A combine drives though stalks of soft red winter wheat during the harvest on a farm in Dixon, Illinois, July 16, 2013. REUTERS/Jim Young (UNITED STATES - Tags: AGRICULTURE ENVIRONMENT) - TB3E97P1BBOSV
The case between Mondelez, Kraft Heinz and the CFTC involved allegations of distorting the price of wheat futures © Reuters

A long-running legal tussle between the food companies Mondelez International and Kraft Heinz and a US market regulator reignited in fury, just hours after it had been formally concluded by a federal judge.

The Commodity Futures Trading Commission extracted a $16m penalty from Mondelez over allegations it and Kraft manipulated the US wheat futures market when they were a single company in 2011. But the commission agreed to an unusual condition not to publicly comment about the case — a pact the companies said on Thursday that it had violated.

Mondelez and Kraft, makers of supermarket brands such as Oreo cookies and Philadelphia cream cheese, said they would immediately return to court to contest the way the regulator announced the deal.

“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,” each company said in separate statements.

The blow-up marks a surprising denouement to four years of litigation that tested new enforcement powers conferred on the derivatives markets regulator by the 2010 Dodd-Frank financial reform law.

The CFTC in 2015 accused Mondelez and Kraft of distorting the price of wheat futures, among the world’s most heavily traded agricultural contracts. The two companies were one at the time of the alleged market manipulation in 2011, before being separated through a corporate spin-off.

The case involved an obscure relationship between the price of Chicago’s soft red winter wheat futures markets and the prices for physical wheat that the companies — then known as Kraft Foods — purchased to supply a company flour mill in Ohio. The CFTC alleged Kraft captured $5.4m in ill-gotten gains.

“America is the breadbasket of the world; wheat markets are its heart. Market manipulation inflicts real pain on farmers by denying them the fair value of their hard work and crops,” Heath Tarbert, CFTC chairman, said in a statement announcing the $16m penalty on Thursday.

All three parties agreed to settle the case in March, according to court records, but status hearings continued for months before Judge Robert Blakey of the US District Court in Chicago.

The commission said its five members unanimously agreed the settlement, including the clause that bars it from making any public comments about the case other than those based on public documents.

“We do not expect the commission to agree to similar language in the future,” it added, except in limited situations.

The settlement finalised on Wednesday comes several months after the CFTC suffered a bruising trial defeat in a case that accused Chicago-based proprietary trading firm DRW of rigging an interest-rate futures market.

The consent order in the Mondelez-Kraft case also lacked so-called findings of fact and of law, which would detail the facts of the case as agreed by the judge. The omission was “uncommon”, said Benjamin Sauter, a lawyer at Kobre & Kim, a law firm that represented DRW in its defence against the CFTC.

“To some extent it defeats the purpose of an enforcement action, which is to provide guidance to the industry, one thing the settlement utterly fails to do. The omission is particularly glaring here because the industry has been looking for guidance on the standard for manipulation following the CFTC’s loss in DRW,” Mr Sauter said.

Individual commissioners were not muzzled by the agreement agreed by the CFTC in the Mondelez-Kraft case. Two of them, both Democrats, issued a separate statement expressing misgivings about the gag clause and the absence of factual findings in the consent order.

Commissioners Dan Berkovitz and Rostin Behnam said that in future, the commission should avoid confidentiality provisions in its settlements.

“We are voting for this settlement because we believe that [Kraft Foods] manipulated the wheat market. The $16m penalty and injunctive relief that the commission has obtained in this consent order is as much as the commission could reasonably expect to obtain if it were to prevail at trial,” they said.

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