Dunn v. Cftc, 519 U.S. 465 (1997)

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

The Commodity Futures Trading Commission (CFTC) brought this action, claiming that petitioners solicited investments in and operated a fraudulent scheme involving transactions in foreign currency options in violation of the Commodity Exchange Act (CEA) and CFTC regulations. Petitioners allegedly engaged in the transactions by contracting directly with international banks and others, rather than using a regulated exchange or board of trade. This is known as trading in the "off-exchange" or "over-the-counter" market. Both petitioners and their customers suffered heavy losses. The District Court appointed a temporary receiver to take control of petitioners’ property, rejecting their defense that the transactions were exempt from the CEA under the so-called "Treasury Amendment," which excepts "transactions in foreign currency" unless they involve a sale "for future delivery" "conducted on a board of trade." The Court of Appeals affirmed.

Held: the Treasury Amendment exempts from CFTC regulation off-exchange trading in foreign currency options. Options (transactions in which the buyer purchases the right, but not the obligation, to buy or sell an agreed amount of a commodity at a set rate at any time prior to the option’s expiration) like those at issue here are plainly "transactions in foreign currency" within the statute’s meaning. The Court is not persuaded by any of the CFTC’s arguments in support of a narrower reading that would exempt futures contracts (agreements to buy or sell a specified quantity of a commodity at a particular price for delivery at a set future date) without exempting options. The normal reading of the last-quoted phrase encompasses all transactions in which foreign currency is the fungible good whose fluctuating market price provides the motive for trading. Reading the text to include only the actual purchase or sale of foreign currency, as the CFTC urges, violates the ordinary meaning of the key word "in." On the CFTC’s reasoning, the exemption’s application to futures contracts could not be sustained, in clear contravention of Congress’ intent to exempt off-exchange foreign currency futures from CFTC regulation. This interpretation would also render the provision mere surplusage, and is not supported by the Treasury Amendment’s legislative history. Given the history of evolving congressional regulation in this area, it is natural to read the exemption as a complete exclusion of foreign currency transactions from the regulatory scheme, except to the extent that the proviso for transactions "conducted on a board of trade" qualifies that exclusion. Contrary to the CFTC’s position, there is little to suggest that elsewhere in the CEA Congress used the term transactions "involving" a particular commodity to describe options, and transactions "in" the commodity to indicate a narrower exclusion. The proviso "conducted on a board of trade" does not aid the CFTC’s cause, because a broad reading of the proviso to include both options and futures is faithful to the contemporary legal context in which the amendment was drafted. The arguments favoring each side in the important public policy dispute over whether off-exchange foreign currency options should be exempt from CEA regulation are best addressed to the Congress, not the Courts. Pp. 468-480.

58 F.3d 50, reversed and remanded.

STEVENS, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and O’CONNOR, KENNEDY, SOUTER, THOMAS, GINSBURG, and BREYER, JJ., joined. SCALIA, J., filed an opinion concurring in part and concurring in the judgment, post, p. 480.