## Facts

- Salomon Forex, Inc., a foreign currency dealer, entered into thousands of individually negotiated, off-exchange foreign currency transactions with Dr. Laszlo N. Tauber over roughly two and a half years.
- The transactions involved large positions (primarily Swiss francs and Australian dollars) structured as futures- or options-like deals, but negotiated bilaterally rather than executed on an organized futures exchange.
- Actual delivery of currency occurred in only a few transactions; most positions were settled by offsetting trades or cash settlement.
- After the market moved sharply against Tauber, Salomon demanded additional collateral; Tauber refused, and substantial losses remained when contracts came due.
- Salomon sued to recover about $26 million in losses exceeding Tauber’s posted collateral.
- Tauber defended and counterclaimed on the theory that the off-exchange contracts were unlawful under the Commodity Exchange Act (CEA) because they were futures contracts not traded on a designated contract market.

## Issues

1. Whether the CEA’s exchange-trading requirement applies to off-exchange, individually negotiated foreign currency futures and options transactions between sophisticated counterparties.
2. If the CEA does not apply (including by virtue of the “Treasury Amendment”), whether the contracts are enforceable and CEA-based defenses and counterclaims fail as a matter of law.

## Decision

- The Fourth Circuit affirmed the district court’s summary judgment for Salomon Forex enforcing Tauber’s trading debt.
- The court held that the CEA’s exchange-trading mandate did not reach these off-exchange, individually negotiated foreign currency transactions between sophisticated, professional participants.
- Because the contracts were outside the CEA’s scope, Tauber’s illegality defense and related CEA-based counterclaims and third-party claims failed.

## Legal Principles

- The CEA’s core exchange-trading requirements target standardized, exchange-traded futures markets and are not automatically triggered by bilaterally negotiated, off-exchange foreign currency trading among sophisticated parties.
- Under the statutory exclusion commonly referred to as the Treasury Amendment, certain foreign currency transactions conducted off-exchange are outside the CEA’s regulatory regime.
- When a set of contracts falls outside the CEA’s scope, parties cannot avoid contractual liability by characterizing the transactions as unlawful solely for occurring off-exchange.

## Conclusion

The Fourth Circuit enforced Salomon Forex’s claim for losses on Tauber’s off-exchange foreign currency transactions, holding that the CEA did not regulate these individually negotiated forex futures/options-style contracts between sophisticated counterparties and therefore did not render them illegal or unenforceable.


Salomon Forex, Inc. v. Tauber, 8 F.3d 966 (4th Cir. 1993)