Seventh Circuit Slams CFTC Overreach: Passive Investors Aren’t Controllers
Judge Slams CFTC Overreach in Conway Trust Case
The Seventh Circuit just handed the CFTC a sharp rebuke in Conway Family Trust v. CFTC, ruling that the agency overstepped its authority by trying to punish a family trust for trading decisions it never made. At stake was whether the CFTC can treat passive investors as “controlling persons” simply because their money moves through an advisor. The answer: no.
The case started when the family’s investment advisor, Michael Conway, placed futures trades that allegedly violated position limits. The CFTC chased both the advisor and the trust itself, arguing the trust “controlled” the trades because it owned the accounts. The trust pushed back, saying it had zero day-to-day control—the advisor made every call. The Seventh Circuit agreed. Judges ruled that “control” under the Commodity Exchange Act means actual authority over trading decisions, not mere ownership of capital. Because the trust never directed the trades, it could not be held liable.
The decision narrows the CFTC’s reach. Passive investors who hand money to a manager now have clearer protection against secondary liability. The agency will have to prove real control, not just trace the cash. That matters for family offices, funds-of-funds, and any structure where beneficial owners stay hands-off.
For crypto markets, the ruling lands as a warning shot against regulatory mission creep. If the CFTC wants to police DeFi protocols or treat token holders as “controllers,” courts may demand the same proof of actual trading authority. The precedent makes it harder to rope in wallets, DAOs, or liquidity providers who merely supply capital. Exchanges and protocols gain breathing room; the agency’s enforcement net just got smaller.
Bottom line: ownership alone is not control, and regulators chasing deep pockets without evidence of active direction now face a colder courtroom.
