Cftc v. Monex Credit Co. ( 2019 )


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  •                      FOR PUBLICATION
    UNITED STATES COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    U.S. COMMODITY FUTURES TRADING                     No. 18-55815
    COMMISSION,
    Plaintiff-Appellant,                  D.C. No.
    8:17-cv-01868-
    v.                             JVS-DFM
    MONEX CREDIT COMPANY; MONEX
    DEPOSIT COMPANY; NEWPORT                             OPINION
    SERVICES CORPORATION; MICHAEL
    CARABINI; LOUIS CARABINI,
    Defendants-Appellees.
    Appeal from the United States District Court
    for the Central District of California
    James V. Selna, District Judge, Presiding
    Argued and Submitted March 13, 2019
    San Francisco, California
    Filed July 25, 2019
    Before: Eugene E. Siler, * A. Wallace Tashima, and
    M. Margaret McKeown, Circuit Judges.
    Opinion by Judge Siler
    *
    The Honorable Eugene E. Siler, United States Circuit Judge for the
    U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
    2   U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX
    SUMMARY **
    Commodity Future Trading Commission
    The panel reversed the district court’s dismissal of the
    Commodity Future Trading Commission’s enforcement
    action against Monex Credit Company for alleged fraud in
    precious metals sales.
    The CTFC regulates commodity futures markets under
    the Commodity Exchange Act (“CEA”). The Dodd-Frank
    Wall Street Reform and Consumer Protection Act of 2010
    amended the CEA and extended the CEA to commodity
    transactions offered on a leveraged or margined basis as if
    they were futures trades. Congress carved out an exception:
    the CEA does not apply to leveraged retail commodity sales
    that result in “actual delivery” within 28 days.
    Monex sells precious metals to investors. Through
    Monex’s Atlas Program, investors can purchase
    commodities on margin, which is also known as leverage.
    The CFTC alleged that Atlas was an illegal and unregistered
    leveraged retail commodity transaction market.
    The panel held that the actual delivery exception was an
    affirmative defense on which the commodities trader bore
    the burden of proof. The panel held that actual delivery
    required at least some meaningful degree of possession or
    control by the customer. The panel further held that it was
    possible for this exception to be satisfied when the
    commodity sat in a third-party depository, but not when, as
    **
    This summary constitutes no part of the opinion of the court. It
    has been prepared by court staff for the convenience of the reader.
    U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX             3
    here, metals were in the broker’s chosen depository, never
    exchanged hands, and subject to the broker’s exclusive
    control, and customers had no substantial, non-contingent
    interests. The panel concluded that because this affirmative
    defense did not, on the face of the complaint, bar the CFTC
    from relief on Counts I, II, and IV, the district court erred in
    dismissing those claims.
    In Count III, the CFTC alleged that Monex violated CEA
    § 6(c)(1), 
    7 U.S.C. § 9
    (1), and 
    17 C.F.R. § 180.1
    , by
    fraudulently deceiving its customers, but there was no
    allegation that Monex manipulated the market. The panel
    concluded that § 6(c)(1)’s language was unambiguous, and
    held that the CFTC could sue for fraudulently deceptive
    activity, regardless of whether it was also manipulative. The
    panel also held that when someone violated § 6(c)(1), the
    CFTC could bring an enforcement action.
    The panel held that at this point, the CFTC’s well-
    pleaded complaint must be accepted as true. Because the
    CFTC’s claims were plausible, the panel remanded for
    further proceedings.
    COUNSEL
    Robert A. Schwartz (argued), Deputy General Counsel;
    Anne W. Stukes, Assistant General Counsel; Daniel J.
    Davis, General Counsel; U.S. Commodity Futures Trading
    Commission, Washington, D.C.; for Plaintiff-Appellant.
    Neil A. Goteiner (argued), Elizabeth A. Dorsi, and C.
    Brandon Wisoff, Farella Braun & Martel LLP, San
    Francisco, California, for Defendants-Appellees.
    4   U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX
    OPINION
    SILER, Circuit Judge:
    A two-letter conjunction and a two-word phrase decide
    this case. At stake are hundreds of millions of dollars.
    Congress, acting shortly after the economy began to stabilize
    from the financial crisis that began a decade earlier, passed
    the Dodd-Frank Wall Street Reform and Consumer
    Protection Act, Pub. L. No. 111-203, 
    124 Stat. 1376
     (2010),
    which amended the Commodity Exchange Act (CEA) to
    expand the Commodity Future Trading Commission’s
    (CFTC) enforcement authority. This case is about the extent
    of those powers.
    Monex Credit Company, one of the defendants and
    appellees, argues that the CFTC went too far when it filed
    this $290 million lawsuit for alleged fraud in precious metals
    sales. According to Monex, Dodd-Frank extended the
    CFTC’s power only to fraud-based manipulation claims, so
    stand-alone fraud claims—without allegations of
    manipulation—fail as a matter of law.
    Not only that, Monex argues, but Dodd-Frank also
    immunizes Monex from the CFTC’s claims that it ran an
    unregistered, off-exchange trading platform. The CEA’s
    registration provisions do not apply to retail commodities
    dealers who “actual[ly] deliver[]” the commodities to
    customers within twenty-eight days.         See 
    7 U.S.C. § 2
    (c)(2)(D)(ii)(III)(aa). Monex insists that it falls within
    this exception.
    On both fronts, the district court agreed with Monex and
    dismissed the CFTC’s complaint for failure to state a claim
    under Civil Rule 12(b)(6). We REVERSE and REMAND.
    U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX          5
    Background
    The facts come from the CFTC’s complaint, which, at
    this stage, we must accept as true. See Syed v. M-I, LLC,
    
    853 F.3d 492
    , 499 (9th Cir. 2017).
    Monex and the Atlas Program
    California-based Monex has been a major player in the
    precious metal markets for decades. It sells gold, silver,
    platinum, and palladium to investors who have a variety of
    buying options, but here we focus on what Monex calls its
    “Atlas Program.” Through Atlas, investors can purchase
    commodities on “margin.” Also known as “leverage,” the
    concept is simple: A customer buys precious metals by
    paying only a portion of the full price. The remaining
    amount is financed through Monex.
    Once a customer opens an account, she may take open
    positions in precious metals. But the trading occurs “off
    exchange”—that is, it does not happen on a regulated
    exchange or board of trade. Instead, Monex controls the
    platform, acts as the counterparty to every transaction, and
    sets the price for every trade.
    Since mid-2011, Monex has made more than 140,000
    trades for more than 12,000 Atlas accounts, each of which
    requires margin of 22–25% of the account’s total value. A
    customer who deposits $25,000 in Atlas as margin can open
    positions valued at $100,000; she owes the additional
    $75,000 to Monex. Over time, the account’s value
    changes—it goes up and down—as markets do. The
    difference between the account’s total value and the amount
    the customer still owes to Monex is the account’s “equity.”
    And if that difference falls below a certain threshold, Monex
    can issue a “margin call”—it can require customers to
    6   U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX
    immediately deposit more money into the accounts to
    increase the equity. Monex can do so at any time, and it can
    change margin requirements whenever it wants.
    Monex also retains sole discretion to liquidate trading
    positions without notice to the customer if equity drops too
    low, and it controls the price for every trade. Price spreads—
    the difference between the bid price and ask price—are 3%
    and generate much of the program’s revenue. Commissions
    and fees make up the rest, and that money comes directly out
    of customer accounts’ equity. Over the last eight years,
    Monex has made margin calls in more than 3,000 Atlas
    accounts and has force-liquidated at least 1,850.
    Atlas investors can make either “short” or “long” trades.
    Short trades bet on metal prices going down, and long up.
    Monex allows investors to place “stop” or “limit” orders to
    manage their trading positions. About a quarter of trading
    positions in leveraged Atlas accounts open and close within
    two weeks.
    Customers must sign the Atlas account agreement,
    which gives Monex control over the metals. Monex does not
    hand over any metals, and customers never possess or
    control any physical commodity. Instead, Monex stores the
    metals in depositories with which Monex has contractual
    relationships. Monex retains exclusive authority to direct
    the depository on how to handle the metals; investors and the
    depositories have no contractual relationship with each
    other. Customers can get their hands on the metals only by
    making full payment, requesting specific delivery of metals,
    and having the metals shipped to themselves, a pick-up
    location, or an agent.
    This structure applies to both long and short positions.
    For a long position, Monex retains the right to close out the
    U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX           7
    position at any time in its sole discretion and at a price
    Monex chooses. Metal remains in the depository, but
    Monex claims to transfer ownership of the metals to the
    customer. The same is true for short positions, except that
    instead of transferring ownership, Monex loans the customer
    metals that the customer immediately sells back to Monex.
    According to the CFTC, Monex simply makes a “book
    entry” when customers make trades—nothing more.
    The Commodity Exchange Act and Dodd-Frank
    The CFTC regulates commodity futures markets under
    the CEA. See 
    7 U.S.C. §§ 1
     et seq. Part of the CEA’s
    purpose is “to protect all market participants from fraudulent
    or other abusive sales practices and misuses of customer
    assets.” 
    Id.
     § 5(b). The CEA requires that futures be traded
    on regulated exchanges. Id. § 6(a)(1). Brokers must register
    with the CFTC. Id. § 6d(a)(1). The CEA further protects
    against conflicts of interest and market abuse. Id. §§ 6d(c),
    7(d). And the statute prohibits fraud. Id. § 6b(a)(2).
    Originally, the CEA did not apply to retail commodity
    transactions because they were not futures contracts. See
    CFTC v. Zelener, 
    373 F.3d 861
     (7th Cir. 2004). As Zelener
    recognized, the CEA applied only to futures contracts, even
    though other types of sales—such as leveraged retail
    commodity sales—can have similar economic effects. 
    Id.
     at
    866–67.
    This changed in 2010 when Congress, acting in the wake
    of financial turmoil, passed Dodd-Frank—part of which
    amended the CEA. See Dodd-Frank Wall Street Reform and
    Consumer Protection Act of 2010, Pub. L. No. 111-203, 
    124 Stat. 1376
     (2010).      Congress extended the CEA to
    commodity transactions offered “on a leveraged or margined
    basis, or financed by the offeror” “as if” they were futures
    8   U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX
    trades. See 
    7 U.S.C. § 2
    (c)(2)(D)(iii). But Congress carved
    out an exception: The CEA would not apply to leveraged
    retail commodity sales that resulted “in actual delivery
    within 28 days.” 
    Id.
     § 2(c)(2)(D)(ii)(III)(aa).
    Congress also amended the CEA by prohibiting the use
    of “any manipulative or deceptive device or contrivance” in
    market transactions. CEA § 6(c)(1). This language mirrored
    § 10(b) of the Securities and Exchange Act, and, as did
    § 10(b), authorized the governing agency to promulgate
    rules implementing the statute and bring civil enforcement
    actions. See 
    7 U.S.C. §§ 9
    (1), 13a-1(a); 15 U.S.C. § 78j(b).
    Monex’s Alleged Scheme and This Lawsuit
    The CFTC contends that Atlas is a scheme that has
    violated the CEA since at least July 2011. Monex tells its
    customers that leveraged precious metals trading is “a safe,
    secure and profitable way for retail customers to invest”
    when, in fact, the program requires that many customers lose
    money. What’s more, the CFTC alleges, Atlas is designed
    so that when customers lose, Monex gains: Because Monex
    is the counterparty for each Atlas transaction, Monex
    benefits from large price spreads at the customer’s expense.
    Sales representatives, too, have an incentive to push the
    program: Monex pays salespeople with “commissions and
    bonuses tied directly to the number of Atlas accounts they
    open” and the number of transactions completed; account
    performance is not a factor in compensation. So Monex
    engages in “high-pressure sales tactics,” cajoling potential
    customers into buying leveraged precious metals while it
    “misrepresent[s] the likelihood of profit” and
    “systematically downplay[s] the risks” to ensure customers
    invest in Atlas, inevitably leading to customer losses.
    U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX            9
    The complaint alleges deep and broad losses to about
    90% of all leveraged Atlas accounts—totaling some
    $290 million. In some cases, individual losses were
    extreme: some customers lost hundreds of thousands of
    dollars, and many others suffered five-figure losses. New
    investors never learned about those losses because Monex
    never told them. Instead, Monex promised that precious
    metals are safe and “will always have value,” so a customer
    cannot lose her investment.
    The CFTC filed this lawsuit seeking an injunction and
    restitution against Monex Deposit Company, Monex Credit
    Company, Newport Services Corporation, Louis Carabini,
    and Michael Carabini (Monex). The CFTC contends that
    Atlas is an illegal and unregistered leveraged retail
    commodity transaction market. The CFTC filed four counts,
    alleging violations of:
    (1) CEA § 4(a), 
    7 U.S.C. § 6
    (a), for engaging
    in off-exchange transactions;
    (2) CEA § 4b(a)(2)(A) and (C), 7 U.S.C.
    § 6b(a)(2)(A) and (C), for fraud;
    (3) CEA § 6(c)(1), 
    7 U.S.C. § 9
    (1), 
    17 CFR § 180.1
    (a)(1)–(3), for fraud; and
    (4) CEA § 4d, 7 U.S.C. § 6d(a)(1), for failing
    to register.
    The CFTC filed this lawsuit in the Northern District of
    Illinois in September 2017. The same day, the CFTC moved
    for a preliminary injunction. A month later, Monex filed a
    motion to dismiss for failure to state a claim under Civil Rule
    12(b)(6). The Illinois district court transferred the case to
    the Central District of California three weeks later.
    10 U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX
    The District Court Dismisses the CFTC’s Complaint
    The district court granted Monex’s motion to dismiss,
    denied as moot the motion for preliminary injunction, and
    gave the CFTC thirty days to amend its complaint as to
    Count III, the CEA § 6(c)(1) fraud claim. The CFTC
    declined the invitation to amend and asked the court to enter
    judgment, which it did.
    The district court determined that Counts I, II, and IV
    failed because Monex fit within the actual delivery
    exception. 
    7 U.S.C. § 2
    (c)(2)(D)(ii)(III)(aa). The district
    court dismissed Count III because § 6 allows the CFTC to
    bring only fraud-based manipulation claims—not stand-
    alone fraud cases. In short, the district court held that “any
    manipulative or deceptive device” in § 6(c)(1) requires
    manipulative and fraudulent behavior. And because the
    CFTC alleged only fraud—and not manipulation—Count III
    failed as a matter of law. This appeal followed.
    Standard of Review
    In reviewing a Civil Rule 12(b)(6) dismissal, we give no
    deference to the district court. Soltysik v. Padilla, 
    910 F.3d 438
    , 444 (9th Cir. 2018). This de novo review consists of
    two steps. First, we identify all the factual allegations in the
    complaint and accept them as true; legal conclusions are set
    aside. Ashcroft v. Iqbal, 
    556 U.S. 662
    , 678–79 (2009).
    Second, reading all the allegations in the light most favorable
    to the non-moving party, we ask whether the facts state a
    claim for relief. Id.; see Fed. R. Civ. P. 8(a). To survive, the
    claim must be plausible. Iqbal, 
    556 U.S. at 678
    . That is, it
    must rise “above the speculative level.” Bell Atl. Corp. v.
    Twombly, 
    550 U.S. 544
    , 555–56 (2007). Claims move
    beyond speculation when the allegations “allow[] the court
    to draw the reasonable inference that the defendant is liable
    U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX 11
    for the misconduct alleged.” Iqbal, 
    556 U.S. at 678
    . This is
    a “context-specific task that requires the reviewing court to
    draw on its judicial experience and common sense.” 
    Id. at 679
    .
    For claims of fraud, we require additional specificity:
    who, what, when, where, and how. See Fed. R. Civ. P. 9(b);
    Vess v. Ciba-Geigy Corp., USA, 
    317 F.3d 1097
    , 1106 (9th
    Cir. 2003).
    Discussion
    A. The Actual Delivery Exception
    We must first determine whether the actual delivery
    exception is an element of a CEA claim or an affirmative
    defense. This distinction is important because Rule 8 does
    not require plaintiffs to plead around affirmative defenses.
    See Jones v. Bock, 
    549 U.S. 199
    , 216 (2007). And
    “[o]rdinarily, affirmative defenses . . . may not be raised on
    a motion to dismiss.” Lusnak v. Bank of Am., N.A., 
    883 F.3d 1185
    , 1194 n.6 (9th Cir. 2018).
    The Eleventh Circuit has ruled that the actual delivery
    exception “is an affirmative defense on which the
    commodities trader bears the burden of proof.” CFTC v. S.
    Trust Metals, Inc., 
    894 F.3d 1313
    , 1324–25 (11th Cir. 2018).
    We agree. Placing the burden on the defendant is, after all,
    the “general rule where [the defendant] claims the benefits
    of an exception to the prohibition of a statute.” United States
    v. First City Nat’l Bank of Houston, 
    386 U.S. 361
    , 366
    (1967). And this “longstanding convention is part of the
    backdrop against which Congress writes laws,” so courts
    must “respect it unless we have compelling reasons to think
    that Congress meant to put the burden of persuasion on the
    12 U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX
    other side.” Meacham v. Knolls Atomic Power Lab.,
    
    554 U.S. 84
    , 91–92 (2008).
    Nevertheless, we can consider an affirmative defense on
    a motion to dismiss when there is “some obvious bar to
    securing relief on the face of the complaint.” ASARCO, LLC
    v. Union Pac. R.R. Co., 
    765 F.3d 999
    , 1004 (9th Cir. 2014).
    In other words, dismissal based on an affirmative defense is
    permitted when the complaint establishes the defense. See
    Sams v. Yahoo! Inc., 
    713 F.3d 1175
    , 1179 (9th Cir. 2013).
    To determine whether Atlas, described in the CFTC’s
    complaint, includes “actual delivery,” we must identify the
    meaning of that statutory term.
    Under CEA §§ 2(c)(2)(D)(i) and (iii), any “agreement,
    contract, or transaction in any commodity that is entered into
    . . . on a leveraged or margined basis” is subject to “sections
    6(a), 6(b), and 6b” of the CEA “as if the agreement, contract
    or transaction was a contract of sale of a commodity for
    future delivery.” 
    7 U.S.C. §§ 2
    (c)(2)(D)(i) and (iii). But not
    all sales; the adjacent section excludes “a contract of sale that
    results in actual delivery within 28 days.” 
    Id.
    § 2(c)(2)(D)(ii)(III)(aa).
    The statute does not define “actual delivery,” and
    undefined terms receive their ordinary meaning. See
    Taniguichi v. Kan Pac. Saipan, Ltd, 
    566 U.S. 560
    , 566
    (2012). “Delivery” means “[t]he formal act of voluntarily
    transferring something; esp. the act of bringing goods,
    letters, etc. to a particular person or place.” Black’s Law
    Dictionary (9th ed. 2009). Black’s defines “actual” as
    “[e]xisting in fact; real.” 
    Id.
     “Actual delivery” is the “act of
    giving real and immediate possession to the buyer or the
    buyer’s agent.” 
    Id.
     By contrast, “constructive delivery”
    denotes “[a]n act that amounts to transfer of title by
    U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX 13
    operation of law when actual transfer is impractical or
    impossible.” 
    Id.
    The Eleventh Circuit adopted these definitions in CFTC
    v. Hunter Wise Commodities, LLC, 
    749 F.3d 967
     (11th Cir.
    2014), where it held that a seller failed to actually deliver
    commodities when it “did not possess or control an
    inventory of metal from which it could deliver to retail
    customers.” 
    Id. at 980
    . The court did “not define the precise
    boundaries of ‘actual delivery,’” but it held that “[d]elivery
    must be actual.” 
    Id. at 979
     (emphasis in original). “If ‘actual
    delivery’ means anything, it means something other than
    simply ‘delivery,’ for we must attach meaning to Congress’s
    use of the modifier ‘actual.’” 
    Id.
     The defendant in Hunter
    Wise could not actually deliver anything because it did not
    have the commodities.
    According to Monex, Hunter Wise tells us that the actual
    delivery exception applies only when the commodities do
    not in fact exist. Monex argues that it makes actual delivery
    “because the metals exist in fact and, upon sale, are
    voluntarily delivered to independent depositories for the
    buyer’s benefit.” Appellee Br. at 10–11. Monex, unlike the
    defendant in Hunter Wise, has the underlying
    commodities—they actually exist. So, Monex argues,
    Hunter Wise does not apply, and Atlas fits the exception.
    Hunter Wise is not so limited. That court first held that
    “actual delivery” means giving “real and immediate
    possession to the buyer or buyer’s agent.” Hunter Wise,
    749 F.3d at 979 (quoting Black’s Law Dictionary 494 (9th
    ed. 2009)). The seller in Hunter Wise did not give the buyer
    possession of the commodities because it did not possess any
    in the first instance. Id. Without inventory, the seller could
    not actually deliver anything. Id. But “actual’ in the statute
    modifies delivery, not existence. See id. Of course, as
    14 U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX
    Hunter Wise recognizes, existence is a prerequisite to
    delivery—one cannot deliver that which does not exist. But
    the fact that the commodity’s existence is necessary to
    comply with the exception does not mean existence is
    sufficient to fit the exception. If Congress wanted only to
    ensure enough inventory it could have said so. It did not; it
    required “actual delivery.”
    Thus, the plain language tells us that actual delivery
    requires at least some meaningful degree of possession or
    control by the customer. It is possible for this exception to
    be satisfied when the commodity sits in a third-party
    depository, but not when, as here, metals are in the broker’s
    chosen depository, never exchange hands, and are subject to
    the broker’s exclusive control, and customers have no
    substantial, non-contingent interests.
    This interpretation is confirmed by the broader statutory
    context. See Abramski v. United States, 
    573 U.S. 169
    , 179
    (2014). Dodd-Frank expanded the CEA to close the so-
    called Zelener loophole, which allowed companies to offer
    commodity sales on margin without regulation, because
    these transactions mimic conventional futures trades long
    regulated by the CFTC. See Zelener, 
    373 F.3d at 866
    . On
    the other hand, sales where customers obtain meaningful
    control or possession of commodities, i.e., when actual
    delivery occurs, do not mimic futures trading and are
    therefore exempt from registration and related CEA
    requirements.
    Monex argues that in the context of a provision
    regulating leveraged commodity sales, it would make little
    sense for “actual delivery” to turn on possession or control,
    because such a reading would clash with “margin,” which
    means “[c]ash or collateral required to be paid to a securities
    broker by an investor to protect the broker against losses
    U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX 15
    from securities bought on credit.” Black’s Law Dictionary
    (9th ed. 2009). Because the very meaning of the word
    “margin” requires that the buyer deposit collateral with the
    seller, actual delivery must mean something other than
    transferring possession or control to the buyer. Otherwise,
    Monex argues, margin would mean nothing.
    Yet, even if the commodity serves as collateral, there is
    no reason why the buyer cannot control it. In many
    financing contexts, some degree of buyer possession or
    control is commonplace. While permitting customers to
    obtain significant control over or possession of metals might
    be practically difficult here, that fact does not displace the
    statute’s plain meaning.
    If we had any lingering doubt about the statute’s plain
    meaning, resort to conventional canons of interpretation
    would further support our conclusion. First, the CEA uses
    “delivery” in § 1a(27), which we have said “cannot be
    satisfied by the simple device of a transfer of title.” CFTC
    v. Noble Metals Int’l, Inc., 
    67 F.3d 766
    , 773 (9th Cir. 1995).
    And because we assume that “Congress means the same
    words in the same statute to mean the same thing,” actual
    delivery must require more than simple title transfer. Texas
    Dept. of Housing & Cmty. Affairs v. Inclusive Cmtys.
    Project, Inc., 
    135 S. Ct. 2507
    , 2535 (2015). Second, our
    interpretation presents no ineffectiveness or surplusage
    problems because it does not, as the district court believed,
    mean that “every financed transaction would violate Dodd-
    Frank,” thus “eliminat[ing] the Actual Delivery Exception
    from the CEA.” 
    311 F. Supp. 3d 1173
    , 1181 (C.D. Cal.
    2018) (quoting CFTC v. Worth Grp., Inc., No. 13-80796-
    CIV, 
    2014 WL 11350233
    , at *2 (S.D. Fla. Oct. 27, 2014)).
    The CFTC does not present a bare-bones complaint. It
    includes detailed and specific factual allegations. All we say
    16 U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX
    today is that those allegations, taken as true, do not establish
    actual delivery.
    Finally, even if the statute were ambiguous, we would
    find the CFTC’s interpretive guidance persuasive. Retail
    Commodity Transactions Under CEA, 
    78 Fed. Reg. 52,426
    (Aug. 23, 2013); see Skidmore v. Swift & Co., 
    323 U.S. 134
    (1944). There, the CFTC stated it would employ a
    “functional approach” that considers “[o]wnership,
    possession, title, and physical location of the commodity
    purchased or sold.” 78 Fed. Reg. at 52,428. Other factors
    included “the nature of the relationship between the buyer,
    seller, and possessor of the commodity,” and the “manner in
    which the purchase or sale is recorded and completed.” Id.
    Monex insists that Atlas matches the second illustrative
    example of actual delivery set forth in the guidance: physical
    transfer of all purchased commodities into an independent
    depository plus transfer of title to the buyer. Id. However,
    these steps constitute actual delivery only if they are “not
    simply a sham.” Id. The CFTC engages in a “careful
    consideration” of the relevant functional factors (listed
    above) to determine if the exception is indeed applicable.
    Here, customers have no contractual rights to the metal;
    Monex, not customers, has a relationship with depositories;
    Monex maintains total control over accounts and can
    liquidate at any time in its own discretion; and the entire
    transaction is merely a book entry. This amounts to sham
    delivery, not actual delivery.
    To recap, “actual delivery” unambiguously requires the
    transfer of some degree of possession or control. Other
    interpretive tools, including the CFTC’s guidance, reinforce
    this conclusion.         Monex challenges the CFTC’s
    characterization of its delivery scheme, but, at the 12(b)(6)
    stage, we ignore such factual disputes and accept as true
    U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX 17
    allegations in the complaint. Because this affirmative
    defense does not, on the face of the complaint, bar the CFTC
    from relief on Counts I, II, and IV, the district court erred in
    dismissing those claims.
    B. Manipulative or Deceptive
    In Count III, the CFTC alleges that Monex violated CEA
    § 6(c)(1), 
    7 U.S.C. § 9
    (1), and 
    17 C.F.R. § 180.1
     by
    fraudulently deceiving its customers. There is no allegation
    that Monex manipulated the market, so we must decide
    whether § 6(c)(1) covers fraud claims in the absence of
    manipulation. The text:
    It shall be unlawful for any person, directly
    or indirectly, to use or employ, or attempt to
    use or employ, in connection with any swap,
    or a contract of sale of any commodity in
    interstate commerce, or for future delivery on
    or subject to the rules of any registered entity,
    any manipulative or deceptive device or
    contrivance, in contravention of such rules
    and regulations as the Commission shall
    promulgate.
    
    7 U.S.C. § 9
    (1).
    The crucial question is whether “any manipulative or
    deceptive device” allows stand-alone fraud claims or
    requires fraud-based manipulation. The district court
    determined that the statute unambiguously requires “both
    manipulative and deceptive conduct, not one or the other.”
    Or, another way to say it, the district court held that “or”
    really meant “and.” We disagree.
    18 U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX
    When the word “or” joins two terms, we apply a
    disjunctive reading. See, e.g., United States v. Woods,
    
    571 U.S. 31
    , 45–46 (2013). When Congress places “or”
    between two words, we assume that Congress intended the
    two terms as alternatives. See Scalia & Garner, Reading
    Law, § 12 at 116 (2012). While there are exceptions, this is
    not an instance where a disjunctive meaning would produce
    absurd results and statutory context compels us to treat “or”
    as if it were “and.” See De Sylva v. Ballentine, 
    351 U.S. 570
    ,
    573 (1956); United States v. Bonilla-Montenegro, 
    331 F.3d 1047
    , 1051 (9th Cir. 2003) (“a statute’s use of disjunctive or
    conjunctive language is not always determinative”). We
    conclude that § 6(c)(1)’s language is unambiguous.
    Authorizing claims against “[m]anipulative or deceptive”
    conduct means what it says: the CFTC may sue for
    fraudulently deceptive activity, regardless of whether it was
    also manipulative.
    Again, if we had any doubt, see Conn. Nat’l Bank v.
    Germain, 
    503 U.S. 249
    , 253–54 (1992), other interpretive
    tools support our conclusion. This CEA provision is a mirror
    image of § 10(b) of the Securities Exchange Act, which the
    Supreme Court has interpreted as a “catch-all clause to
    prevent fraudulent practices,” Chiarella v. United States,
    
    445 U.S. 222
    , 226 (1980), that authorizes fraud-only claims,
    see SEC v. Zandford, 
    535 U.S. 813
    , 822–25 (2002). We
    presume that by copying § 10(b)’s language and pasting it in
    the CEA, Congress adopted § 10(b)’s judicial interpretations
    as well. Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
    Dabit, 
    547 U.S. 71
    , 85–86 (2006).
    The canon against surplusage does not point to a
    different answer: § 6(c)(1)’s overlap with other provisions is
    minimal, and partial redundancy hardly justifies displacing
    otherwise clear text. See J.E.M. Ag Supply, Inc. v. Pioneer
    Hi-Bred Int’l, Inc., 
    534 U.S. 124
    , 144 (2001). Nor does the
    U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX 19
    fact that the applicable statutory headings mention only
    manipulation and not fraud. The full extent of a statutory
    provision rarely fits into its title, so headings are often under
    inclusive. See Lawson v. FMR LLC, 
    571 U.S. 429
    , 446
    (2014).     Finally the CEA elsewhere references a
    “manipulative device or contrivance,” see 
    7 U.S.C. § 25
    (a)(1)(D)(i), suggesting that Congress knew how to
    require market manipulation when it sought to do so. The
    inclusion of “deceptive” in § 6(c)(1) must have meaning.
    Monex pulls two final arrows from its quiver. First,
    Monex argues that the CFTC’s enforcement jurisdiction
    comes only from CEA § 2. Without an independent
    jurisdictional grant in § 2, Monex argues, the CFTC cannot
    bring a § 6(c)(1) fraud claim. In support, Monex cites CFTC
    v. White Pine Tr. Corp., 
    574 F.3d 1219
     (9th Cir. 2009),
    where we considered whether the CFTC had jurisdiction
    over certain foreign currency trades. There, we focused on
    CEA § 4c, which applies only to a “transaction involving
    any commodity regulated under this chapter.” 7 U.S.C.
    § 6c(b). The question in White Pine was whether foreign
    currency trades were “regulated under this chapter.”
    
    574 F.3d at 1223
    . Section 2 of the CEA generally excludes
    foreign currency from regulation, see § 2(c)(1), but some
    foreign currency are covered, see § 2(c)(2). Reading §§ 4c,
    2(c)(1), and 2(c)(2) together, we held in White Pine that the
    specific trades in that case did not fall under the CFTC’s
    jurisdiction because foreign currency trades were
    categorically excluded from the CEA under § 2(c)(1), unless
    they were trades specifically exempted from that exclusion
    under § 2(c)(2). The White Pine trades did not fall under
    § 2(c)(2), and thus were excluded under § 2(c)(1). Id.
    As the district court noted, retail commodity transactions
    are not addressed in § 2(c)(1)’s general exclusion. Thus,
    there is no need for a specific jurisdictional grant to
    20 U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX
    overcome the general exclusion, as was required in White
    Pine. Instead, the retail commodity provision merely
    describes the types of transactions to which other CEA
    sections—§§ 4(a), 4(b), and 4b—apply. In other words,
    § 2(c)(2)(D)—the retail commodity provision—clarifies the
    interplay between margined commodity sales and other
    sections that apply to future contracts. This is necessary
    because §§ 4(a), 4(b), and 4b applied only to futures trades,
    until § 2(c)(2)(D) confirmed that those sections also apply to
    leveraged commodity sales.
    No such clarification is needed with § 6(c)(1) because
    the section applies to “any . . . contract of sale of any
    commodity in interstate commerce.” And in those sales,
    § 6(c)(1) outlaws the use of any manipulative or deceptive
    device. Later, the CEA clarifies that “[w]henever it shall
    appear to the Commission that any registered entity or other
    person has” violated “any provision of this chapter . . . the
    Commission may bring an action in the proper district court
    of the United States.” 7 U.S.C. § 13a-1(a). When someone
    violates § 6(c)(1), the CFTC can bring an enforcement
    action.
    Finally, Defendants argue that if § 6(c)(1) means what
    the CFTC says, then the statute applies not only to margined
    commodity sales, but to ordinary retail cash commodity
    sales, too. As Monex tells it, this would mean that even
    everyday grocery sales would be subject to the CFTC’s
    enforcement power. See Appellee Br. at 35. This, Monex
    argues, cannot be the case because such an “explosive
    increase of an agency’s . . . authority” requires a clear
    statement from Congress. Id. at 53. And “Congress . . . does
    not alter the fundamental details of a regulatory scheme in
    vague terms or ancillary provision—it does not, one might
    say, hide elephants in mouseholes.” Whitman v. Am.
    Trucking Ass’ns, 
    531 U.S. 457
    , 468 (2001).
    U.S. COMMODITY FUTURES TRADING COMM’N V. MONEX 21
    In the first place, it is not clear that this amounts to an
    elephant in a mousehole. By its terms, § 6(c)(1) applies
    broadly to commodities in interstate commerce. More
    important, this case does not involve retail cash commodity
    sales. This case involves only margined commodity sales.
    And even Monex admits that § 6(c)(1) applies to at least
    some margined commodity sales—those that involve fraud-
    based manipulation. The question we address is only
    whether § 6(c)(1) also applies to stand-alone fraud claims in
    the sale of leveraged commodities. Whether the statute
    extends to non-leveraged sales is not before us.
    Conclusion
    In bill drafting, as in life, little things often make big
    differences. Here, three words stand between dismissal and
    discovery. Although Monex contends that no fraud
    occurred, we must, at this point, accept as true the CFTC’s
    well-pleaded complaint to the contrary. And because the
    CFTC’s claims are plausible, this lawsuit should continue.
    REVERSED and REMANDED for further proceedings
    consistent with this decision. 1
    1
    Monex’s unopposed motion for judicial notice (Dkt. 28) is
    GRANTED.