A case involving Spot Commodities Fraud was recently settled in California federal court. The CFTC filed suit claiming the defendants violated the CEA. This case involves a scheme to defraud investors by placing bets on futures contracts, rather than futures contracts themselves. According to the court, CFTC rules apply to commodities that move within interstate commerce. Consequently, the CFTC had the authority to pursue action against the defendants.

The case, Monex, involves a sub-unit of the Justice Department that focuses on fighting commodities fraud. The department’s new sub-unit is led by Avi Perry, who successfully prosecuted high-profile cases involving Merrill Lynch Commodities Inc. and the ongoing JPMorgan probe. The agency is hiring additional trial attorneys to investigate the crimes. Zink says that the agency intends to fill the positions “promptly.”

The sub-unit will focus on spoofing – a type of scam where traders falsely create the impression of strong demand and supply and then profit from market reaction. After the 2008 financial crisis, Congress identified spoofing as market manipulation. Zink has joined a team investigating the alleged “Flash Crash” that briefly wiped out $1 trillion from the U.S. stock market.

The CFTC has exclusive jurisdiction over the spot market. Historically, it had anti-fraud jurisdiction over physical transactions, sometimes referred to as “spot transactions.” However, Congress added a new section of the CEA that mirrors the SEC’s Rule 10b-5 enforcement authority. This will allow the CFTC to enforce its rules and prevent fraud on the spot market. The new law is aimed at protecting consumers from fraudulent financial professionals.