Business & Professions Code 12024.2 BPC
BPC 12024.2 – Inaccurate Pricing
Inaccurate Pricing – Table of Contents
It is unlawful for any person, at any time of selling a commodity to charge a greater amount than the unit market price of the spot price for an asset, security, commodity, or derivative; to charge a greater amount than the unit market price of the value at expiration of an asset, security, commodity, or derivative.
What is the definition of a commodity under Business and Professions Code 12024.2 BPC?
The California Commodity Law of 1990 provides the definition of the word commodity and its scope in business. Commodities can be traded on an organized exchange like the Chicago Board of Trade (CBOT) or the Chicago Mercantile Exchange (CME), or between private parties. A commodity is any agriculture product whether it be: any grain; any livestock; any metal; any mineral; any precious metals; any fuels; any gem or gemstone; or any foreign currency that can be rightful taxed by the State of California and the United States Government.
What is a commodity contract under Business and Professions Code 12024.2 BPC?
A Commodity contract is any account, agreement between one or more parties classified as persons under the laws of the State of California, which include business entities; for the purchase and or sale of one or more commodities by an offeror (seller) to an offeree (buyer); even if an intermediary (speculator, hedger, scalper, trader) is used. Contracts can be characterized as a cash contract on delivery; a deferred shipment and or deferred delivery with less emphasis on price (forward contract); or as a cash contract specified on a delivery of price and or deferred price shipment received or paid with less emphasis on quantity because the quantity is fixed (futures contract); or options contracts that give a party the right but not the obligation to purchase or sell a commodity or its contract. Upon time for delivery the commodity can be sent from a farm, mining ore, then transferred to a wholesaler who will deliver the goods to retailers such as a grocery store or jewelry store.
What is the difference between a forward and a future contract as inferred from Business and Professions Code 12024.2 BPC?
A forward contract is a privately created agreement between two parties that can be settled between the parties as a securitized contract and traded amongst others without going to a regulated exchange like the Chicago Board of Trade (CBOT). A futures contract is similar but is regulated by an organized exchanged for future contracts can be traded daily until the term of the contract itself is due for payment and delivery (the daily delivery price is referred as a spot price).
What is a spot price under Businesses and Professions Code 12024.2 BPC?
A spot price is the current cost of a commodity, as quoted for current purchase, payment delivery on that date specified or “on the spot”- as payment is required immediately. An illustration would be a corn spot price, “Feb 22 CZN @ 654” would mean $6.54 (per bushel of corn at a minimum bushel lot of 5,000) or $ 32,700 dollars upon the delivery date of Feb 22 at a time specified by the regulated exchange. At that time a payment of $32,700 dollars is required to be credited to the seller’s account. And delivery of the 5,000 bushels of corn is required to be presented to the buyer at the agreed upon location.
What is the future price as derived value for commodities under Business and Professions Code 12024.2 BPC?
The future price is based on the spot price, plus the cost of handling or cost of carry (storage, insurance, and incidentals). An illustration of this would be to derive a flexible 6-month corn future price from ”FEB 22 CZN @ 654” given a risk-free interest rate of .25% and a $100 storage fee for 6 months would be $33,127.98 dollars; (($32,700+$100)*e^(.0199*.5)). The exponential function is used to notate the progression of a life function of utilizing (rate of error) the risk-free rate, the 10-year bond yield (1.99%), as fluctuations (using “e”) toward a 6-month period (using .5 for half) given the spot price of $32,700 dollars and the storage fee of $100 dollars.
What are the different types of forward commodity price methods under Business and Professions Code 12024.2 BPC?
The three pricing methods for a commodity is the fixed, floor and ceiling, and the floating price methods. The fixed price method utilizes the price of the commodity agreed to on the delivery date. It is pre-decided. So regardless of the real market value or the spot price of the commodity the parties have already contracted a price. The floor and ceiling method, creates a maximum price barrier and a floor price barrier, a vector or straddle, or a flexible selection of prices to elect dependent on your risk factors; if the market upon the delivery date stays within the price pocket, then the price can be selected. The floating price method creates a pocket of time for which a price can be derived if there as unforeseeable risks associated with seasonality to affect the value of what is being contracted. These pricing methods are often determined between retailers and wholesalers.
What is the mental state required for a violation of Business and Professions Code 12024.2 BPC?
The mental states required for a violation of Business and Professions Code 12024.2 BPC is willfully and intentionally. Willful is the conscious desire to complete an act on purpose without the regard of knowledge to its ability to create substantial injury to others; and reasonably understanding the circumstances that might result. Intentional is the conscious desire to complete an act on purpose, without the need to understand its unlawful character; with the reasonable understanding of the circumstances that might result. As applied to Business and Professions Code 12024.2, the State must prove, beyond a reasonable doubt; that the accused was a merchant broker; and or was properly licensed by the CFTC; and consciously knew they were handling the subject matter of a commodity contract; and consciously knew or reasonably should have known by profession the average contract price, the spot price, or the expiration date price of the asset quoted; but the accused desired on purpose knowing it was unlawful to quote an amount hire than any average contract price, the spot price, or the expiration date price of the asset quoted and did so without regard of the danger or injury it may cause; and reasonable knew the circumstances that would result.
A violation of Business and Professions Code 12024.2 BPC is charged as an infraction or misdemeanor. As an infraction, the fine will not exceed $100 dollars per unit of the asset quoted if the overcharge only exceeds the quoted price by $1 dollar. As a misdemeanor, if the overcharge exceeds the quoted price by more than $ 1 dollar, is a penalty of confinement not exceeding 1 year in jail and a ranging fine between $25 dollars and $1000 dollars per unit of the asset quoted.
What are examples of a violation of Business and Professions Code 12024.2 BPC?
Yarde was a commodity broker. He dealt with farmers and retailers. He also sold Corn Futures for himself. His new client Dan the farmer wanted to know what the fair price was for a May (CZ) 22 Corn futures at 5,000 bushels so that he can sell some bushels to Mikes Corner Market next month for their Farmer’s Market Extravaganza. The price quoted was $8.50 per bushel. The current future contract was $5.00 for $5,000 bushels. On May 22, Yarde delivered 5000 bushels of corn. Dan was infuriated because he trusted Yarde but happened to check the current spot price. Dan and Mike not only informed the CFTC regarding Yarde’s conduct and asked for his license and set membership to be revoked; he also called the police. Yarde was arrested.
- Modification to a contract between the offeror and offeror.
- The item contracted is not defined as a commodity.
- There was not a valid offer for a contract.
If you are charged with a violation of Business and Professions Code 12024.2 BPC, call The Esfandi Law Group, APLC. Contact Los Angeles criminal defense attorney Seppi Esfandi, principal attorney of The Esfandi Law Group, APLC.
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