CD: Could you provide a brief overview of the key issues currently facing commodities markets? To what extent are these issues causing disputes resulting in litigation?
Rodd: The commodities supercycle ended with a fundamental shift in supply and demand, which led to a downward trajectory in prices. The sector has been grappling with this slump in prices since 2011 and a quick recovery has proved elusive. Furthermore, global growth has slowed. This has been marked in the emerging market of China, the world’s largest consumer of raw materials, and also in Brazil and Russia. Indeed, few thought the price of oil would drop below $30 per barrel or copper would trade below $4000 per ton. There has also been geopolitical instability. While there are opportunities with new markets like Iran, the sector is adapting to these shifts. The macro market issues have created a tougher market in which to operate. As a result, we have seen a greater willingness on the part of suppliers to litigate against their customers, and customers to litigate against their suppliers, especially where traditionally they would not have done so, in order to preserve a commercial relationship.
Daly: There are two sources of litigation exposure in the commodities markets – CFTC-level violations and exchange-level violations. At the CFTC level, we are seeing more traditional allegations of fraud, such as Ponzi schemes and garden-variety fraudulent misrepresentations, and actions focusing on improper, manipulative or deceptive trading. The trading bucket encompasses enforcement triggers such as insider trading, where the CFTC is now actively exercising its enforcement muscles under the relatively new Rule 180.1, ‘spoofing’ and other manipulative trading.
Jan-Mar 2017 issue
Schulte Roth & Zabel
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
Stephenson Harwood LLP