Washington, D.C. — On Monday, June 29, 2020 the U.S. Supreme Court denied a petition for a writ of certiorari by the defendants in the CFTC’s anti-fraud enforcement action against Monex Deposit Company and its affiliated companies and principals. The defendants’ petition challenged the CFTC’s authority to bring enforcement cases against alleged fraud, an argument rejected last year by the U.S. Court of Appeals for the Ninth Circuit. [See CFTC Press Release No. 7984-19] The CFTC enforcement action, filed in 2017, charged the defendants with defrauding thousands of retail customers out of hundreds of millions of dollars, while executing thousands of illegal, off-exchange leveraged commodity transactions. [See CFTC Press Release No. 7609-17]
“This should put to rest any question of the CFTC’s authority to redress fraud in commodity markets,” said Robert A. Schwartz, the CFTC’s Deputy General Counsel for Litigation. “It also confirms that Congress meant what it said when it mandated that leveraged retail commodity transactions result in ‘actual delivery’ or conform to CEA regulation—the seller must actually hand over possession and control of the commodity.”
The Ninth Circuit’s decision, now final, confirmed (1) that the Commodity Exchange Act (CEA) empowers the CFTC to prosecute fraud in cash-commodity markets regardless of whether there has also been market manipulation; and (2) that in order to escape regulation under the CEA, a purveyor of leveraged retail commodity transactions must actually deliver that commodity, and may not rely on sham arrangements in which no commodity ever changes hands. In Monex’s case, the transactions were in metals, but these issues are also important in the context of digital assets including virtual currencies. Earlier this year, the CFTC issued final interpretive guidance on actual delivery for digital assets. [See CFTC Press Release No. 8139-20]
In its continuing litigation, the CFTC seeks disgorgement of ill-gotten gains, restitution for the benefit of defrauded customers, civil monetary penalties, and permanent registration and trading bans, and a permanent injunction from future violations of federal commodities laws, as charged.
The CFTC thanks the Office of the Solicitor General for its joint-representation of the Commission. The Office of General Counsel staff members responsible for the appeal are Robert A. Schwartz, Anne Stukes, and Daniel J. Davis. The Division of Enforcement staff members responsible for this case are Carlin Metzger, Bridget Weyls, Joseph Konizeski, Jon Kramer, Matthew Rowland, Jeffrey Gomberg, and Scott Williamson, as well as former staff members Michael Frisch, Eric Schleef, and Rosemary Hollinger.
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CFTC’s Precious Metals Customer Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Precious Metals Fraud Advisory, which alerts customers to precious metals fraud and lists simple ways to spot precious metals scams.
Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.