August 15, 2019

Two Companies Settle CFTC Charges of Wheat Futures Price Manipulation

Bob Zwirb Commentary by Bob Zwirb

Two companies agreed to pay $16 million to settle CFTC charges of wheat futures price manipulation. Pursuant to the settlement, the CFTC agreed not to make "any public statement about this case." The Consent Order does not contain either factual findings or conclusions of law.

In its Complaint filed in the U.S. District Court for the Northern District of Illinois Eastern Division, the CFTC alleged that Kraft Foods Group, Inc. and Mondelēz Global LLC devised and executed a scheme designed to manipulate the prices of the December 2011 wheat futures contract traded on the Chicago Board of Trade. The CFTC alleged that the Defendants had no intention of sourcing wheat from the futures market but sought to create a false demand for more than 3,000 futures contracts (estimated $90 million) of Soft Red Winter Wheat. The CFTC found that the Defendants made over $5 million through their improper conduct.

In a public statement, the Commission emphasized that it likely will not agree to a gag order again, with certain exceptions. The Commission further clarified that, although it cannot speak on the litigation, individual Commissioners may speak on the matter in their personal capacity.

Although they expressed support for settlement, CFTC Commissioners Dan M. Berkovitz and Rostin Behnam urged the Commission not to "bargain this right away in settlement negotiations." Specifically, the Commissioners stated that it is crucial that they retain the ability to speak to Congress and the public in order to explain the logic behind entering into settlement agreements. Going forward, they urged the Commission not to accept any confidentiality provisions or restrictions on public statements.


Bob Zwirb
Bob Zwirb

Gag orders imposed in settlements typically create an asymmetry for litigating parties in their ability to comment on such matters, with the government usually remaining free to say whatever it wants about the respondent’s alleged wrongdoing, while the latter enjoying no similar privilege. Here the Court took the unusual step of imposing a gag order on both parties to prevent them from "mak[ing] any public statement about this case." Commissioners Berkovitz and Behnam nevertheless get around this restraint by taking advantage of the fact that it applies only to the Commission "as a collective body," but not to them as individual Commissioners. And while they lament the Commission’s (but not the defendants’) inability to talk about this case, they nevertheless feel free to "explain to . . . the public the basis for the sanctions obtained, as well as the rationale for entering into a settlement agreement rather than pursuing litigation."

By taking this path, the two Commissioners not only are able to preserve the asymmetry that the Court’s Order here was meant to prevent, but at the same time to impute guilt on the part of Kraft and Mondelēz, notwithstanding the fact that the latter neither admitted nor denied the CFTC’s allegations. They do so by citing the judge’s unfair statement that by settling rather than fully litigating, Kraft "has effectively admitted the allegations of the complaint."

"Federal agencies," as Messrs. Berkovitz and Behnam correctly observe, "often decide to settle enforcement matters without further litigation for pragmatic reasons, including the avoidance of the costs and risks associated with a trial."  The same can be said for defendants like Kraft and Mondelēz, but they enjoy no similar right to express that sentiment.  Such a clever workaround, as was done here, allows Washington regulators to continue to talk their side while compelling defendants to shut up about cases that are settled. Perhaps this is why such gag orders are currently subject to legal challenge. See Shut Up the SEC Explained and How the SEC Silences-Criticism.