Kraft Foods Group and Mondelēz Global, a Chicago-based snack food and beverage company, are finally paying the price for accusations of trying to manipulate the price of wheat in December 2011. An enforcement action brought by the Commodity Futures Trading Commission nearly seven years ago against the food companies has come to an end, following a judge’s final approval, and will result in them jointly paying a $16 million fine. The settlement was delayed after the CFTC violated the terms of the original agreement in 2019.
Last Friday, Judge John Robert Blakey of the U.S. District Court for the Northern District of Illinois finalized the settlement. Approval of the settlement comes even after the judge criticized the CFTC for striking “foul blows” in violating the terms of its original settlement.
The CFTC first filed a civil enforcement complaint against Kraft and Mondelez in April 2015, accusing the two companies of manipulating or attempting to manipulate the prices of wheat and wheat futures. According to the CFTC’s original complaint, Kraft adopted a strategy of buying $90 million of wheat futures in early December 2011 “to depress the price of wheat in the cash market and inflate the futures price of wheat.”
“Kraft did not have a bona fide commercial need for $90 million of wheat—which would amount to approximately 15 million bushels, or a six-month supply for the Mill—in December 2011,” the CFTC complaint stated. “Kraft had never possessed that quantity of wheat and had no ability to store that quantity of wheat within its own facilities.” (Mondelez, which spun off from Kraft Foods Group in 2012, is the company’s global snack and food brand.)
The CFTC further alleged, “Kraft, acting through its procurement staff, acquired its December 2011 long position without any intention of loading out, delivering, and using the majority of the … wheat it stood to acquire.” Consequently, both companies saved about $5.4 million on wheat, at a time wheat prices were spiking.
In March 2019, Kraft and Mondelez agreed to a $16 million settlement with the CFTC, which was included in a consent order issued by the court in August 2019. That consent order explicitly prohibited both parties from making “any public statement about this case other than to refer to the terms of this settlement agreement or public documents filed in this case.”
Talking Out of Turn?
The case took an unusual turn when the CFTC commissioners issued a joint statement touting the settlement. In an emergency motion, Kraft and Mondelez asserted the CFTC violated the settlement terms due the public statements it had made.
Judge Blakey voided the settlement and initiated contempt proceedings against the CFTC. Ultimately, a three-judge panel for the Seventh Circuit Court of Appeals blocked the proceedings, ruling that only the CFTC was bound by the settlement terms, not its commissioners or chairman. However, because the court stopped short of completely tossing out the contempt proceedings against the CFTC, Blakey in February 2020 issued a finding of contempt.
“Among other concerns, CFTC’s misconduct here raises troubling concerns for the future, because its actions fundamentally erode the long-established protocols for settlement conferences in both state and federal court,” the judge stated in the order. “Future litigants should take note of the CFTC’s position that consent orders only bind the CFTC, but not its commissioners or agents who, apparently, may act with impunity.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.