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MFDF - Mutual Fund Directors Forum - Fund Boards May Be Subject to CEA Regulations and Liability

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Fund Boards May Be Subject to CEA Regulations and Liability

On August 14th, the CFTC staff issued several responses to frequently asked questions regarding the new commodity pool operator ("CPO") regulations adopted earlier this year.  Most notably, the CFTC staff stated that even though boards of funds that invest in commodity-related instruments do not have to register as CPOs, the boards are still subject to prohibitions under the Commodity Exchange Act ("CEA") that are applicable to all market participants, including, but not limited to, the anti-fraud and anti-manipulation provisions.  In addition, a private cause of action could be brought against fund directors for violating the CEA or willfully aiding, abetting, counseling, inducing or procuring the commission of a violation of the CEA. The CFTC staff "does not believe that exempting such actors from a private cause of action due to willful conduct resulting in a violation of the CEA would be consistent with the Commission's mission to protect market users and the public from fraud, manipulation, abusive practices and systemic risk related to derivatives."  A thorough summary of the CFTC staff release was written by K&L Gates and can be accessed here.