August 23, 2019

Two Companies Ask Federal Judge to Sanction CFTC for Violating Settlement Agreement

Bob Zwirb Commentary by Bob Zwirb

Two companies, that had agreed to a settlement in a wheat futures price manipulation case, filed a motion for contempt against the CFTC. The companies argued that the agency violated the terms of the settlement which required that both the companies and the CFTC not make "any public statement" about the matter.

As previously covered, the Defendants, Kraft Foods Group, Inc. and Mondelēz Global LLC, and the CFTC agreed not to make "any public statement" about a case that resulted in a $16 million settlement. However, after the case was settled, the CFTC published a press release and several statements regarding the settlement on its website, including:

  • the CFTC press release titled "Penalty Valued at Three Times the Alleged Gain," which included a statement from Chair Heath P. Tarbert concerning the companies' alleged conduct; and

  • the "Statement of Commission" and "Statement of Commissioners Berkovitz and Behnam," which discussed the case.

In the Motion for Contempt, Sanctions and Other Relief, the companies allege that the three statements indicate that the CFTC and its Commissioners "never intended to comply with the agreement they negotiated" (i.e., the "gag order"). The companies urged the Judge to (i) find the CFTC and its Commissioners in contempt for violating terms of the settlement and (ii) order the CFTC and its Commissioners to take remedial action and pay monetary sanctions.

The CFTC filed a response, asserting that it did not violate the terms of the agreement. Specifically, the CFTC stated that the agency and its Commissioners are "legally distinct," that while the Court's gag order binds the Commission, it does not apply to the views expressed by individual Commissioners, and that the Commission is prohibited from restricting any individual Commissioner's statements.


Bob Zwirb
Bob Zwirb

At issue in the case are (i) statements issued by the CFTC Chair and two other Commissioners in connection with the CFTC settlement with Kraft Foods, and (ii) whether those statements violate a provision of the Consent Order expressly prohibiting either "party" from making any public statement about the case.

As to the statements themselves, the one issued by Chair Tarbert referring to the "real pain" that manipulation causes farmers and American families is the kind of generic press release that agency heads and enforcement chiefs at any regulator typically issue when the agency prevails in an enforcement matter (no such press releases are ever issued when the agency loses). Here, the statement is potentially problematic only because of the gag order, so that even a statement that is reasonably bland could be perceived as going to the merits of the case and the culpability of the defendants. The statements issued by Commissioners Berkovitz and Behnam, however, are more substantive, and more obviously raise questions under the Court's gag order, as they expressly render an opinion on the merits, i.e., that Kraft Foods "manipulated the wheat market."

While the CFTC has asserted that there is nothing to see here, then:

  1. Why do the statements no longer appear on the agency website?
  2. Why was the usual disclaimer about not speaking on behalf of the agency in the Commissioners' statements not issued here?
  3. Why did the presiding judge hold an "emergency meeting" about all this to consider whether the agency was in contempt of the Court Order?
  4. Why did the judge feel compelled to ask the CFTC lawyer at that hearing whether the Commission or the Commissioners would be invoking their Fifth Amendment rights against self-incrimination? 
  5. And why did the judge take the extraordinary course of ordering the three Commissioners and the Enforcement Director to "appear in person" next month in Chicago to address these concerns?

Whether the CFTC prevails in its argument that the "party" here is the Commission, not the individual Commissioners (and accordingly that the Court's gag order binds only the former, not the latter), and that a contempt finding is not appropriate where a violation of a gag order "is based on . . . good faith," query whether it is a good look for the government to seem to avoid the spirit of the agreement that the CFTC voluntarily entered into and which was approved by a judge. While it is true, as the CFTC argues, that "there is nothing surprising or novel" about individual commissioners issuing their own views about actions taken by the Commission, that begs the question as to whether such views may be issued in the face of a court order to remain silent.

The CFTC position may come back to haunt it. What will the CFTC do when an accused legal entity enters into an agreement to "not deny" guilt, but after settlement, various senior employees of the entity assert that the company was innocent and just settled to get the matter out of the way? Will the CFTC be able to take the position that the company's agreement not to deny guilt also applied to the company's employees?