Dunn v. Commodity Futures Trading Comm'n

Citation117 S.Ct. 913,137 L.Ed.2d 93,519 U.S. 465
Decision Date25 February 1997
Docket Number951181
PartiesWilliam C. DUNN and Delta Consultants, Inc., Petitioners, v. COMMODITY FUTURES TRADING COMMISSION et al
CourtUnited States Supreme Court

519 U.S. 465
117 S.Ct. 913
137 L.Ed.2d 93

William C. DUNN and Delta Consultants, Inc., Petitioners,

v.

COMMODITY FUTURES TRADING COMMISSION et al.

No. 95-1181.
Supreme Court of the United States
Argued Nov. 13, 1996.
Decided Feb. 25, 1997.
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. ___-___.

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.

Gary D. Stumpp, New York City, for petitioners.

Jeffrey P. Minear, Lexington, VA, for respondents.

Justice STEVENS delivered the opinion of the Court.

The question presented is whether Congress has authorized the Commodity Futures Trading Commission (CFTC or Commission) to regulate "off-exchange'' trading in options to buy or sell foreign currency.

I

The CFTC brought this action in 1994, alleging that, beginning in 1992, petitioners solicited investments in and operated a fraudulent scheme in violation of the Commodity Exchange Act (CEA), 7 U.S.C. §1 et seq., and CFTC regulations. 1 App. 10. See 7 U.S.C. §6c(b); 17 CFR §32.9 (1996). 2 The CFTC's complaint, affidavits, and declarations submitted to the District Court indicate that customers were told their funds would be invested using complex strategies involving options to purchase or sell various foreign currencies. App. 8. Petitioners apparently did in fact engage in many such transactions. Ibid.; 58 F.3d 50, 51 (C.A.2 1995). To do so, they contracted directly with international banks and others without making use of any regulated exchange or board of trade. In the parlance of the business, petitioners traded in the "off-exchange'' or "over-the-counter'' (OTC) market. 3 Ibid. No options were ever sold directly to petitioners' customers. However, their positions were tracked through internal accounts, and investors were provided weekly reports showing the putative status of their holdings. Petitioners and their customers suffered heavy losses. Id., at 51-52. Subsequently, the CFTC commenced these proceedings.

Rejecting petitioners' defense that off-exchange transactions in foreign currency options are exempt from the CEA, the District Court appointed a temporary receiver to take control of their property for the benefit of their customers. App. to Pet. for Cert. 5b-6b. Relying on circuit precedent, 4 and acknowledging a conflict with another Circuit, 5 the Court of Appeals affirmed. 58 F.3d, at 54. We granted certiorari to resolve the conflict. 517 U.S. ____, 116 S.Ct. 1846, 134 L.Ed.2d 947 (1996). For the reasons that follow, we reverse and remand for further proceedings.

II

The outcome of this case is dictated by the so-called "Treasury Amendment'' to the CEA. 88 Stat. 1395, 7 U.S.C. §2(ii). We have previously reviewed the history of the CEA and generally described how it authorizes the CFTC to regulate the "volatile and esoteric'' market in futures contracts in fungible commodities. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 356, 357-367, 102 S.Ct. 1825, 1828-1834, 72 L.Ed.2d 182 (1982). As a part of the 1974 amendments that created the CFTC and dramatically expanded the coverage of the statute to include nonagricultural commodities "in which contracts for future delivery are presently or in the future dealt in,'' see 88 Stat. 1395, 7 U.S.C. §2 (1970 ed., Supp. IV), Congress enacted the following exemption, which has come to be known as the "Treasury Amendment'':

"Nothing in this chapter shall be deemed to govern or in any way be applicable to transactions in foreign currency, security warrants, security rights, resales of installment loan contracts, repurchase options, government securities, or mortgages and mortgage purchase commitments, unless such transactions involve the sale thereof for future delivery conducted on a board of trade.'' 7 U.S.C. §2(ii) (emphasis added).

The narrow issue that we must decide is whether the italicized phrase ("transactions in foreign currency'') includes transactions in options to buy or sell foreign currency. An option, as the term is understood in the trade, is a transaction in which the buyer purchases from the seller for consideration 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. 6 We think it plain that foreign currency options are "transactions in foreign currency'' within the meaning of the statute. We are not persuaded by any of the arguments advanced by the CFTC 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) 7 without exempting options.

III

" [A]bsent any "indication that doing so would frustrate Congress's clear intention or yield patent absurdity, our obligation is to apply the statute as Congress wrote it.''' Hubbard v. United States, 514 U.S. ____, ____, 115 S.Ct. 1754, 1759, 131 L.Ed.2d 779 (1995) (quoting BFP v. Resolution Trust Corporation, 511 U.S. 531, 570, 114 S.Ct. 1757, 1778, 128 L.Ed.2d 556 (1994) (SOUTER, J., dissenting)). The CFTC argues, and the Court of Appeals held, that an option is not itself a transaction "in'' foreign currency, but rather is just a contract right to engage in such a transaction at a future date. Brief for Respondent 30-31; 58 F.3d, at 53. Hence, the Commission submits that the term "transactions in foreign currency'' includes only the "actual exercise of an option (i.e., the actual purchase or sale of foreign currency)'' but not the purchase or sale of an option itself. Brief for Respondent 31. That reading of the text seems quite unnatural to us, and we decline to adopt it.

The more normal reading of the key phrase encompasses all transactions in which foreign currency is the fungible good whose fluctuating market price provides the motive for trading. The CFTC's interpretation violates the ordinary meaning of the key word "in,'' which is usually thought to be "synonymous with [the] expressions "in regard to,' "respecting,' [and] "with respect to.''' Black's Law Dictionary 758 (6th ed.1990); see Babbitt v. Sweet Home Chapter, Communities for Great Ore., 515 U.S. ____, _________, 115 S.Ct. 2407, 2412-2413, 132 L.Ed.2d 597 (1995). There can be no question that the purchase or sale of a foreign currency option is a transaction "respecting'' foreign currency. We think it equally plain as a matter of ordinary meaning that such an option is a transaction "in'' foreign currency for purposes of...

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