District Court Interprets Geographic Scope of the Commodity Exchange Act

Flag of British Virgin Islands” by Foreign, Commonwealth & Development Office is licensed under CC BY 2.0.

In a recent decision, CFTC v. WorldWideMarkets Ltd., the federal district court for the District of New Jersey (Judge Kevin McNulty) interpreted the geographic scope of the Commodity Exchange Act (CEA), holding that two of its provisions apply only when irrevocable liability for a transaction is incurred within the United States. The decision aligns the geographic scope of the CEA with that of Securities Exchange Act § 10(b), which makes sense. But the case also shows that courts are still grappling, more than a decade later, with some of the extraterritoriality questions that the Supreme Court left open in Morrison v. National Australia Bank (2010).


According to the complaint, defendant WorldWideMarkets Ltd. (WWM) operated as a retail foreign exchange dealer from 2011 to 2018. Customers who opened accounts could place orders through WWM’s application installed on their computers or mobile devices. Although WWM was incorporated as a British Virgin Islands entity, it operated from New Jersey where WWM received orders and executed trades.

The CFTC filed a complaint against WWM, its parent company TAB Networks, and its CEO and CFO, seeking civil penalties, injunctive relief, and other equitable remedies. The complaint alleged that the defendants violated the CEA by misappropriating over $4 million in WWM customer funds and falsely misrepresented to WWM customers that their funds would be held in segregated accounts. A default judgment was vacated when the defendants belatedly moved to dismiss for failure to state a claim. The district court dismissed some of the CFTC’s complaint as untimely under the applicable statute of limitations before turning to the question of the CEA’s geographic scope.


Two provisions of the CEA were at issue. Section 4b(a)(2) makes it unlawful to cheat or defraud another person, or to willfully deceive another person, in connection with a contract for any commodity. Section 6(c)(1)makes it unlawful to use any manipulative or deceptive device in connection with the sale of a commodity.

In Morrison, the Supreme Court applied the presumption against extraterritoriality to determine the geographic scope of Securities Exchange Act § 10(b), which similarly makes it unlawful to use any manipulative or deceptive device in connection with the purchase or sale of a security. The Court used a two-step framework, later restated in RJR Nabisco v. European Community (2016). First, it asked whether the provision gives a clear indication of its geographic scope. If not, then second, it asked whether applying the provision would be domestic based on the “focus” of the provision. In Morrison, the Court concluded that § 10(b) did not give a clear indication of its geographic scope and that its focus was not the fraud but rather the transaction. The Court held, therefore, that § 10(b) applies to transactions in securities that occur in the United States, regardless of where the fraud occurs.

Applying the Court’s two-step framework for the presumption against extraterritoriality, the Second Circuit has held that § 6(a)(1) and other provisions of the CEA not at issue here give no clear indication of geographic scope. In WorldWideMarkets, the district court (which lies within the Third Circuit) agreed with respect to § 6(a)(1) and found the same to be true of § 4(b)(a)(2).

That brought the district court to the second step of the analysis, where it had to consider the focus of these two provisions. Noting the similarity between this language with the language of Securities Exchange Act § 10(b), all of which refer to conduct “in connection with” various transactions, the court followed Morrison and held that the focus of the CEA’s two provisions was the transaction. Thus, the court held that these provisions applied only to domestic transactions in commodities.

The court had next to determine whether the foreign exchange transactions alleged by the CFTC were domestic. When transactions occur on an exchange, as in Morrison, a court may simply look to the location of the exchange. But the foreign exchange transactions at issue here did not occur on an exchange. To determine the location of other transactions, the Second Circuit has held that a “transaction is domestic when the parties incur irrevocable liability to carry out the transaction within the United States or when title is passed within the United States.” The Third Circuit has adopted the first part of this test, looking to the place where irrevocable liability is incurred. Because the CFTC alleged that customers were required to send their orders to electronic servers in New Jersey where the trades were executed, the district court held that irrevocable liability was incurred in the United States. Thus, the transactions were domestic and the CEA applied.

Finally, the district court rejected the argument that it should not apply the CEA to domestic transactions because the claims were nonetheless “predominantly foreign.” In Parkcentral, the Second Circuit held that § 10(b) of the Securities Exchange Act would not apply even to domestic transactions if the claims were “predominantly foreign.” In that case, the court held that they were predominantly foreign because the domestic swap transactions were tied to securities of a foreign company listed on a foreign exchange and the alleged fraudulent statements were made abroad. The First and Ninth Circuits have rejected this limitation as inconsistent with Morrison, which made no mention of additional requirements. The district court rejected it too, while also noting that it did not think that the foreign exchange transactions were predominantly foreign in any event.


Aligning the geographic scope of the CEA with that of the Securities Exchange Act generally makes sense. Of course, each provision has its own language. And the presumption against extraterritoriality requires that courts determine geographic scope on a provision-by-provision basis. But when the language of CEA provisions parallels the language of Securities Exchange Act § 10(b), as was true in WorldWideMarkets, there is no reason for a different result.

But this case shows that Morrison has not brought the clarity it promised with respect to the geographic scope of the Securities Exchange Act and, by extension, the CEA. Morrison sought to draw a bright line for the application of Securities Exchange Act § 10(b) by holding that it applied only to domestic transactions. That line works fairly well for listed securities, but, for unlisted securities, the line is more difficult to draw. Courts have had to grapple both with cases where the conclusion of the transaction crossed borders and with cases where a domestic transaction references a foreign one. Courts seem to be feeling their way towards answers to these questions by converging on an “irrevocable liability” test for the first situation and rejecting other limits on Morrison’s transactional test for the second (though the Second Circuit is an outlier). But answering the questions that Morrison did not address has proved a challenge.