Imagine traveling the same stretch of road for years, obeying the posted 55 mph speed limit faithfully. Now imagine law enforcement redefined the speed limit without informing drivers and started sending retroactive speeding tickets going back years.
This scenario would be unthinkable, yet it’s a perfect metaphor for what the Commodity Futures Trading Commission (CFTC) did to Monex Deposit Company when it slapped it with a $290 million punishment in 2017. Previously, the agency had no problems with the Monex business model. Then CFTC suddenly changed its interpretation of the rules and sought to punish the company. Sudden rule changes and retroactive enforcement not only infringe on constitutional due process protections, they put citizens, businesses and the economy at risk.
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Monex is a company that sells precious metals to retail buyers on margin, using the purchased metals themselves as collateral. Their business model, unchanged since 1987, was specifically designed to comply with all applicable laws, including the Commodities Exchange Act (“CEA”). For years, the Commodity Futures Trading Commission (“CFTC”), the federal agency responsible for enforcing the CEA, explicitly stated that Monex was operating within the law. This remained true even after the 2009 enactment of Dodd-Frank heavily tightened regulation on commodities trading. A CFTC official even testified to that fact before Congress during debates on the new law.
That changed in 2017, when the CFTC reversed its own longstanding interpretation of the law. Despite affirming the legality of Monex’s business model for years, the CFTC slapped it with a $290 million enforcement action, claiming that their interpretation of a term (“actual delivery”) had changed and Monex was now violating the law. Worse still, not only did the CFTC reverse its position and upend an entire industry overnight with little-to-no notice, but the agency also decided to retroactively punish Monex for activities that, for years, no one had any reason to believe were (or would ever be) illegal.
Monex won their case in the district court, but the Ninth Circuit reversed the decision. The company is now seeking Supreme Court review of the case. MSLF filed an amicus curiae brief in February 2020 supporting Monex’s petition. In it, we argue that the CFTC’s actions constitute a gross violation of due process, particularly in light of the Supreme Court’s decision in Kisor v. Wilkie last year significantly limiting the deference courts give to agency interpretations.