Chicago - Kraft Foods Group was accused by the US Commodity Futures Trading Commission of manipulating wheat prices by hoarding futures contracts it didn’t intend to fulfill.
A unit of Mondelez International was also named in the suit by the CFTC. That company is the snack food maker formerly known as Kraft Foods Incorporated, which changed its name as it spun off its groceries unit as Kraft Foods Group in 2012.
Kraft Foods Group, which last month announced plans to merge with H.J. Heinz, and Mondelez Global LLC tried to illegally influence December 2011 wheat futures prices on CME Group’s Chicago Board of Trade, according to the regulator’s complaint filed on Wednesday in Chicago federal court.
“This case goes to the core of the CFTC’s mission: protecting market participants and the public from manipulation and abusive practices,” CFTC Director of Enforcement Aitan Goelman said in a statement. “A market participant who is not happy with cash prices available to it may not resort to manipulative trading strategies in an attempt to artificially lower that price.”
In an e-mailed statement, Northfield, Illinois-based Kraft said the alleged wrongful conduct occurred before its spinoff from Mondelez and that the latter company would bear the brunt of any penalties exacted by the CFTC.
“We do not expect this matter to have a financially material impact on Kraft,” Basil Maglaris, a company spokesman, said.
Kraft said in regulatory filing on Wednesday that it doesn’t foresee the CFTC case as having an adverse effect on its planned merger with Heinz.
Mondelez co-operating
Mondelez declined to comment on the court filing. In a February 20 filing with the US Securities and Exchange Commission, the Deerfield, Illinois-based company said it learned of the regulator’s probe in 2013 and that it was co-operating with the government.
Based on a September 2012 separation agreement with Kraft, Mondelez said it expected to “predominantly bear any monetary penalties or other payments” imposed by the commodities regulator.
Mondelez and Kraft allegedly bought $90 million of the December 2011 contracts - tantamount to a six-month supply - never intending to take delivery, according the CFTC. Their intent was to compel the market to lower cash wheat prices in response to the companies’ long position.
When those price shifts occurred, Mondelez and Kraft earned more than $5.4 million in profits and savings, according to the agency.
The CFTC is asking a judge to order Kraft to disgorge its monetary benefit from the illegal conduct and to impose a fine of either triple that gain for each violation or a $1 million fine for each initial violation plus $140 000 for each subsequent offense.
The case is US Commodity Futures Trading Commission vs Kraft Foods Group Inc, 15-cv-02881, US District Court, Northern District of Illinois (Chicago).
Bloomberg