Monex loses second appeal in CFTC anti-fraud enforcement action

Rick Steves

Since Dodd-Frank that such trading must be conducted on a regulated exchange, and that the offeror must be registered with the CFTC.

The U.S. Court of Appeals for the Ninth Circuit ruled against Monex Deposit Company (Monex) and its affiliated companies and principals with respect to a CFTC’s anti-fraud enforcement action.

This is the second time the CFTC has prevailed in the Ninth Circuit in the Monex case. At the center of the legal issue is the firm’s “Atlas” program, which has been ordered to shut down.

The CFTC’s enforcement action was first filed in 2017, charging the defendants with defrauding thousands of retail customers out of hundreds of millions of dollars, while executing thousands of illegal, off-exchange leveraged commodity transactions.

Since Dodd-Frank that such trading must be conducted on a regulated exchange, and that the offeror must be registered with the CFTC.

In the first appeal, the Ninth Circuit affirmed the CFTC’s authority to bring enforcement cases against alleged fraud and held that “actual delivery” of commodities in leveraged retail commodity transactions requires transfer of a meaningful degree of possession or control of the commodity to the retail customer.

Atlas is an unregistered trading platform for leveraged retail precious metals transactions, but Monex claimed that they were entitled to the benefit of an exception to the CFTC’s jurisdiction for transactions that result in “actual delivery” of the commodity to the purchaser. The court found that Monex did not make “actual delivery” of any metals to its customers through the Atlas program.

“We are pleased with the Ninth Circuit Court’s decision, which reaffirms important protections established by Congress for markets and individuals,” said Acting Chairman Rostin Behnam.

“The Ninth Circuit’s decision is clearly correct and bolsters our Division of Enforcement’s efforts to root out unlawful trading activity conducted by companies and individuals attempting to elude regulation under the Commodity Exchange Act (CEA)”, Acting General Counsel Rob Schwartz added.

The regulator seeks disgorgement of ill-gotten gains, restitution for the benefit of defrauded customers, civil monetary penalties, permanent registration and trading bans, and a permanent injunction from future violations.

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