Until last week, the CFTC had never brought an insider trading case for commodities trading. Indeed, the only example of insider commodities trading that most lawyers (or anyone else) could probably point to would be the ill-fated effort of the Duke brothers in the Eddie Murphy movie Trading Places.
In Trading Places, the theft of a confidential Department of Agriculture "crop report" helped Billy Ray Valentine (Eddie Murphy) and Louis Winthorpe III (Dan Aykroyd) successfully corner the orange juice futures market while simultaneously ruining the Duke brothers (who lost $394 million based on a false copy of the report). Even that fictitious scheme, however, was not technically insider trading because there was no law against trading on misappropriated government information until the "Eddie Murphy Rule" (true story!) was added to Dodd-Frank in 2010.
Dodd-Frank also amended the Commodities Exchange Act to make it align with Section 10(b) of the Securities Exchange Act. This prompted the CFTC to promulgate Regulation 180.1, which aligns with the SEC's Rule 10b-5 and makes it unlawful to: (1) use or employ, or attempt to use or employ, any manipulative device, scheme, or artifice to defraud; (2) make, or attempt to make, any untrue or misleading statement of a material fact or to omit to state a material fact necessary in order to make the statements made not untrue or misleading; or (3) engage, or attempt to engage, in any act, practice, or course of business, which operates or would operate as a fraud or deceit upon any person." As noted in this article by Prof. Andrew Verstein, the CFTC noted in the preamble to Regulation 180.1 that “trading on the basis of material nonpublic information in breach of a pre-existing duty … may be in violation of [this rule].”
Four years after adopting Regulation 180.1, the CFTC brought its first case for insider trading last week against Arya Motazedi, a gasoline trader. The CFTC alleged in an administrative proceeding that through his employment, Motazedi, was "privy to the material, non-public information regarding the intended trading of his employer, including the timing, contracts, prices and volume of its orders." Motazedi allegedly then used this information to trade, generating profits for himself and causing his former employer $216,955.80 in trading losses.
Verstein notes that in addition to the case being a first for the CFTC, it is also notable for two other reasons. First, the CFTC's allegations "unmistakably adopt the language of securities insider trading law, rather than charting some new path." Second, Verstein observes that the CFTC chose to charge Motazedi with insider trading even though it could have simply charged him with front-running. Tacking on the insider trading charge "puts traders on notice of its expanded authority without putting that authority to a strenuous legal test."