A farmer holds freshly harvested KWS Kerrin winter wheat grain in a storage shed at a farm in Royston, U.K., on Tuesday, July 24, 2018. Hot and dry weather in recent months has hit European wheat fields hard, pushing U.K. feed-wheat futures' premium over French corn to a four-year high. Photographer: Chris Ratcliffe/Bloomberg
The CFTC alleged that Kraft Foods manipulated the price of wheat to drive down costs for a company flour mill © Bloomberg

A US judge lambasted the Commodity Futures Trading Commission for “egregious misconduct” as he handed a partial victory to Kraft Heinz and Mondelez, the food companies who have been battling the US regulator over alleged manipulation of wheat markets.

The decision on Friday came after the companies asked the judge to hold the CFTC and two of its commissioners in contempt of court and impose sanctions for breaking a gag order in a $16m settlement announced in August. The scope and details of the judge’s order were not immediately available.

The CFTC charged Kraft Heinz and Mondelez in 2015 with rigging US grain prices by purchasing massive quantities of Chicago-listed wheat futures. The conduct was alleged to have taken place when they were a single company, before their demerger in 2012. Both Kraft Heinz and Mondelez have denied the allegations in the case.

The August settlement agreement resolved the CFTC’s litigation with a monetary penalty and included an unusual clause preventing the parties making public statements on the case beyond referring to the court record.

But the agreement quickly collapsed in acrimony. When the CFTC and two commissioners, Dan Berkovitz and Rostin Behnam, issued statements on the settlement, the companies claimed they had violated the deal.

The companies asked the federal judge overseeing the settlement, John Robert Blakey in Chicago, to hold the CFTC and the commissioners in contempt of court and to make 11 other orders and findings, which were redacted in court filings.

On Friday Mr Blakey said that “given the egregious misconduct” by the CFTC he would grant the companies’ request “in part”.

It was not immediately clear which parts he had granted or denied. The notice on the court’s docket said a written order would be issued later.

Mondelez declined to comment, while Kraft Heinz did not immediately respond to a request for comment. A CFTC spokesman had no immediate comment. Representatives for the two commissioners did not immediately respond to a request for comment.

Mr Blakey had ordered Mr Berkovitz and Mr Behnam, as well as the chairman of the CFTC, Heath Tarbert, to appear in his courtroom to explain themselves after the companies cried foul. An appeals court blocked the move, however.

The 7th Circuit Court of Appeals also ruled that the commissioners could not be held in contempt as they had “a right to publish an explanation” of their votes on the settlement.

The CFTC had argued that the gag clause bound only the agency, not its commissioners, and that its own statements had not violated the agreement.

At a court hearing on Thursday, the parties said they had agreed to a new settlement that would include dropping the contempt claims, according to a report by Wolters Kluwer, the information services company, and a person familiar with the matter.

The commission had charged that Kraft Foods, which later became Mondelez and Kraft Heinz, bought “huge” amounts of Chicago-listed wheat futures, pushing down the relative price of physical wheat that supplied a company flour mill in Toledo, Ohio.

The purchases also violated limits on the size of futures positions, exceeding the 600-contract limit by as much as 2,110 contracts although the company had no bona fide need for such a large position, the CFTC alleged.

The commission’s leadership has changed since the agency first brought the case. Last month, under Mr Tarbert, the agency proposed a new position limit regime that would lift the maximum number of contracts that could be held by any single trader. In the case of wheat futures, the cap would rise to 1,200 from 600.

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