321 F. Supp. 3d 366
E.D.N.Y2018Background
- CFTC sued defendants for alleged fraud in derivatives and underlying spot markets; district court previously denied defendants' motion to dismiss (March 6, 2018 Order).
- Defendant moved for reconsideration (July 9, 2018 hearing), arguing the CFTC lacks authority to reach the alleged conduct and relying on a recent Central District of California decision (Monex).
- Defendant also argued the "actual delivery exception" (7 U.S.C. § 2(c)(2)(D)) bars enforcement and that the complaint fails to plead "fraud-based manipulation."
- The court found the reconsideration motion procedurally defective as untimely and not presenting controlling authority overlooked by the court.
- On the merits, the court reaffirmed that 7 U.S.C. § 9(1) and 17 C.F.R. § 180.1 authorize the CFTC to prosecute the alleged fraudulent schemes and that prior rulings on subject-matter and personal jurisdiction remain correct.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of CFTC authority under 7 U.S.C. § 9(1) (fraud jurisdiction) | CFTC: § 9(1) and 17 C.F.R. § 180.1 authorize enforcement against alleged fraud in derivatives and spot markets | McDonnell should be distinguished; Monex says § 9(1) only covers fraud that manipulates derivatives market | Court reaffirmed § 9(1) and regulations give CFTC enforcement authority over the alleged frauds; denied dismissal |
| Application of the "actual delivery" exception (7 U.S.C. § 2(c)(2)(D)) | CFTC: complaint does not allege leveraged/margined transactions, so exception is inapplicable | Defendant: exception bars CEA enforcement here | Exception irrelevant because complaint alleges no leveraged/margined transactions; in any event it does not bar § 9(1) enforcement |
| Sufficiency of allegations re "fraud-based manipulation" | CFTC: allegations plead actionable fraud under § 9(1) | Defendant: complaint lacks claims specifying manipulation of derivatives market (relying on Monex) | Court rejected Monex's narrower reading and found allegations sufficient to proceed |
| Procedural sufficiency of reconsideration motion | N/A | Motion was untimely and failed to point to controlling decisions overlooked | Court found motion procedurally deficient but considered merits; denied reconsideration |
Key Cases Cited
- Shrader v. CSX Transp., 70 F.3d 255 (2d Cir. 1995) (standard for motions for reconsideration is strict; must point to controlling decisions or data the court overlooked)
- Commodity Futures Trading Comm'n v. McDonnell, 287 F. Supp. 3d 213 (E.D.N.Y. 2018) (construed § 9(1) and 17 C.F.R. § 180.1 to permit CFTC enforcement of alleged manipulative and fraudulent schemes)