The U.S. Commodities Futures Trading Commission (CFTC or Commission) recently brought, and settled on consent, its first-ever insider-trading case. The Commission used its new authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and the Commission’s new antifraud regulation promulgated under Dodd-Frank. This action portends a new enforcement priority for the CFTC and more commodities-related insider trading cases in the future.

The CFTC’s Charges

The CFTC’s action was taken in an administrative proceeding, In the Matter of: Arya Motazedi (CFTC Docket No. 16-02, Dec. 2, 2015), culminating in an Order entered on consent. As recited in the CFTC’s Order, Respondent Motazedi was a gasoline and energy futures proprietary trader at the Chicago office of an unidentified public company. Due to his position, Motazedi received confidential and propriety trading information concerning the times, amounts, and prices at which his company intended to trade energy commodities futures for its account. His employer’s internal policies prohibited employees from engaging in personal transactions involving energy contracts and other personal transactions that created a conflict of interest.

The CFTC charged that, from September through November 2013, Motazedi orchestrated 46 fraudulent transactions in futures contracts for oil and gas through the New York Mercantile Exchange using his personal trading accounts and a proprietary account in which he traded for his company.

The implications of Motazedi are significant. Simply put, the CFTC now has begun using its newly given enforcement muscle to address insider trading in the commodities markets. More investigations involving transactions of commodities traders and other participants in the commodities markets are sure to follow. And, no doubt, this will lead to CFTC enforcement actions charging unlawful insider trading under Regulation 180.1. Furthermore, regulatory investigations of fraud often implicate criminal liability. It is likely that the CFTC will coordinate more with criminal authorities, so more parallel criminal case for insider trading in commodities should also be expected.

Scott M. Himes is a partner in the Litigation department of Ballard Spahr LLP in New York, NY.

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