On December 2, 2015, the CFTC announced a settlement order with Arya Motazedi, a gasoline and energy futures trader. According to the CFTC’s order, Motazedi committed fraud by misappropriating non-public and material information from his employer, and using that information both to trade ahead of his employer and to place advantageous trades between his personal accounts and his employer’s accounts. The CFTC found that Motazedi had violated Section 6(c)(1) of the Commodity Exchange Act (“CEA”) and Regulation 180.1, promulgated in 2011 under Section 6(c)(1). Without admitting or denying any of the CFTC’s findings or conclusions, Motazedi agreed to pay a $100,000 civil monetary penalty and a further $217,000 as restitution to his former employer and to accept a permanent prohibition from employment in the industry, trading on any CFTC-regulated facility and transacting in any instrument within the CFTC’s jurisdiction.
Section 6(c)(1) was added to the CEA by the Dodd-Frank Act and is virtually identical to Section 10(b) of the Exchange Act. Regulation 180.1 was modeled on SEC Rule 10b-5. However, the CEA, in Section 4(b), already had a provision prohibiting fraud and deception, which the Dodd-Frank Act did not affect. Accordingly, the settlement order may be noteworthy for two reasons. First, it suggests that the CFTC intends to make broad use of its new anti-fraud authority under Section 6(c)(1) and Regulation 180.1. Second, in the order, the CFTC employs Rule 10b-5’s misappropriation theory set forth in U.S. v. O’Hagan, 521 U.S. 642 (1997). Thus, Motazedi was found to have violated Rule 180.1 and committed fraud through his “misappropriation and misuse of his employer’s material nonpublic trading information to trade in personal trading accounts [in breach of] his duty to his employer.” More broadly, the settlement order quotes from the CFTC’s 2011 release adopting Regulation 180.1: “[B]ecause of ‘the differences between the securities markets and the derivatives markets, the Commission will be guided, but not controlled, by the substantial body of judicial precedent applying the comparable language of SEC Rule l0b-5.’”