Regulatory Authority – Jurisdiction

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Case Name: Commodity Futures Trading Commission v. Monex Deposit Company, et al

Case No.: 15-1467

Officials: POSNER, EASTERBROOK, and WILLIAMS, Circuit Judges.

Focus: Regulatory Authority – Jurisdiction

CFTC has authority and jurisdiction to investigate and gather information to assess whether Monex meets exception to regulation.

“An administrative agency is entitled to gather information that is “reasonably relevant” to an inquiry within its purview. United States v. Morton Salt Co., 338 U.S. 632, 652 (1950); see also, e.g., EEOC v. Aerotek, Inc., 815 F.3d 328 (7th Cir. 2016). The Commission’s subpoena sought from Monex information such as how much gold and silver it holds in inventory and what portion of its customers accepts delivery within 28 days. These and similar facts bear on the statutory exceptions. If customers rarely take delivery but instead trade their positions with each other (or sell them back to Monex), then the CFTC may be authorized to treat Monex as a futures merchant rather than leave it unregulated as a retail seller of metals. If Monex lacks enough inventory to deliver on all of its contracts, it may be acting more like a bank in a system of fractional-reserve banking (as the Federal Reserve did in the days when the United States adhered to the gold standard but lacked enough gold to pay off every bit of paper currency). Monex tells us that it has on hand metals enough to fulfill all contracts, and that its customers always take delivery (at least in the sense that metals are transferred to a depository until the full price is paid). If so, Monex may prevail in any enforcement action. But it has not given a good reason why the CFTC is forbidden even to gather the facts that will show whether the exception applies”

Affirmed

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.