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Ernst and Ernst v. Hochfelder as Applied to Commodities Fraud: No Intent Required

NCJ Number
134303
Journal
Kentucky Law Journal Volume: 79 Issue: 2 Dated: (1990-1991) Pages: 369-384
Author(s)
H B Borders
Date Published
1991
Length
16 pages
Annotation
This analysis of the elements required for providing a claim of commodities fraud concludes that scienter, a mental state involving the intent to deceive, manipulate, or defraud, is not required to support such a claim.
Abstract
Churning is a common type of commodities fraud and involves excessive trading by the broker in view of the customer's investment objectives. Much debate has occurred regarding whether the mental state required to support a commodities churning claim is scienter. In Ernst and Ernst v. Hochfelder, the U.S. Supreme Court decided that scienter is a requirement for a securities fraud violation. However, the Court has not addressed the issue of scienter in the context of commodities fraud. In other cases, lower courts and the Commodities Futures Trading Commission have found that scienter is not an element of a commodities fraud violation. The cases that have held that scienter is a required element of commodities churning are based on faulty logic or no logic at all, considering the legislative history of the relevant law and the consistent refusal of Congress to include it in legislation regarding commodities fraud. Commodities trading and securities trading involve completely distinct statutory restrictions, although the Hochfelder analysis is useful in supporting the conclusion that scienter is not an element of a commodities churning claim. Footnotes (Author summary modified)

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