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Feds reap $16 million settlement with Kraft, Mondelez but sow confusion

CFTC comments about case violate agreement, Kraft Heinz alleges.

A trio of wheat harvest combines wrap up work Aug. 5 east of Walla Walla, Wash., at the base of the Blue Mountains.
Greg Lehman/Walla Walla Union-Bulletin via AP

The federal regulator of futures trading said Thursday it has obtained a consent order requiring Kraft Heinz and Mondelez International to pay $16 million to settle charges that they manipulated wheat prices in 2011, but the issue may not be resolved.

The Commodity Futures Trading Commission, which first accused the companies of wrongdoing four years ago, said the penalty is about three times their alleged profit from their trades. In 2011, Kraft, which has headquarters in Pittsburgh and Chicago, and Deerfield-based Mondelez were one company under the Kraft name.

But there were several unusual aspects about the consent order, entered Wednesday by U.S. District Judge John Robert Blakey. It contains no factual findings to support the penalty and, despite a provision forbidding the defendants and the CFTC from commenting on the case, two of the five agency commissioners issued a statement about it.

In addition, the consent order specifies that the $16 million must be paid only by Mondelez in 90 days. But then it adds a sentence that says both defendants are liable.

Kraft Heinz spokeswoman Lynne Galia said, “We strongly disagree with the CFTC’s statements, which blatantly violate and misrepresent the terms and spirit of the consent order, and will be seeking immediate relief from the court.” She declined further comment and a Mondelez spokesman could not be reached.

The CFTC alleged the companies devised a strategy in the late summer 2011 to counteract high prices for cash wheat. It said the food companies purchased 3,000 futures contracts expiring in December 2011, costing about $90 million, sending the market a false signal that they would use the wheat when in fact it was far more than they needed.

The CFTC said the real aim was to profit from trading in futures expiring later than December 2011 and to drive down the price of cash wheat to meet their real needs. It also said they exceeded speculative position limits established by the Chicago Board of Trade. The trading resulted in a profit of $5.4 million, the CFTC said.

In a joint statement, CFTC Commissioners Dan Berkovitz and Rostin Behnam said that despite the order banning additional comments from the agency, they are still free to speak as individuals. Doing so is important in a case settled without published facts, they said.

“Commissioners, as public officials, must be able to explain to Congress and the public the basis for the sanctions obtained, as well as the rationale for entering into a settlement agreement rather than pursuing litigation,” they said.

It also said, making no mention of Mondelez, “We support entering into the consent order with Kraft, despite the absence of findings of fact, because the penalty and injunctive relief imposed reflect, in our view, the gravity of Kraft’s conduct.”

The CFTC itself also issued a statement supporting the right of its individual members to speak.

A spokesman for the agency said, ““The Commission’s statement is fully compliant with the terms of the consent order.”