Cook County Record

Saturday, September 21, 2019

Kraft Foods: Feds breached $16M deal by ‘touting’ victory in wheat price manipulation action

Federal Court

By Dan Churney | Aug 19, 2019


CHICAGO -- Kraft Foods alleges federal trade regulators quickly spoiled a settlement agreement in which Kraft agreed to pay $16 million to end a suit alleging it had manipulated wheat prices, by braying to the public about their purported triumph over Kraft in the case.

Kraft wants the U.S. Commodity Futures Trading Commission, as well as commissioners Dan Berkovitz and Rostin Behnam held in contempt and to pay sanctions.

The commission filed suit against Kraft, along with food packager Mondelez Global, in 2015 in U.S. District Court for the Northern District of Illinois. Kraft is based in suburban Northfield, and Mondelez, which is a corporate spinoff of Kraft, is based in Deerfield.


CFTC Chairman Heath Tarbert | CFTC.gov

The suit alleged Kraft violated the U.S. Commodity Exchange Act in 2011 by using deception to buy $90 million in wheat futures contracts to cut the price it would pay for wheat, saving about $5.4 million on cash wheat and expecting to make money on wheat futures. Wheat prices were spiking at the time.

Kraft alleges it had promising motions on the table, when it agreed to a confidential settlement in March 2019. A consent order pursuant to the settlement was signed Aug. 14. 

Under the order’s terms, Kraft did not admit wrongdoing but agreed to pay a $16 million penalty and to refrain from engaging in the alleged improper conduct. The order also stated “neither party shall make any public statement about this case other than to refer to the terms of this settlement agreement or public documents filed in this case.” 

Kraft alleged the commission trampled this part of the order as soon as the ink was dry, by posting the next day a statement about the case on the commission’s website that was titled, “Penalty Valued at Three Times the Alleged Gain.”

The statement quoted commission chairman Heath Tarbert saying the defendants inflicted “real pain on farmers by denying them the fair value of their hard work and crops,” and “hurt American families by raising the costs of putting food on the table.”

Kraft pointed out the commission never alleged in the suit that Kraft harmed farmers or caused a rise in food costs.

The commission also released statements by commissioners Berkovitz and Behnam. The two commissioners stated the “$16 million 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," according to the suit.

Berkovitz and Behnam further allegedly said Kraft’s agreement to pay a penalty means the court necessarily found the commission had established sufficient facts to prove its case.

Kraft argued the commission “never intended to comply with the bargain they struck” and engaged in an “orchestrated strategy” to “tout a supposed victory” by “implying that the court found evidence that defendants had manipulated the market and that defendants admitted as much. The court made no such finding and defendants made no such admission.”

Kraft further asserted that because it obeyed the consent order, but the commission allegedly did not, much of the news coverage has reflected the commission’s “self-aggrandizing version” of the case.

Kraft is defended by Jenner & Block, and Lynch Thompson LLP, both of Chicago, and Sutherland Asbill & Brennan, with offices in New York, Atlanta and Washington, D.C.

The commission is represented by commission lawyers from the agency's offices in Chicago and Washington, D.C.

Tarbert, Berkvotiz and Benham were all appointed to the CFTC by President Donald Trump.

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Organizations in this Story

Jenner & Block Lynch Thompson LLP The Kraft Heinz Company U.S. Commodity Futures Trading Commission U.S. District Court for the Northern District of Illinois Chicago Division

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