## Facts

- The Commodity Futures Trading Commission (CFTC) sued Michael Zelener and his companies operating as British Capital Group (BCG), along with AlaronFX, a foreign-currency dealer.
- BCG solicited retail customers to enter foreign-currency transactions; each customer opened an account with BCG and a separate account with AlaronFX.
- AlaronFX acted as principal and counterparty for all customer contracts executed through BCG.
- Contracts stated that settlement would occur within 48 hours; customers selected currency positions (long/short) with minimum notional amounts (e.g., $5,000).
- Although contracts called for settlement within 48 hours, most customers did not settle; positions were typically rolled over into successive two-day periods, leaving customers with open speculative exposure.
- The CFTC alleged customers were misled about the defendants’ incentives, asserting sales representations implied the defendants profited only when customers profited, while defendants actually earned commissions and markups regardless of customer outcomes.
- The district court characterized the arrangements as spot transactions (not futures) and entered judgment for defendants; the CFTC appealed.

## Issues

1. Whether the retail foreign-currency agreements—written for 48-hour settlement but commonly rolled over—were “contracts of sale of a commodity for future delivery” under the Commodity Exchange Act (CEA), bringing them within the CFTC’s jurisdiction.
2. Whether alleged fraud in marketing these transactions could support CFTC enforcement if the instruments were not futures contracts under the CEA.

## Decision

- The Seventh Circuit affirmed judgment for defendants.
- The court held the transactions were not “contracts of sale of a commodity for future delivery” under the CEA.
- Because the contracts were treated as spot/forward transactions (or repeated short-term transactions), the CFTC lacked jurisdiction to pursue the enforcement action on the theory asserted.

## Legal Principles

- CEA jurisdiction over “contracts of sale of a commodity for future delivery” turns on the contractual obligations undertaken, not merely on the transactions’ speculative economic effect.
- Futures contracts are typically standardized and fungible, capable of exchange trading and offsetting through market mechanisms; bilateral, individualized agreements that are not exchange-traded or cleared generally do not fit that category.
- A short settlement obligation (here, 48 hours) supports classification as spot/forward trading; repeated rollovers may be treated as successive short-term contracts rather than a single futures contract.
- Statutory expansions of antifraud authority in off-exchange retail forex do not eliminate the threshold requirement that the instrument be a futures contract as defined by the CEA.
- Allegations of fraud do not expand an agency’s statutory jurisdiction; enforcement authority depends on the instrument falling within the statute’s coverage.

## Conclusion

The Seventh Circuit concluded that the retail forex contracts, which required settlement within 48 hours and were rolled over in practice, were spot/forward transactions rather than futures contracts; therefore, the CFTC could not proceed under the CEA provision governing contracts for future delivery.


Commodity Futures Trading Comm’n v. Zelener, 373 F.3d 861 (7th Cir. 2004)