By Lydia Beyoud
A precious metals exchange locked in a legal dispute with the nation’s top swaps and derivatives regulator is seeking to inject itself in an unrelated case brought by the same agency involving alleged cryptocurrency fraud.
Monex, the precious metals dealer, fended off allegations brought by the Commodity Futures Trading Commission in a California court that it defrauded customers of more than $290 million in off-exchange leveraged transactions.
Now, Monex’s attorneys may be looking to shore up their arguments in advance of an upcoming appeal by seeking to convince a New York court of the merits of the California court’s opinion.
Monex prevailed over the CFTC thanks to a May 1 ruling in a district court in California that significantly curtailed the CFTC’s enforcement authority. The court found the CFTC isn’t able to bring enforcement actions in cases involving just fraud in real-time trading markets; market manipulation must also be involved, the court said.
That finding could seriously hamper the agency at a moment when it’s aggressively pursuing fraud in the virtual currencies market in conjunction with other state and federal regulators and law enforcement. The agency filed an appeal June 20.
On July 13, Monex’s attorney sought permission to file an amicus brief in another CFTC fraud case being litigated in New York.
That case, CFTC v. McDonnell , involves a Staten Island man and former stock trader who once called himself the “Coyote of Wall Street” and who the CFTC alleges defrauded customers out of virtual currencies including Litecoin, in exchange for crypto trading advice.
Part of McDonnell’s self-defense relies on the California court’s findings in the Monex case, namely that the CFTC doesn’t have jurisdiction over the types of transactions he was engaged in.
Monex attorney Neil Goteiner of Farella Braun and Martel LLP in San Francisco told Bloomberg Law neither he nor his client were representing McDonnell. McDonnell likewise told Bloomberg Law he had no attorney.
“Monex’s participation can be useful to the court in deciding the scope” of the CFTC’s enforcement jurisdiction, Goteiner wrote in his letter to the court. The defendant “in this case is self-represented and has no legal training. The jurisdictional question at issue represents an important threshold before the CFTC may exercise its enforcement authority and this issue deserves actual and professional advocacy,” Goteiner said in the letter. The court hasn’t ruled yet on whether to allow Monex to file an amicus brief.
Monex may have a tough row to hoe in convincing the New York court of its argument. The judge hearing McDonnell’s case, Jack B. Weinstein, denied the defendant’s motions to dismiss the case on the grounds the CFTC didn’t have the authority to bring charges without market manipulation allegations.
“This court has fully considered Monex and reaches a different conclusion,” Weinstein said in a July 12 order filed July 16.
Oral arguments in McDonnell’s case are scheduled for Aug. 23.
The case is CFTC v. Monex Credit Co., et al, 9th Cir., No. 18-55815, case docketed 6/20/18 .
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