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CFTC v. Kraft

In a Consent Order entered on August 15, Kraft Foods Group, Inc, and its subsidiary Mondelez Global LLC agreed to pay $16 million to settle the CFTC’s complaint alleging the firms manipulated the December 2011 wheat futures markets. The settlement was thought to have ended the litigation, begun in 2015, however, shortly after the entry of the Consent Order, the firms filed a motion seeking contempt sanctions against the CFTC and Commissioners Berkovitz and Behnam. Kraft’s emergency motion alleges the Commission’s statements, and individual Commissioner statements filed concurrently with the Consent Order violated the terms of the settlement.

The Consent Order contained two unusual aspects. First it contained no factual findings or conclusions of law. Second, it contained a clause limiting the parties’ ability to speak publicly on the litigation.

Under the Consent Agreement, both parties agreed to refrain from making any public statements, other than to refer to the terms of the settlement. The CFTC issued a press release outlining the initial claims brought against the firms, and touting the $16 million fine as “approximately three times the defendants’ alleged gain.” The CFTC simultaneously released two other statements regarding the Consent Order, one from the Commission itself, and a joint statement by Commissioners Berkovitz and Behnam.

In their release, the Commissioners stated that the “consent order only limits statements of the Commission as a collective body. Individual Commissioners, speaking in their own capacities, retain their right and ability to speak fully and truthfully about this matter.” The statement goes on 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.”

In their motion for contempt, filed last Friday, Kraft argued that the three statements by the CFTC were willful violations of the Consent Order. According to their memorandum in support of the motion, the three statements were released simultaneously in an orchestrated effort to violate the Consent Order, arguing that even if only the CFTC were bound by the Consent Order the Commission violated it “when it endorsed the statements of its Commissioners by identifying them in the CFTC’s official press release, linking to them, and posting them prominently on the CFTC’s webpage announcing the settlement.” Kraft further argued that not only did the violation of the Consent Order harm Kraft, but allowing Commissioners to speak publicly on issues the Commission is prohibited by the Consent Order from discussing will harm future litigants. “There will be no reason for future parties to agree to settlements if the Commissioners – the only parties with the power to bind the CFTC to an agreement in the first place – may simply disregard the agreement without consequence.”

The Commission has since voluntarily removed the press release, Commission statement, and Commissioners’ statement from its website. Judge Blakely has ordered Commissioners Behnam and Berkovitz to appear before the court in person at an evidentiary hearing scheduled for September 12, 2019.

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About this Author

Nicholas Wendland Attorney Chicago
Counsel

Nicholas A.J. Wendland represents and advises financial institutions in navigating securities, commodities and exchange regulations. Drawing on his extensive experience at FINRA and the New York Stock Exchange (NYSE), as well as in private practice, Nicholas assists his clients in understanding and complying with securities and commodities laws, as well as regulations and rules set by self-regulatory organizations. Nicholas’ in-depth understanding of complex financial products, global regulations, and the business and operation requirements of his...

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