On May 1, 2018, United States District Court Judge James Selna in Santa Ana, California, issued an opinion that could impact proposed guidance issued by the Commodity Futures Trading Commission (CFTC) regarding retail commodity transactions involving virtual currency. The opinion is in the case of CFTC v. Monex Credit Company, et al., 17-01868 (C.D. Cal.).

The court rejected the CFTC's claim that Monex, a company offering both fully paid and financed precious metal transactions to retail customers, had sold off-exchange futures contracts in violation of the Commodity Exchange Act (CEA) by failing, in connection with financed transactions, to provide "actual delivery" of the underlying metals within 28 days as required by the CEA for leveraged retail commodity transactions.

The CFTC relied on an Eleventh Circuit decision in CFTC v. Hunter Wise Commodities, LLC, 749 F.3d 967, 970 (11th Cir. 2014), in arguing that actual delivery requires a transfer of possession and control to the buyer.

According to the CFTC, Monex allegedly failed to do this because 1) the metals purchased in financed transactions were held in third-party depositories and were not under the direct control of the buyers, and 2) Monex retained the ability to liquidate the customers' positions in the company’s sole discretion, without notice to customers, under limited circumstances, including if they failed to meet margin calls.

Judge Selna rejected the CFTC's interpretation of what constituted actual delivery, holding that Monex's arrangements with depositories and its customers satisfied this requirement.

The CFTC relied on the Hunter Wise precedent in its proposed interpretive guidance issued in December 2017 ("Retail Commodity Transactions Involving Virtual Currency") in which the CFTC suggested that "actual delivery" of virtual currency requires a purchaser to, among other things, secure full control over the virtual currency (including the right to immediately remove the full amount purchased) and have the ability to use it "freely in commerce" within 28 days of purchase.

In light of the court’s ruling in Monex rejecting the CFTC’s actual delivery argument based on the CFTC’s own interpretation of Hunter Wise, it is likely that if the Monex decision withstands appeal, the CFTC’s proposed virtual currency guidance will need to be modified.