The California trial court that recently dismissed an enforcement action by the Commodity Futures Trading Commission against Monex Deposit Company and other defendants for alleged fraud in connection with their financed sale of precious metals to retail persons certified its own decision for appeal on its own motion, not on any motion filed by the Commission. This authorizes the CFTC to appeal its loss, although it still must file an amended complaint responsive to the court’s May 1 decision by end of the month if it wants. The court indicated in entering its order for “interlocutory appeal” that its decision dismissing the CFTC’s complaint involved “a controlling question of law as to which there is substantial ground for a difference of opinion.” In its May 1 ruling, the California court held that:
- actual delivery of precious metals in financed transactions to retail persons falls outside the CFTC’s authority when ownership of real metals is legally transferred to such persons within 28 days – the so-called “Actual Delivery Exception” – even if the seller retains control over the commodities because of the financing beyond 28 days; and
- the CFTC cannot use the prohibition against persons engaging in any manipulative or deceptive device or contrivance in connection with the sale of any commodity in interstate commerce enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act to prosecute acts of purported fraud except in instances of fraud‑based market manipulation.
(Click here for details in the article “California Federal Court Dismissal of CFTC Monex Enforcement Action Upsets Stable Legal Theories” in the May 6, 2018 edition of Bridging the Week.)