CFTC v. Wilson—Court Rules against CFTC in Commodities Manipulation Bench Trial: Court Holds that Open-Market Bids and Offers Made with an Honest Desire to Trade Cannot Support Liability under the Commodity Exchange Act

Sullivan & Cromwell LLP - December 6, 2018
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In a November 30, 2018 decision made public on Monday of this week, Judge Richard Sullivan, formerly of the Southern District of New York (now Second Circuit Judge), ruled against the CFTC after a four-day bench trial on claims for commodities manipulation and attempted manipulation in violation of Sections 6(c) and 9(a)(2) of the Commodity Exchange Act (“CEA”) (which has since been amended by the Dodd-Frank Wall Street Reform and Consumer Protect Act of 2010). The court concluded that the “Defendants made bids with an honest desire to transact at th[e] posted prices, and that they fully believed the resulting settlement prices to be reflective of the forces of supply and demand.” Although defendants understood and intended that their bids would affect settlement prices—and therefore the value of their existing positions—the court held that this “cannot be a basis for liability under the CEA,” and “any other finding would be akin to finding manipulation by hindsight.”

Judge Sullivan’s decision may make it more difficult for both the CFTC and private plaintiffs to bring claims for commodities manipulation or attempted manipulation. This is so because, if other courts follow Wilson, open-market transactions that benefit a party’s position in an illiquid market will be deemed—without additional evidence of intent to cause artificial prices—insufficient to show liability. It remains unclear, however, how the court’s decision will be applied to the additional CEA anti-manipulation provision added by the Dodd-Frank Act. Companies should continue to consult with counsel as to the litigation and regulatory risk for any trading strategies as the legal landscape continues to evolve.