For Release:December 13, 1996
The Commodity Futures Trading Commission today filed a petition requesting the full U.S. Court of Appeals for the Ninth Circuit to rehear an October 29 decision by a panel of the Court dismissing, for lack of jurisdiction, a Commission injunctive action against Frankwell Bullion, Ltd. and four related firms. CFTC v. Frankwell Bullion Ltd., et al., Nos. 95-16977, 17298 (9th Cir.). The Commission's complaint alleged that the defendants were violating Section 4(a) of the Commodity Exchange Act, 7 U.S.C. 6(a), by engaging in the offer and sale of foreign currency futures contracts to the general public, when these contracts were not traded on or subject to the rules of a board of trade designated by the Commission as a contract market.
The United States District Court for the Northern District of California dismissed the complaint and granted summary judgment for Frankwell based on its conclusion that the so-called "Treasury Amendment," 7 U.S.C. 2(a)(1)(A)(ii), excludes from Commission jurisdiction all foreign currency futures not traded on a "formally organized exchange." The panel's decision affirmed the district court's opinion.
In its petition, the Commission argues that the panel's decision profoundly impacts the CFTC's law enforcement authority by stripping it of power to protect the general public from fraud and abuse in the offer and sale of off-exchange foreign currency futures contracts. The Commission also argues that the panel's decision ignores the intent of Congress that transactions by the public in foreign currency futures be provided the same regulatory protections afforded customers in other futures markets. The Commission's petition also informs the Court that the decision creates for the first time a regulatory gap in which no federal agency is empowered to protect the public from fraud and abuses in the offer and sale of foreign currency futures.
According to Daniel R. Waldman, the CFTC's General Counsel, "fraud in the offer and sale of off-exchange futures contracts on foreign currencies is a growing problem in this country. We view the panel's decision as a setback in our fight to protect the public from unscrupulous bucket shop and boiler room operators selling foreign currency futures to the public."
Action on the Commission's petition is expected this winter. The United States Supreme Court is already considering a similar issue on the interpretation of the Treasury Amendment in CFTC v. Dunn, No. 95-1181. A decision on Dunn is expected by the Spring of 1997.