The U.S. Court of Appeals for the Ninth Circuit affirmed a District Court decision granting a preliminary injunction sought by the CFTC in a case involving fraud-related charges against a precious metals credit company.
The Ninth Circuit determined that the U.S. District Court's (Central District of California) conclusion that the company did not make "actual delivery" of any metals to its customers was "consistent with [the] evidence and not clearly erroneous." As a result, the company cannot claim exception to the CFTC's jurisdiction for transactions resulting in "actual delivery" of the commodity. (The Ninth Circuit had previously reversed the District Court's ruling that the company made "actual delivery" of precious metal, holding that "actual delivery" requires clear "transfer of some degree of possession or control" under the CEA, which it found did not occur in this case.)
The Court of Appeals declined to address a challenge to the standard for a preliminary injunction. In addition, the Court of Appeals also rejected the argument that the granted injunction was overbroad.
CFTC Acting Chair Rostin Behnam said that, "[w]e are pleased with the Ninth Circuit Court's decision, which reaffirms important protections established by Congress for markets and individuals."
Commentary Steven Lofchie
The Monex case is significant, at least as to retail investors, in that it establishes some minimum requirements for "delivery" of a physical commodity that are sufficient to avoid regulation as a futures contract. The decision is also protective of retail investors in that it shuts down a business that seems rigged against them; these investors would be better off trading listed futures on the same underlying products.
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