[263 U.S. 611, 612] Mr. James A. Fowler, Asst. Atty. Gen., for the United States.
Mr. Chief Justice TAFT delivered the opinion of the Court.
This was a petition filed by the United States in the District Court for the Southern District of New York against the New York Coffee & Sugar Exchange, the New York Coffee & Sugar Association, corporations of the state of New York, and their officers and directors, for an injunction against the maintenance of an alleged conspiracy in violation of the Anti- Trust Act of July 2, 1890, c. 647, 26 Stat. 209 (Comp. St. 8820 et seq.), and of its supplementary Act of August 27, 1894, c. 349, 28 Stat. 570, as amended by Act Feb. 12, 1913, c. 40, 37 Stat. 667 (Comp. St. 8831, 8834 ). The proceeding was brought under the expediting provisions of the Act of February 11, 1903, c. 544, 32 Stat. 823, as amended by Act June 25, 1910, c. 428, 36 Stat. 854 (Comp. St. 8824). The Attorney General having duly filed a certificate that the case was of general public importance, notice of a motion for an interlocutory injunction was given by the petitioner. The corporate defendants filed an answer which by stipulation was made the answer of the individual defendants. By further stipulation the cause was submitted to final hearing before three Circuit Judges upon petition and answer and the affidavits which had been presented by both sides on the motion for a preliminary injunction. The petition was dismissed, and this is an appeal under section 2, c. 544, of the Act of February 11, 1903, 32 Stat. 823 (Comp. St. 8825). [263 U.S. 611, 616] The sugar market of the New York Coffee and Sugar Exchange was not organized until the great war in 1914, when foreign sugar exchanges ceased to function. It was intended to afford a world exchange for the purchase and sale of sugar. It continued as an exchange until this country engaged in the war, when it was closed by government direction. Upon the coming of peace, it opened again and has been in operation ever since. The dealings are chiefly in raw sugars. The contracts made are for future delivery. There are no 'wash' sales; i. e., merely bets upon the market in which it is understood between the parties that neither is bound to deliver or accept delivery. But it is true that the sugar is not delivered except in a very small percentage of the contracts. The contracts are settled by offsetting purchases against sales; i. e., by 'matching,' as it is called, or by 'ringing.' This is the same general method of settlement as that which prevails in grain sales for future delivery on the Chicago Board of Trade, and is described by this court in Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236 , 247, et seq., 25 Sup. Ct. 637. The Sugar Clearing Association, codefendant herein with the Exchange, though a separate corporation, is under the same general management as the Exchange and its function is to provide a clearing house in which such ringing settlements are made. About 75 per cent. of the transactions are thus cleared. Nearly all the rest are 'matched' and only a tenth to a quarter of 1 per cent. of the contracts are settled by actual delivery under the rules of the Exchange. The prices at which raw sugar is sold elsewhere for immediate delivery-i. e., of 'spot' sales-vary very much as the prices for future delivery vary on the Exchange. It is clear that the prices for futures have a direct relation to, and effect upon, the prices in 'spot' sales. The prices of raw sugar that prevail in the Exchange are used as a basis for the prices of sugar in the markets of the world. [263 U.S. 611, 617] Cuba is the largest single source of raw sugar for the United States and its crop equals or exceeds the supply from all other sources, domestic or foreign. The petition charges that the Exchange and the Clearing Association are machinery for the promotion of gambling; that, though its contracts for futures on their face are for actual delivery, they really are not intended or expected by either party to result in delivery; that the Exchange rules discourage delivery; that, when in fact actual delivery is sought, purchases are not made on the Exchange, but elsewhere; that the Exchange thus puts in the hands of gamblers the means of influencing directly the prices of sugar to be delivered, and thereby of obstructing and restraining its free flow in trade between Cuba and the United States and between the states.
The occasion for the suit was a violent fluctuation in the price of sugar futures and as a consequence in the price of spot sugars during February, March, and April of 1923. The petition alleges that during this period there was no economic justification for such a sudden and excessive increase, but that notwithstanding raw sugar at New York, May delivery, increased $3.65 to $4.07 per cwt. between February 1st and February 8th, and thereafter gradually increased from day to day until April 16th when the peak of $5.97 per cwt. was reached. The effect upon refined sugar used by the consuming public was to increase its price for immediate delivery in New York from $6.70 per cwt. in February to $9.30 per cwt. in March and April.
The petition charges that all this was 'the direct result of a combination and conspiracy between the Sugar Exchange and the Clearing Association and the officers and members of those corporations and their clients or principals who by means of purported purchases and [263 U.S. 611, 618] sales of sugar, have sought to establish and have established artificial and unwarranted prices, not governed by the law of supply and demand, but based wholly on speculative dealings not involving the delivery of the quantities of sugar represented thereby, but altogether carried on for the purpose and with the effect of unduly enhancing the price of sugar to the enrichment of said defendants and their principals and to the detriment of the public.'
The prayer is that the court adjudge that the by-laws, rules, and regulations of the defendant corporations in so far as they relate to sugar and the concerted action of the individual defendants in carrying them out, show a combination and conspiracy in violation of federal anti- trust laws, and that the defendants and each of them be enjoined from maintaining and operating the Sugar Exchange and Clearing House, from publishing the prices of raw or refined sugar in Exchange transactions as purporting to be its market price, from attempting to establish it as such in bona fide dealing in actual sugar, and 'from entering into any transaction on such Exchange or elsewhere involving or purporting to involve the purchase, sale, or delivery of sugar unless the person purporting to make such sale has in his possession or under his control a supply of sugar adequate to meet the requirements of such transaction, and the person purporting to purchase shall in good faith intend to buy and pay for such sugar and accept delivery as soon as the same can be made.'
The answer of the corporate defendants denied all charges of combination and conspiracy to increase prices or to obstruct or restrain the free flow of commerce in sugar, gave the history of the organization of the two corporations, and alleged that they served a very useful purpose in stabilizing the price of sugar by furnishing a free market for this country and the world. [263 U.S. 611, 619] The evidence shows that the rules and organization of the Exchange and Clearing Association are very like those of the Chicago Board of Trade and similar exchanges for the sales of commodities for future delivery. It is true that spot sales are not encouraged and that less actual deliveries take place in this Exchange than in some of the exchanges for sales of other commodities, but actual deliveries are provided for in every contract and may be lawfully enforced by either party.
The usefulness and legality of sales for future delivery, and of furnishing an Exchange where under well-defined limitations and rules the business can be carried on have been fully recognized by this court in Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236, 246 , 25 S. Sup. Ct. 637. Those who have studied the economic effect of such exchanges for contracts for future deliveries generally agree that they stabilize prices in the long run instead of promoting their fluctuation. Those who deal in 'futures' are divided into three classes: First, those who use them to hedge, i. e., to insure themselves against loss by unfavorable changes in price at the time of actual delivery of what they have to sell or buy in their business; second, legitimate capitalists, who, exercising their judgment as to the conditions, purchase or sell for future delivery with a view to profit based on the law of supply and demand; and, third, gamblers or irresponsible speculators, who buy or sell as upon the turn of a card. The machinery or such an exchange has been at times made the means of promoting corners in the commodity dealt in by such manipulators and speculators, thereby restraining and obstructing foreign and interstate trade. In such instances, the manipulators subject themselves to prosecution and indictment under the Anti-Trust Act. United States v. Patten, 226 U.S. 525 , 33 Sup. Ct. 141, 44 L. R. A. (N. S.) 325. But this is not to hold that such an exchange, with the facilities it affords for making contracts for future deliveries, is itself a combination [263 U.S. 611, 620] and conspiracy thus to restrain interstate and foreign trade.
There is not the slightest evidence adduced to show that the two corporate defendants or any of their officers or members entered into a combination or conspiracy to raise the price of sugar. The circumstances upon which the government placed its case were a violent rise in the price of sugar without any economic justification or explanation lasting two months or more and manifesting itself first in 'futures' on the Exchange and afterwards in the price of refined sugar for immediate delivery. The defendants suggest that this was due to a popular misconstruction of the regular monthly report of the Department of Commerce as to a probable shortage in the supply of sugar during the year 1923, followed by a statement from a business house in Cuba, usually regarded as a reliable source of information, that the previous estimate of the amount of the next Cuban crop was too high by several hundred thousand tons. Whether these circumstances were sufficient to explain in full the violent rise in the price of sugar, we need not discuss. The government case fails because there is no evidence to establish that the defendants produced or attempted to produce the disturbance of the market.
The mere fact that the defendants were operating the Sugar Exchange and Clearing Association, even if we concede that some persons, not identified, combining and conspiring with criminal intent used the Exchange and Clearing Association to cause the rise in sugar prices, concessions which there is no testimony to support, furnishes no reason for enjoining defendants from continuing the Exchange or for a mandatory injunction to reframe the rules of the Exchange and the Clearing Association.
The government contends that the prayer of the petition is justified by the decision of this court in the case of Chicago Board of Trade v. Olsen, 262 U.S. 1 , 43 Sup. Ct. 470. It has [263 U.S. 611, 621] no application. We held there that Congress having found that the sales of grain for future delivery on the Board of Trade were susceptible to speculation, manipulation and control affecting interstate consignments of grain in such a way as to cause a direct burden on, and interference with, interstate commerce therein, had power to place such markets under federal supervision to prevent such abuses. But nothing in the case sustains the view that those promoting and operating such an Exchange are themselves imposing a burden or restraint upon interstate commerce for which they may be indicted under the Anti-Trust Act, or from continuing which they may be enjoined. The government in effect asks this court to enforce rules and regulations for the conduct of the Sugar Exchange which shall prevent the future abuse of its lawful functions. This is legislative and beyond our power.
The decree of the District Court is affirmed.