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Law School Case Brief

United States v. Brooks - 681 F.3d 678 (5th Cir. 2012)


The Commodities Exchange Act ("CEA") states that it shall be unlawful for any person knowingly to deliver or cause to be delivered for transmission through the mails or interstate commerce by telegraph, telephone, wireless, or other means of communication false or misleading or knowingly inaccurate reports concerning market information or conditions that affect or tend to affect the price of any commodity of interstate commerce. 7 U.S.C.S. § 13(a)(2). The term "reports" is not defined in the CEA or Commodities Futures Trading Commission regulations. 7 U.S.C.S. § 1a; 17 C.F.R. § 1.3. Neither the Supreme Court of the United States nor any circuit court has considered the definition. However, one district court has considered the definition of "report" and found it covers electronic communications. The 7 U.S.C.S. § 13(a)(2) "false reporting" provision applies to false trade reports sent electronically to a publication.


Defendants James Patrick Phillips, Wesley C. Walton, and James Brooks were former employees of El Paso Merchant Energy Corporation ("EPME"). The Government, in filing a case against defendants false reporting of natural gas trades, alleged that defendants violated the Commodities Exchange Act ("CEA") and the wire fraud statute by sending false information about natural gas prices to trade magazines that reported natural gas prices in indices in an effort to affect and manipulate those indices, which, in turn, would affect the market for natural gas futures and benefit EPME's financial positions. After trial in federal district court, a jury found defendant guilty. Judgment was entered on the verdict, and defendants appealed.


Were defendants' convictions proper?




The appellate court affirmed defendants' convictions and sentences. The court ruled, inter alia, that defendants' statements to the magazines were not opinion, or casual communications, but were lengthy documents outlining detailed information about natural gas trades, sent to established industry publications with the intent to inform those publications about natural gas markets. As such, the statements qualified as "reports" under the CEA, 7 U.S.C.S. § 13(a)(2). The court rejected defendants arguments that trades of physical natural gas were exempted from the CEA and did not meet the CEA's definition of "commodity." The court also rejected their claims that the CEA was both unconstitutionally vague, as applied to them, and overbroad.

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