CFTC Issues Interpretation Concerning Dodd-Frank Anti-Fraud Authority

The U.S. Commodity Futures Trading Commission (CFTC) has issued an Interpretation that relates to anti-fraud authority provided in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

The Interpretation is the CFTC’s view of the meaning of the term “actual delivery,” and guidance on how the CFTC will determine if the actual delivery exception applies to a transaction.

Section 742(a) of the Dodd-Frank Act amended the Commodity Exchange Act to add a new section, 2(c)(2)(D), entitled “Retail Commodity Transactions.” Section 2(c)(2)(D) broadly applies to any agreement, contract, or transaction in any commodity that is entered into with, or offered to, a non-eligible contract participant or non-eligible commercial entity on a leveraged, margined, or financed basis.

The Section requires such agreements, contracts, and transactions to be conducted on a regulated exchange and subjects them to the CFTC’s anti-fraud authority. However, the Section does not apply if “actual delivery” of the commodity is made within 28 days.

The Commission issued the Interpretation to explain its view of “actual delivery” and provide several examples of when “actual delivery” does and does not occur.

David Meister, the Director of the CFTC’s Division of Enforcement, stated, “In this Section of the Dodd-Frank Act, Congress provided the CFTC with added authority to prosecute ponzi schemes and other frauds that are perpetrated in the retail commodities markets, such as scams by people acting as legitimate providers of investments in precious metals like gold and silver. We will use this authority aggressively to protect investors and the markets.”

Also See:

CFTC’s Division of Market Oversight Issues Advisory Addressing Bona Fide Hedge Transactions and Positions

Former Detroit Officials and Investment Adviser to City Pension Funds Asked to Account for Role in Influence-Peddling Activity

FTC Takes Action against Bogus Precious Metals Investment Scheme

SEC Releases Risk Alert on Unauthorized Trading

FTC Closes Eight-Month Investigation of Express Scripts, Inc.'s Proposed Acquisition of Pharmacy Benefits Manager Medco Health Solutions, Inc.