The U.S. Commodity Futures Trading Commission and Kraft Foods Group, Inc. have reached a tentative second out-of-court agreement in an ongoing saga that stemmed from the food company’s alleged wheat futures market manipulation nearly a decade ago.
Meeting in U.S. District Court for the Northern District of Illinois on February 13, lawyers for both the CFTC and Kraft Foods said they had reached a tentative new settlement to bring the five-year-old case to a close.
In the original case, first filed in April 2015, the CFTC claimed Kraft Foods Group, Inc. and Mondelez Global LLC (then one company) had manipulated the wheat market by purchasing $90 million in December 2011 wheat futures, signalling to the market it was buying wheat from the Chicago Board of Trade, rather than the cash market, traditionally where the company gets its wheat. This inflated the price of wheat in future months, at which point the company sold the equivalent in March 2012 wheat futures contracts for a profit of more than $5.4 million.
The case was initially settled August 14, 2019, when the involved parties entered into a consent order, a sort of settlement that cost the food companies $16 million in penalties and avoided any admission of guilt. But when the commissioners of the CFTC released a series of statements praising the consent order as a win for the regulatory heft of the agency, Kraft and Mondelez fought back, claiming the statements were in violation of the confidentiality agreement in the consent order.
“Neither party shall make any public statement about this case other than to refer to the terms of this settlement agreement or public documents filed in this case, except any party may take any lawful position in any legal proceedings, testimony or by court order,” the consent order stated.
Kraft said these statements by CFTC commissioners violated that agreement:
“The $16 million penalty is approximately three times defendants’ alleged gain.”
“We are pleased to bring this matter to a successful resolution, which terminates more than four years of litigation.”
“The Commission believes that the Consent Order advances our mission of fostering open, transparent, and competitive markets.”
“We do not expect the Commission to agree to similar language in the future, except in limited situations where our statutory enforcement mission of preventing market manipulation is substantially advanced by the settlement terms and the public’s right to know about Commission actions is not impaired.”
But the commissioners argued the agency itself could not comment on the case, yet the individual commissioners were not bound by that statement.
So back to court they went.
In October 2019, U.S. District Judge John Robert Blakey vacated the initial consent order, including the $16 million fine, effectively bringing the case back to square one. Kraft demanded the government agency be held in contempt of court for its violations, and asked for damages.
The agency and the food companies argued whether or not the commissioners were bound by terms of confidentiality initially agreed to by the overarching agency.
On Thursday, upon learning of the new, second agreement, Judge Blakey looked up in surprise.
“What about the elephant in the room?” asked the judge, referring to the confidentiality agreement that reignited the litigation.
Legal counsel for Kraft Foods clarified that the new agreement offered compromises for both sides.
The violated confidentiality clause from the original consent order would not be in the new agreement.
But Kraft would be allowed to review any statements or press releases the Commodity Futures Trading Commission planned to publish following the finalization of the agreement.
It’s unclear if that agreement refers to statements by the Commission, opinions of the individual commissioners, or both. Legal counsel for both parties declined to comment for this story.
The agreement is pending CFTC board approval, which may not take place until late March. It would also require approval from the court.
On Friday, February 14, Judge Blakey said in a docket entry that Kraft’s motions against the CFTC for contempt, sanctions, and other relief were still valid.
“Given the egregious misconduct by Plaintiff (CFTC), this Court grants in part Defendants' (Kraft) motions 315 and 316, and this Court shall issue findings of fact and conclusions of law by separate order,” said Judge Blakey in the entry.
Meanwhile, Kraft is still in a parallel class-action case, Ploss v. Kraft Foods Group, Inc. et al, in which eight commodity traders say the company’s market manipulation cost them actual damages and losses. Harry Ploss, the lead plaintiff on the case, alleges his trust lost at least $12,250, because of Kraft’s false signals to the wheat markets.
The next hearing in Ploss v. Kraft Foods is set for February 19 in the United States District Court Northern District of Illinois.