CFTC Meeting on Regulation...
The Commodity Futures Trading Commission charged Kraft Heinz and Mondelez International in 2015 with manipulating wheat prices © Bloomberg

A US financial regulator has removed sensitive public announcements from its website and been ordered to send top officials to testify in court as it faces blowback from an extraordinary legal settlement with two giant food companies.

The Commodity Futures Trading Commission’s $16m fine and court-approved consent order against Kraft Heinz and Mondelez International last week resolved civil charges alleging the companies had rigged wheat prices.

Less than a day later, the companies accused the agency of violating the order — specifically, an unusual provision censoring what the CFTC could say in public about the case — when it released three statements trumpeting the outcome.

On Monday, John Robert Blakey, a federal judge, ordered Heath Tarbert, the recently sworn-in CFTC chairman, two commissioners and the agency’s enforcement director to testify at a hearing on the companies’ claims. The agency also voluntarily scrubbed the disputed statements from its website.

“It was an extraordinary consent order, and the fallout now from that consent order and the subsequent releases is even more remarkable,” said Gary DeWaal, special counsel at Katten Muchin Rosenman, a law firm.

The CFTC polices futures and swaps markets worth trillions of dollars. In 2015 it charged Mondelez and Kraft with manipulating wheat prices by buying up large amounts of wheat futures to influence the prices it paid for crops near an Ohio flour mill.

The two US companies were a single company named Kraft Foods at the time of the trading in 2011. They now have combined annual revenues of more than $50bn, selling widely known brands such as Oreo cookies and Grey Poupon mustard.

Last week, the CFTC said its penalty against the companies was three times their alleged gain, while Mr Tarbert said that market manipulation “inflicts real pain on farmers” and “hurts American families by raising the costs of putting food on the table”.

The companies said these statements were false and asked the judge to hold the agency in contempt of the court order. “The CFTC never alleged that Kraft deprived farmers of the fair value of their hard work and crops, nor that Kraft raised the cost of putting food on the table,” their lawyers said in a legal motion.

The CFTC and the companies reached a binding agreement to settle the case in March, but took months to negotiate the final settlement. The deal came soon after the agency lost a major manipulation case at trial against DRW, a high-volume derivatives trading firm.

The commission last week said the gag order to which it agreed did not prevent individual commissioners from commenting. Commissioners Dan Berkovitz — a former CFTC general counsel — and Rostin Behnam did so, both saying they believed Kraft Foods manipulated the wheat market.

“Defendants were represented by able counsel throughout these proceedings, and the terms of the order were fairly negotiated,” the CFTC’s lawyers wrote in a response. “Defendants might have pushed for more concessions, but having failed to do so, they may not return to court to cry foul.”

The companies sought a ruling of civil contempt, not criminal contempt. However, the CFTC asserted the fifth amendment, the constitutional provision against self-incrimination, at a hearing on Monday, according to a docket entry. The move preserved CFTC courtroom lawyers’ ability to confer with commissioners and the agency’s general counsel before taking further action under pressure from the judge, according to someone with knowledge of the court proceedings.

Judge Blakey ordered Mr Tarbert and the other CFTC officials to “appear in person” in his Chicago courtroom at an evidentiary hearing on September 12, and “provide live testimony as needed”. A CFTC spokesman declined to comment.

“I think this must be unique,” said Jerry Markham, a law professor at the Florida International University and former CFTC attorney. “I can’t imagine this has ever occurred before with respect to a government agency. They’ve got commissioners of the agency who are in the dock, so to speak. It’s astonishing.”

Get alerts on Commodity Futures Trading Commission USA when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article