6.4.2009 Stephen Jay Obie, Acting Director of the Division of Enforcement of the CFTC, testified before the U.S. House of Representatives Committee on Agriculture, Subcommittee on General Farm Commodities and Risk Management regarding the continuing implications of the CFTC v. Zelener case, where the trial court ruled that the CFTC lacked jurisdiction over the “rolling spot” contracts. Obie stated that since the trial court’s decision, the case law spawned by the Zelener decision appears to narrow the CFTC’s reach in the area of foreign currency and created uncertainty as to the CFTC’s antifraud jurisdiction over contracts in related areas where the line between futures contracts and spot contracts could be blurred. Director Obie states that because of these decisions, the Division of Enforcement’s case load in the area of foreign currency diminished and the CFTC’s Division of Enforcement forex program was set back half a decade.
Fortunately, according to Obie, Congress clarified the CFTC’s jurisdiction over the types of forex contracts sold by Zelener and other boiler room operators like him with the passage of the CFTC Reauthorization Act of 2008 (Title 13 of the Farm Bill). Obie states, however, that because the Zelener-fix was limited to contracts in foreign currency, “swindlers” have moved on to perpetuate their fraud and are marketing Zelener-type “rolling spot” contracts in other commodities, especially precious metals like gold, silver and platinum and, thus, are defrauding customers beyond the CFTC’s antifraud jurisdiction. Obie says that, even worse, Zelener and the cases that followed provided a road map to these fraudsters on how to draft their contracts to escape prosecution by the CFTC. Customer agreements appear to have been drafted specifically with the Zelener decision in mind and language chosen so that, under the analysis in those decisions, the contracts at issue are argued to be spot contracts outside of CFTC jurisdiction and not futures contracts covered by the Commodity Exchange Act. Obie concluded by saying, “Should Congress see fit to expand the CFTC’s authority over boiler rooms offering metal, energy, and other commodity contracts to retail customers, we will utilize that authority—as we have with the Zelener-fix provided by the Farm Bill for foreign currency—to shutter those boiler rooms and protect the American public. With new authority, I can assure this subcommittee that the CFTC will continue to root out these fraudulent enterprises and other Ponzi schemers who prey on innocent Americans.”
Click http://www.cftc.gov/stellent/groups/public/@newsroom/documents/speechandtestimony/obie_house_ag_060409.pdf to access Acting Director Obie’s testimony.