The Court of Appeals for the Ninth Circuit ruled in favor of the CFTC in connection with fraud-related charges against a precious metals credit company. This decision overturned the District Court's decision to dismiss the CFTC enforcement action.
The CFTC alleged that Monex Credit Company ("Monex"), which sells precious metals to investors, defrauded thousands of retail customers through illegal, off-exchange leveraged commodity transactions. In March 2018, the district court dismissed the CFTC's case against Monex, saying that (i) it lacked "authority" over the alleged fraud due to the fact that Monex makes "actual delivery" of precious metal to customers and (ii) the relevant anti-fraud provision of Commodity Exchange Act (the "CEA"), prohibiting the employment of "any manipulative or deceptive device," prohibits only fraud related to market manipulation.
The Ninth Circuit reversed both prior rulings, holding that "actual delivery" requires clear "transfer of some degree of possession or control" under the CEA, which it found did not occur in this case. Further, the Ninth Circuit ruled that the CEA prohibits fraud regardless of whether there has been market manipulation, rejecting the respondent's argument that the words "any manipulative or deceptive device" (emphasis added) requires proof of both fraud and manipulation.
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