because a court
    must examine the particular speech that
    the government claims deceives or
    misleads the public and determine whether
    the specific affirmative disclosure
    remedy imposed is no broader than
    necessary to cure this problem. In the
    instant case, we do not know what
    statements of CTS’s that the CFTC has
    found to be deceiving or misleading or
    why. Nor do we know the language of the
    affirmative disclosure that the CFTC may
    impose on CTS’s advertisements. Because
    of the absence of these crucial facts,
    CTS’s challenge to any affirmative
    disclosures in its commercial advertising
    are not fit for judicial decision and are
    thus unripe.
      Regarding CTS’s fully protected speech,
    the government’s power to compel speech
    is "constitutional[ly] equivalen[t]" to
    its power to silence speech. See Riley,
    487 U.S. at 797. As explained above,
    narrowly drawn laws that have a direct
    relationship to preventing fraud about
    factual matters do not violate the First
    Amendment. Concomitantly, narrowly drawn
    affirmative disclosures that directly
    cure fraudulent speech are
    constitutionally permissible. As with
    commercial speech, affirmative
    disclosures required in more protected
    forms of speech must also be no broader
    than necessary. We do not have sufficient
    facts to apply these principles to any
    potential affirmative disclosures that
    may be required of CTS by the CFTC
    because of the same lack of factual
    development described above.
    III.   Conclusion
      CTS’s statutory challenge and some of
    its constitutional claims are ripe for
    judicial resolution. Section 6o and
    Regulation 4.41 apply to CTS because of
    Chevron deference. Section 6b is limited
    by its own language to agency
    relationships and thus does not encompass
    impersonal advisors such as CTS. The CEA
    provisions either prohibit fraud,
    regulate misleading commercial
    advertising, or are narrowly drawn and
    have a direct relationship to preventing
    fraud, and thus are constitutional.
    Further factual development is necessary
    before we can determine whether
    affirmative disclosure requirements by
    the CFTC would violate the First
    Amendment. This decision moots CTS’s
    request for a temporary injunction. The
    district court’s decisions granting
    partial summary judgment against CTS and
    enforcing in part the CFTC’s subpoenas
    are Affirmed.
    /1 The CFTC originally appealed the district court’s
    decision that the registration requirements of
    sec. 6m are unconstitutional as applied to CTS,
    but voluntarily dismissed that appeal. The CFTC
    has recently adopted a rule exempting from
    registration CTAs that do not direct client
    accounts and provide only impersonal trading
    advice. 17 C.F.R. sec. 4.14(a)(9).
    /2 Both parties focus on FTC v. Miller, 
    549 F.2d 452
    , 460-61 (1977), which appears to include a
    broad exception to the normal rule that judicial
    review of a party’s legal challenges in a
    subpoena enforcement proceeding are limited.
    Because the extreme burden exception applies to
    CTS, we need not determine whether and how
    subsequent decisions have limited Miller.
    /3 Neither CTS nor the CFTC rely on the legislative
    history of the CEA as a means of determining
    Congress’s intent. Thus, the only evidence we use
    to determine whether Congress intended for the
    antifraud provisions to apply only to
    personalized advisors or brokers is the statutory
    /4 The CFTC also directs this court’s attention to
    a number of cases that have given a broad
    interpretation to the "in or in connection with"
    language in the statute, such as Hirk v.
    Agri-Research Council, Inc., 
    561 F.2d 96
    , 103-04
    (7th Cir. 1977). Such cases do not address the
    "for or on behalf of" phrase and thus provide
    minimal aid in resolving the specific issue
    raised by CTS.
    /5 In addition, we note that the CFTC has
    interpreted sec. 6b to apply only to agency
    relationships. See Hammond v. Smith Barney,
    Harris Upham & Co., [1987-1990 Transfer Binder]
    Comm. Fut. L. Rep. (CCH) para. 24,617 at 36,658
    n.16 (CFTC 1990) ("Section 4b(A) of the Act only
    applies where there is an agency-like
    relationship between the damaged party and the
    wrongdoer (i.e., when the wrongdoer is acting
    "for or on behalf of [the] other person,) . .
    /6 While Aaron interpreted Section 17(a) of the
    Securities Act of 1933, 15 U.S.C. sec. 77q(a),
    this statute contains language almost identical
    to the commodity laws in question. Thus, like the
    Eleventh Circuit in Messer, we rely on judicial
    interpretations of Section 17(a) in interpreting
    7 U.S.C. sec. 6o(1).
    /7 CTS alleges that its advertisements contain both
    commercial and non-commercial speech. Assuming
    this is true, the analysis is not seriously
    affected. Commercial speech is separable from
    other kinds of speech, and the CFTC must apply
    the appropriate standard to the speech on which
    it seeks to hang CTS’s liability. See City of
    Cincinnati v. Discovery Network, Inc., 
    507 U.S. 410
    , 426 n.21 (1993); Board of Trustees of State
    Univ. of N.Y. v. Fox, 
    492 U.S. 469
    , 474-75