CFTC Pushes Dodd-Frank Boundaries With Manipulation Case
In the first case of its kind, the CFTC has accused Kraft Food Groups, Inc. and former parent Mondelez Global LLC with manipulation pursuant to Section 6(c)(1) of the Commodities Exchange Act and Regulation 180.1 promulgated thereunder. Regulation 180.1 makes it unlawful to recklessly employ manipulative devices. Most would have though enforcement would have been directed at high frequency traders and not actual users of commodities like Kraft.
The CFTC alleges Kraft purchased $90 million in of wheat futures which, according to the CFTC, was far in excess of Kraft’s commercial needs. The CFTC alleges Kraft desired the market to believe that it would take delivery of a portion of the wheat, which would lower the cash price of the wheat.
As explained in this article, Kraft’s indication that it intended to take delivery of wheat under its wheat contracts not only drove up the price of those contracts; it also drove down the price of other cash wheat delivery. The idea seems to be that the wheat growers and wholesalers who normally sold wheat to Kraft would see that Kraft was getting wheat delivered from its CBOT contracts, and would panic and dump their wheat for cheap since their big customer was looking elsewhere.
Kraft allegedly made $5.4 million dollars in the trades. Even if the CFTC were successful in imposing triple damages as alleged in the complaint, market observers do not see this as bet the company litigation for Kraft given its size and the action may be settled.
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