CFTC Charges Florida-Based Group and Owners with Engaging in Illegal, Off-Exchange Commodity Transactions (with Lofchie Comment)

The CFTC announced that it filed a civil injunctive enforcement action against Vertical Integration Group LLC ("Vertical") and its owners for engaging in illegal, off-exchange financed transactions involving precious metals with retail customers.

The CFTC complaint alleged that Vertical solicited retail customers to buy physical precious metals in off-exchange leveraged transactions from July 2011 through February 2013. Specifically, the CFTC alleged that customers paid Vertical a portion of the purchase price for the metals, and Vertical financed the remainder of the purchase price, while charging the customers interest on the amount purportedly loaned to customers.

According to the complaint, a financed transaction such as those conducted by Vertical is an illegal off-exchange transaction unless it results in the actual delivery of the precious metals within 28 days. According to the CFTC Complaint, Vertical's customers never took delivery of the precious metals that they purportedly purchased.

Lofchie Comment: The complaint provides an example of what the CEA and the CFTC Rules generally refer to as a "leverage" contract, save for the term of the contract.

See: CFTC Complaint against Vertical; CFTC Press Release.