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Class action alleges Kraft manipulated 2011 wheat market, artificially lowered prices, cost investors

By Jonathan Bilyk | Apr 22, 2015

On the heels of a federal regulatory action over alleged attempts to manipulate the wheat market, a Burr Ridge investment firm has launched a federal class action against two of America’s largest consumer-packaged food makers.

On April 22, White Oak Fund LP filed suit in federal court in Chicago against Northfield-based Kraft Foods and Deerfield-based Mondelez Global, alleging the companies cost investors untold sums when the companies improperly used their market positions to ease wheat prices four years ago, violating federal antitrust and commodities trading laws.

The investment fund has asked the federal court to allow the litigation to move forward as an action including a class of similarly situated investors, who bought or sold wheat futures contracts or options on the Chicago Board of Trade between Oct. 21, 2011, and Dec. 31, 2011. They estimate the class could number “in the hundreds, or perhaps thousands.”

In its complaint, White Oak said the actions by Kraft and Mondelez demonstrated a “secretive” and “manipulative scheme” which harmed White Oak and others like them by causing investors to lose money trading “in CBOT wheat futures contracts at artificial prices.”

White Oak and the proposed class are being represented in the action by attorneys Steven A. Kanner, Robert J. Wozniak and Donald L. Sawyer, of the firm of Freed Kanner London & Millen LLC, of Bannockburn; attorneys David E. Kovel, Lauren Wagner Pederson and Thomas W. Elrod, of the firm of Kirby McInerney LLP, of New York; and attorneys Brian Philip Murray, Lee Albert and Gregory B. Linkh, of the firm of Glancy Binkow & Goldberg LLP, of New York.

The litigation comes on the heels of a suit brought April 1 against Kraft and Mondelez by the U.S. Commodity Futures Trading Commission, which alleged Kraft and Mondelez – which formerly operated under the same corporate umbrella – bought up large amounts of wheat futures contracts in the fall of 2011 to bring down the price of wheat.

According to the White Oak Fund complaint, as wheat prices spiked worldwide in late 2011, Kraft, “one of the largest domestic end users of soft wheat … devised a strategy designed to artificially reduce the differential between the December futures price and the price of the cash market wheat.”

To accomplish that goal, the complaint alleges Kraft “took an abnormally large long position in December 2011 wheat futures contracts” of more than $90 million, which “equated to a six-month supply of wheat” – a purchase the company allegedly used “to induce sellers to believe Kraft would take delivery, load out and use that wheat in its mill.”

The complaint alleges the company’s actions represented a sharp departure from its normal strategy, which is to hold no more than a two-month supply of wheat on hand and use the futures market to hedge its wheat purchase costs.

The complaint alleges the strategy was designed to increase the value of the futures contracts held by Kraft, while at the same time reducing the difference between the price of wheat on the futures market and that of wheat in the cash market. This, in turn, would “prompt physical market sellers to reduce their prices to remain in the game,” the complaint alleges.

The complaint alleges the strategy succeeded, as Kraft’s futures contracts increased from $5.75 per bushel on Nov. 28, 2011, to $6.12 on Dec. 2, 2011, and the cash price of wheat dropped from $6.16 per bushel on Dec. 2, 2011, to $5.86 on Dec. 9, 2011.

All told, the company is alleged to have earned more than $5.4 million from the maneuvers, which the complaint alleges violated the federal Commodities Exchange Act and the Sherman Antitrust Act.

The complaint asks the court to award unspecified damages.

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