In 1934, following a stock market crash that brought the economy to its knees, Congress adopted a wide ranging anti-fraud provision for the securities markets. In describing the broad reach of §10(b) of the Securities Exchange Act of 1934, the U.S. Supreme Court has stated that “[s]ection 10(b) is aptly described as a catchall provision, but what it catches must be fraud.” See Chiarella v. United States, 445 U.S. 222, 234-35 (1980). Eight decades later, following a financial crisis that similarly wreaked economic havoc, Congress adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act, which amended the Commodity Exchange Act to provide the Commodity Futures Trading Commission (the Commission or CFTC) with broad authority to prohibit fraud and manipulation. As a result of that provision, which the Commission used to promulgate Commodity Futures Trading Commission Rules 180.1 and 180.2, the derivatives regulator has caught up to its sister securities regulator as the Commission now holds that same “catchall” authority to bring enforcement actions against fraud in the commodities, commodities futures, and swaps markets.
The Dodd-Frank Act was signed into law on July 21, 2010, amending subsections 6(c)(1) and 6(c)(3) of the Commodity Exchange Act, and Commission Rule 180 took effect on Aug. 15, 2011. As a result of Rule 180.1, the Commission’s enforcement authority now extends to the intentional or reckless: (1) use of manipulative devices or schemes to defraud; (2) making of false or misleading statements and material omissions; (3) employment of practices that operate or would operate as a fraud or deceit; and (4) delivery of misleading or inaccurate reports concerning conditions that tend to affect the price of any commodity. The Commission has jurisdiction over such conduct where it occurs “in connection with” any swap, or contract of sale of any commodity, or contract for future delivery on or subject to the rules of any registered entity. Dodd-Frank also gave the Commission, jointly with the U.S. Securities and Exchange Commission (SEC), joint control over the $600 trillion swaps market. In essence, the Commission now regulates all swaps other than the narrow category of security-based swaps, which are regulated solely by the SEC.
