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United States CFTC v. Hunter Wise Commodities, LLC

United States Court of Appeals for the Eleventh Circuit

April 15, 2014, Decided

No. 13-10993

Opinion

 [*970]  DUBINA, Circuit Judge:

This is an appeal from the district court's grant of a preliminary injunction. Amendments to the Commodity Exchange Act ("the Act") made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 purport to expand the enforcement authority of the Commodity Futures Trading Commission ("the Commission"). Pub. L. No. 111-203, 124 Stat. 1376, 1732-33 (effective July 16, 2011) ("Dodd-Frank"); see also 7 U.S.C. § 2 (drawing the contours of the Commission's jurisdiction). Among other things, the Dodd-Frank amendments authorize the Commission to regulate retail commodity transactions offered "on a leveraged or margined basis, or financed by the offeror, the counterparty, or a person acting in concert with the offeror or counterparty on a similar basis." Dodd-Frank § 742, 124 Stat. at 1732-33 (codified at 7 U.S.C. § 2(c)(2)(D)). This case presents a question of first impression  [**3] in this or any circuit regarding whether that amendment actually expands the Commission's enforcement authority. After careful consideration of the record and, with the benefit of oral argument, we hold that it does. Because the Commission has authority to regulate the transactions alleged in this case and the requirements for a preliminary injunction are satisfied, this court affirms the district court's grant of a preliminary injunction.

I. BACKGROUND

The Commission brought a civil enforcement action alleging that twenty defendants  [*971]  violated the Act by conducting off-exchange and fraudulent retail commodity transactions. See, e.g., 7 U.S.C. §§ 6(a), 6b (prohibiting off-exchange and fraudulent commodity futures transactions). A number of defendants objected that the Commission lacked statutory authority for the enforcement action; the district court rejected their arguments, granted a preliminary injunction, and appointed a special monitor to administer the business entities involved. Two defendants, the sole officers and members of the commodity brokerage firm at the center of the case, now appeal that injunction.

Appellants insist that their brokerage firm, Hunter Wise,2 bought and  [**4] sold precious metals, which it would then sell to retail customers via a network of dealers. But according to the Commission's complaint and the district court's factual findings, Hunter Wise did not actually trade, store, or transfer any metals. Commodity Futures Trading Comm'n v. Hunter Wise Commodities, LLC, No. 12-81311-CIV, 2013 U.S. Dist. LEXIS 35770, 2013 WL 718503, at *7 (S.D. Fla. Feb. 26, 2013) ("Hunter Wise"). Instead, Hunter Wise managed its risk exposure from customers' trading positions not by holding a physical inventory of metals for customers but by trading derivatives in its own margin trading accounts with precious metals trading companies. Id.

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749 F.3d 967 *; 2014 U.S. App. LEXIS 6949 **; 24 Fla. L. Weekly Fed. C 1250; 2014 WL 1424435

UNITED STATES COMMODITY FUTURES TRADING COMMISSION, Plaintiff - Appellee, versus HUNTER WISE COMMODITIES, LLC, et al., Defendants, HAROLD EDWARD MARTIN, JR., FRED JAGER, Defendants - Appellants.

Prior History:  [**1] Appeal from the United States District Court for the Southern District of Florida. D.C. Docket No. 9:12-cv-81311-DMM.

United States CFTC v. Hunter Wise Commodities, LLC, 2013 U.S. Dist. LEXIS 35770 (S.D. Fla., Feb. 25, 2013)

Disposition: AFFIRMED.

CORE TERMS

transactions, commodity, leveraged, margin, dealers, retail customer, delivery, metals, district court, customers', trading, retail, preliminary injunction, financed, actual delivery, deliver, entities, precious metals, futures trading, factual findings, eligible, future violations, prima facie case, illegality, injunction, inventory, terms, counterparty, contracts, offeror

Civil Procedure, Appeals, Standards of Review, Abuse of Discretion, Remedies, Injunctions, Preliminary & Temporary Injunctions, Clearly Erroneous Review, De Novo Review, Securities Law, Commodities Futures Trading, Injunctions, Jurisdiction, Governments, Legislation, Interpretation, Futures Contracts, General Overview