On August 15, 2019, the CFTC announced that the U.S. District Court for the Northern District of Illinois entered a Consent Order which settles the CFTC’s claims against Kraft Foods Group, Inc. (“Kraft”) and Mondelēz Global LLC (“Mondelēz”) for manipulating and attempting to manipulate the prices of cash wheat and wheat futures, violating speculative position limits, and engaging in noncompetitive trades in CBOT wheat. The Consent Order imposed a civil monetary penalty in the amount of $16 million against Kraft and Mondelēz, which was described as approximately three times the amount of the alleged gain of the defendants. This settlement is unusual due to the absence of findings of fact and conclusions of law in the Consent Order, and restrictions to further comment on the parties beyond publicly filed information.
As stated in the Statement of Commissioners Dan M. Berkovitz and Rostin Benham Regarding the Commission’s Settlement with Kraft Foods Group, Inc. and Mondelēz Global LLC, the amount of the $16 million civil monetary penalty represents “as much as the Commission could reasonably expect to obtain if it were to prevail at trial.” The Consent Order, however, is devoid of any findings of fact or conclusions of law, which is atypical of consent orders entered with the Commission in this type of case. The litigation of this case raised novel questions regarding the interpretation of Section 6(c)(1) of the Commodity Exchange Act. Without findings of fact and conclusions of law, those questions remain unanswered for market participants.
Notably, the Commission issued a statement regarding the settlement, along with the Commission’s standard press release. The Commission’s statement addressed the Court’s request to include certain language restricting the parties from making public statements about the case other than to refer to the terms of the settlement agreement or publicly filed documents in the case. The Commission’s statement clarified that, while this language is a limitation on what the Commission, as well as the defendants, can say about the litigation and settlement as parties, such language did not restrict individual Commissioners when speaking in their personal capacities.
The statement of Commissioners Berkovitz and Benham addressed the lack of the typically required factual findings and conclusions of law in the Consent Order and the Court’s limitation on statements by the parties, and commented that “[e]xplaining to the public the factual basis for imposing a penalty not only serves to deter similar conduct in the future, but also is essential to avoid chilling legitimate market activity.” The statement further remarked on the need for CFTC Commissioners to “be able to freely and openly express their views on public matters” and pointed to other federal agencies that explicitly prohibit settlements that contain language restricting the agency’s ability to speak about the settlement or underlying litigation.
Going forward, the statement issued by the Commission makes clear that the Commission will not be willing to agree to similar language in future settlements.
 The Court’s ruling on the motion to dismiss in Kraft was one of the first federal court decisions that interpreted the scope of the CFTC’s authority to pursue claims under Section 6(c)(1) of the Commodity Exchange Act. In its decision, the Court found that manipulative activity, absent fraud, was not sufficient to state a claim under Section 6(c)(1), and that proof of fraudulent conduct was required. See CFTC v. Kraft Food Grp., Inc., 153 F.Supp.3d 996, 1011-12 (N.D. Ill. 2015).
Commodity-Corner.com is a Murphy & McGonigle resource for those interested in legal developments in the commodities, futures, and derivatives area. The information provided by this site is intended to provide insightful analysis and perspectives, as well as regulatory and enforcement updates and trends, in this increasingly varied and complex industry.
To view Murphy & McGonigle’s Commodities, Futures & Derivatives practice, please click here.