WASHINGTON — The U.S. Commodity Futures Trading Commission (C.F.T.C.) on Aug. 15 said it obtained a $16 million penalty and injunction pursuant to a federal court’s entry of a consent order against defendants Kraft Foods Group, Inc. and Mondelez Global L.L.C. The order, entered on Aug. 14 by Judge John Robert Blakey of the U.S. District Court for the Northern District of Illinois, resolves the C.F.T.C.’s complaint alleging, among other things, manipulation of the wheat market in 2011.
“The C.F.T.C. and defendants have reached a resolution and are settling this action in accordance with the terms arising from the Court’s settlement conference on March 22, 2019,” the consent order said. “Defendant Mondelez Global shall pay a civil monetary penalty (C.M.P.) in the amount of $16 million within 90 days of the date of entry of the consent order. Defendants are jointly and severally liable for the C.M.P. obligation.”
The $16 million penalty is approximately three times defendants’ alleged gain. The order also enjoins Kraft and Mondelez from engaging in future violations of the manipulation, wash trade, and position limit provisions of the Commodity Exchange Act and C.F.T.C. regulations charged in the complaint.
“America is the breadbasket of the world; wheat markets are its heart,” said Heath P. Tarbert, chairman of the C.F.T.C. “Market manipulation inflicts real pain on farmers by denying them the fair value of their hard work and crops. It also hurts American families by raising the costs of putting food on the table. Instances of market manipulation are precisely the kinds of cases the C.F.T.C. was founded to pursue.”
In response, a Mondelez spokesman, in an emailed statement, said, “We can’t comment on the settlement per se, but we strongly disagree with the C.F.T.C.’s statements, which blatantly violate and misrepresent the terms and spirit of the consent order, and will be seeking immediate relief from the court.”
Kraft had a similar response in an emailed statement, saying, “We strongly disagree with the C.F.T.C.’s statements, which blatantly violate and misrepresent the terms and spirit of the consent order, and will be seeking immediate relief from the court.”
The order stated that neither party was to make a public statement about the case except to refer to terms of the settlement agreement or public documents.
The C.F.T.C., in an Aug. 15 statement, acknowledged that the consent order limited what the C.F.T.C. could say about the litigation but “it does not restrict individual commissioners from speaking in their personal capacities.”
The C.F.T.C. filed a complaint for injunctive relief, civil monetary penalties and other equitable relief against Kraft and Mondelez on April 1, 2015.
The C.F.T.C. complaint alleged that in response to high cash wheat prices in late summer 2011, Kraft and Mondelez developed, approved and executed a manipulative strategy to purchase and stand for delivery on more than 3,000 December 2011 futures contracts (worth about $90 million) of soft red winter wheat to send the market a false signal that the defendants had demand for — and would use — futures wheat to source the defendants’ wheat supply requirements in their Toledo, Ohio, mill. The complaint alleged that, in fact, Kraft and Mondelez had no intention of sourcing wheat from the futures market, and the $90 million of wheat futures at issue far exceeded their actual sourcing needs.
The C.F.T.C. alleged that Kraft’s and Mondelez’s true goal was to narrow the price spread between the December 2011 and deferred-month wheat futures contracts, thereby causing the market to sell cash wheat to Kraft and Mondelez at lower prices, while earning a profit on their speculative futures positions. The complaint further alleged that Kraft’s and Mondelez’s actions caused an artificial price that ultimately earned them more than $5 million in profits.
The defendants filed their answer on Jan. 15, 2016, “and have denied that they (1) used or attempted to use a manipulative or deceptive device in connection with the December 2011 wheat futures contract … as alleged by the C.F.T.C.; (2) manipulated or attempted the price of the December 2011 wheat futures contract and of cash wheat as alleged by the C.F.T.C.; (3) unlawfully held December 2011 wheat futures positions in excess of speculative position limits as alleged by the C.F.T.C.; and (4) engaged in wash sales or fictitious sales by trading both sides of E.F.P. contracts as alleged by the C.F.T.C.”
Since fiscal year 2017, the C.F.T.C.’s Division of Enforcement’s prosecution of manipulation-related cases has increased by more than 40% relative to the total number of such cases brought during the preceding six fiscal years.