Commodity Futures Trading Commission v. MONEX DEPOSIT COMPANY , MONEX CREDIT COMPANY , and NEWPORT SERVICE CORPORATION

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 15-1467
C OMMODITY F UTURES T RADING C OMMISSION ,
Plaintiff-Appellee,
v.
M ONEX DEPOSIT C OMPANY , M ONEX C REDIT C OMPANY , and
NEWPORT S ERVICE C ORPORATION ,
Defendants-Appellants.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 14 C 6131 — Ronald A. Guzmán, Judge.
____________________
A RGUED S EPTEMBER 16, 2015 — DECIDED J UNE 1, 2016
____________________
Before POSNER , EASTERBROOK, and W ILLIAMS, Circuit
Judges.
EASTERBROOK, Circuit Judge. The Commodity Futures
Trading Commission regulates contracts concerning com-
modities for future delivery when offered on margin or an-
other form of leverage. 7 U.S.C. §2(c)(2)(D)(i)(II), (iii), §6, §6b.
But the statute creates an exception for a contract that “results

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2 No. 15-1467
in actual delivery within 28 days or such other longer period
as the Commission may determine by rule or regulation based
upon the typical commercial practice in cash or spot markets
for the commodity involved”. 7 U.S.C. §2(c)(2)(D)(ii)(III)(aa).
The CFTC opened an investigation to determine whether
the precious-metals business conducted by Monex Deposit
Co. and affiliates comes within this exception. Monex refused
to comply with a subpoena, arguing that since 1987, when it
adopted its current business model (which it calls the Atlas
program), the CFTC has deemed its business to be in compli-
ance with all federal rules—and Monex adds that because (in
its view) it satisfies the exception, the Commission lacks au-
thority even to investigate. The district court enforced the sub-
poena, however, and Monex turned over the documents. It
filed this appeal seeking to have them returned, and it also
wants the court to enjoin the CFTC from using them in any
enforcement proceeding. These potential remedies mean that
the proceeding is not moot. See Church of Scientology v. United
States, 506 U.S. 9 (1992).
It is clear to us, as it was to the district court, that Monex
is using its opposition to the subpoena as a means to get a ju-
dicial decision on the merits of its statutory argument, before
the CFTC makes a substantive decision. That is impermissi-
ble. The propriety of an agency’s action is reviewed after the
final administrative decision. FTC v. Standard Oil Co. of Cali-
fornia, 449 U.S. 232 (1980); Army Corps of Engineers v. Hawkes
Co., No. 15–290 (U.S. May 31, 2016). A contention that the
agency lacks “jurisdiction” does not change this timing rule.
Nor does contesting the agency’s jurisdiction change the rules
for determining when a subpoena must be enforced. See En-
dicott Johnson Corp. v. Perkins, 317 U.S. 501, 509 (1943); EEOC

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No. 15-1467 3
v. Sidley Austin Brown & Wood, 315 F.3d 696, 699–701 (7th Cir.
2002).
An administrative agency is entitled to gather information
that is “reasonably relevant” to an inquiry within its purview.
United States v. Morton Salt Co., 338 U.S. 632, 652 (1950); see
also, e.g., EEOC v. Aerotek, Inc., 815 F.3d 328 (7th Cir. 2016).
The Commission’s subpoena sought from Monex information
such as how much gold and silver it holds in inventory and
what portion of its customers accepts delivery within 28 days.
These and similar facts bear on the statutory exceptions. If
customers rarely take delivery but instead trade their posi-
tions with each other (or sell them back to Monex), then the
CFTC may be authorized to treat Monex as a futures mer-
chant rather than leave it unregulated as a retail seller of met-
als. If Monex lacks enough inventory to deliver on all of its
contracts, it may be acting more like a bank in a system of
fractional-reserve banking (as the Federal Reserve did in the
days when the United States adhered to the gold standard but
lacked enough gold to pay off every bit of paper currency).
Monex tells us that it has on hand metals enough to fulfill all
contracts, and that its customers always take delivery (at least
in the sense that metals are transferred to a depository until
the full price is paid). If so, Monex may prevail in any enforce-
ment action. But it has not given a good reason why the CFTC
is forbidden even to gather the facts that will show whether
the exception applies.
As Monex sees things, all the Commission is concerned
about is leverage. Some of its customers sign contracts for the
delivery of precious metals without paying in full. (The CFTC
disclaims any interest in contracts that are paid up when en-
tered into.) When a customer pays less than the full price,

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4 No. 15-1467
Monex transfers the metal to a depository that holds it as col-
lateral. This satisfies the requirement of delivery in 28 days,
Monex submits. If final payment is never made, the customer
won’t get any metal—but that, Monex insists, does not take it
outside the scope of §2(c)(2)(D)(ii)(III)(aa). For its part, the
Commission observes that selling commodities on margin or
other credit (= leverage) is what brings a business within the
statute, see §2(c)(2)(D)(i)(II), and that to take advantage of the
exception the business must deliver to the customer—other-
wise, the Commission believes, it is engaged in a form of trad-
ing “in the contract” that is similar to futures on the Chicago
Board of Trade and other exchanges. If the customers can
trade their entitlements before full payment, and while the
metals remain on deposit, this may be a form of speculation
or hedging that the CFTC can regulate. The nature of this to-
and-fro reinforces our view that the fight over the subpoena
is just a proxy for the dispute about what
§2(c)(2)(D)(ii)(III)(aa) means. It would be premature to resolve
that dispute, which must await the final decision in the Com-
mission’s enforcement proceeding.
That Monex began its Atlas program in 1987 (relying on
guidance that the agency had provided in 1985), and that the
CFTC deemed Atlas satisfactory until recently, is not a suffi-
cient answer to the subpoena—or for that matter to an en-
forcement action. The law changed in 2010, when 7 U.S.C.
§2(c) was rewritten as part of the Dodd-Frank Act. Pub. L. No.
111-203 §742, 124 Stat. 1376, 1732–33 (2010). The language
quoted in this opinion’s first paragraph is from the revision.
The amendments took effect in 2011, and two years later the
Commission laid out its views about how they affect retail
commodity sales. Retail Commodity Transactions Under
Commodity Exchange Act, 78 Fed. Reg. 52426 (Aug. 23, 2013).

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No. 15-1467 5
Monex insists that it is entitled to prevail under both the stat-
utory text and the CFTC’s published interpretation. Maybe so,
but the CFTC is entitled to investigate how a change in gov-
erning law and its regulatory approach applies to a merchant
that sells commodities on credit. That’s all it has done—so far.
To repeat, it is premature to decide whether Monex is right in
its understanding of the exception in §2(c)(2)(D)(ii)(III)(aa).
We said in Sidley Austin Brown & Wood that the district
court should resolve a question of statutory coverage before
enforcing a subpoena, because it was not established that the
agency had any role to play and thus it was possible that the
information sought was not relevant. But there is no doubt
that §2(c)(2)(D)(i) presumptively brings the Atlas program
within the agency’s remit and so entitles it to information that
is relevant to resolving a dispute about the exemption in
§2(c)(2)(D)(ii)(III)(aa).
Throughout this litigation, the Commission has relied on
CFTC v. Hunter Wise Commodities, LLC, 749 F.3d 967 (11th Cir.
2014), which held that a retail metals dealer that implemented
a program considerably different from Atlas (Hunter Wise
did not carry any inventory of metals) was within the scope of
§2(c)(2)(D)(i) and not excluded by §2(c)(2)(D)(ii)(III)(aa).
Monex believes that the Commission misunderstands Hunter
Wise and that the Eleventh Circuit’s decision favors its posi-
tion. Once again this shows that the parties’ clash is only nom-
inally about the subpoena and actually concerns the merits. In
Hunter Wise a district court issued an injunction blocking the
trading program. In affirming that injunction, the Eleventh
Circuit necessarily reached the merits of how the 2010 amend-
ments apply to a metals-trading program in which no metals
change hands, and all gains and losses depend on trading

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6 No. 15-1467
contracts. Monex may be right that the Atlas program is dis-
positively different, but that’s a question for an enforcement
proceeding. The only question before us is whether the infor-
mation the CFTC wanted (and now has obtained) is relevant
to such a proceeding. It is.
A FFIRMED

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