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Federal Commission Accuses Kraft of Manipulating Wheat Prices

Federal Commission Accuses Kraft of Manipulating Wheat Prices

The CFTC seeks financial penalties against Kraft and Mondelez.

This week, the Commodity Futures Trading Commission has filed a lawsuit against Kraft Foods Group and its former parent company, the multinational food company Mondelez, which manages brands like Cadbury, Triscuit, Chips Ahoy!, and Oreo.

“In response to high cash wheat prices in late Summer 2011, Kraft and Mondelez developed, approved, and executed in early December 2011 a strategy to buy $90 million of December 2011 wheat futures, which amounted to a six-month supply of wheat,” according to a press release from the CFTC.

“The CFTC Complaint alleges that Kraft and Mondelēz never intended to take delivery of this wheat and instead executed this strategy expecting that the market would react to their enormous long position by lowering cash wheat prices and strengthening the spread between December 2011 wheat and March 2012 wheat futures. Those price shifts did occur and, according to the CFTC Complaint, Kraft and Mondelēz earned over $5.4 million in profits.”

The CFTC is seeking a permanent injunction from future violations of federal commodities laws, disgorgement, and financial penalties.


Lawsuit Accuses Cheez-It Of Falsely Advertising “Whole Grain” Crackers

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Lawsuit Accuses Cheez-It Of Falsely Advertising “Whole Grain” Crackers

What does it mean for a food to be labeled “whole grain”? Even if there is no official standard for that term, do you expect that a whole grain version of a product would be healthier than the original?

The Kellogg Company is being sued for selling a “Whole Grain” version of its popular Cheez-It crackers that the plaintiffs allege doesn’t live up to the implications of the name and is nutritionally no different than other versions of Cheez-Its.

The complaint [PDF], filed this morning in federal court by people who purchased Cheez-It crackers in New York and California, alleges that calling these crackers “Whole Grain” is “false and misleading, because the primary ingredient in Cheez-It Whole Grain crackers is enriched white flour.”

Unlike whole wheat flour, which contains nutrients and high amounts of fiber, the plaintiffs contend that enriched white flour is “refined so that only the endosperm of the wheat remains, which is mostly starch.”

The Whole Grain Cheez-Its do contain whole wheat flour, though it is farther down the list of ingredients than the white flour. Additionally, a comparison of the nutritional information for Whole Grain and Original Cheez-Its shows the two products have identical stats for calories, fat, saturated fats, protein, and total carbs. The use of some whole wheat flour in the Whole Grain version does appear to push up the dietary fiber figure from “less and 1g” to a full 1g.

The plaintiffs argue that consumers are likely to be misled by a “whole grain” cracker that is nutritionally not any different than the original, especially when competing products, like Wheat Thins Whole Grain, Triscuits and others use either 100% whole wheat or predominantly whole wheat flour.

“Plaintiffs would not have purchased or paid more for Cheez-It Whole Grain crackers had they known the product contains more refined grain than whole grain,” reads the complaint.

The complaint takes issue with Cheez-It’s small print statements that these “Whole Grain” products contain either 5 grams or 8 grams of whole grain per serving, noting that “Nothing else on the box provides any context for how much 5 or 8 grams of whole grain is, in relationship to the much larger amount of refined grain.”

The U.S. Department of Agriculture’s Dietary Guidelines recommend that anyone consuming at least 2,000 calories a day should eat at least 3 ounce-equivalents of whole grains daily, which is around 50g.

Plaintiffs accuse Michigan-based Kellogg of breaking that state’s laws against unjust enrichment and breach of contract, along with consumer protection, false advertising, deceptive business practices laws in New York and California.

“Consumers are seeking out whole grain foods, and expect that when they see the words ‘whole grain’ on the package that whole grain is the main ingredient,” says Maia Kats, litigation director with the Center for Science in the Public Interest, which is helping to represent the plaintiffs in this case. “Kellogg’s Whole Grain Cheez-Its have more white flour than whole grain. It’s effectively a junk food, and Kellogg is taking financial advantage of consumers who are trying to make better decisions for their health.”

==
UPDATE: Kellogg has responded to Consumerist, calling the “completely without merit.”

“Our Cheez-It Whole Grain labels are accurate and in full compliance with FDA regulations,” reads the statement. We stand behind our foods and our labels.”
==

The Food and Drug Administration does not have enforceable rules on what constitutes a whole grain product, but it has provided guidance to industry on how to use this label in the best possible way.

“Depending on the context in which a ‘whole grain’ statement appears on the label, it could be construed as meaning that the product is � percent whole grain,'” reads the guidance, which says that something actually labeled �% whole grain” should not contain grain ingredients other than those considered to be whole grains.

Similarly, for things like pizza crusts and bagels that are labeled “whole grain,” the FDA recommends (but does not require) that these products should only be made using whole grain flours.

In response to the FDA’s non-binding guidance, the Federal Trade Commission commented that “there is potential for consumers to be misled or confused by unqualified ‘whole grain’ claims for products that contain a mixture of
whole grain and refined grain. Many consumers may interpret such unqualified claims to mean that all or nearly all of the grain in the product is whole grain.”

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.


Mondelez News

WASHINGTON--Kraft Foods Group Inc. and Mondelez Global LLC are poised to pay $16 million to settle regulatory allegations they manipulated the market for wheat futures.

The deal, if approved by a federal court in Chicago, would resolve an unusual legal standoff: The companies had accused the Commodity Futures Trading Commission of violating an earlier settlement with them by commenting on it. The deal had limited what could be said about the case.

A judge has considered sanctioning the CFTC and its commissioners over the comments.

Now, the CFTC and the companies appear to have reached a pact with the same penalty amount as the one announced in 2019, a person familiar with the matter said, but without restrictions on what CFTC commissioners can say about the outcome.

On Wednesday, Kraft and Mondelez--previously a single corporate entity--withdrew their request for the CFTC to be sanctioned. The judge, John Robert Blakey, said in a notice posted in the court's docket Thursday that he would take the motion "under advisement." He has scheduled another hearing for March 26.

The companies cried foul last year after the CFTC released three statements--a press release, a statement by all five commissioners, and a separate statement by its two Democrats--that explained the settlement and its unusual gag order.

The original settlement didn't explain how the company's trading ran afoul of the law, an unusual omission in regulatory enforcement orders. It also didn't require the companies to agree with the regulator's claims that they had violated the law.

A spokeswoman for Kraft on Thursday declined to comment. A spokesman for Mondelez didn't respond to a request seeking comment.

Judge Blakey last month said the CFTC statements were "egregious misconduct" and indicated he would issue findings that could spell out consequences for the commission. An appeals court panel said last year that CFTC commissioners can't be held in contempt individually because the law authorizes them to opine about any enforcement action.

The case before Judge Blakey involves claims from 2015 that Kraft illegally manipulated the price of wheat by amassing a huge position in futures contracts while never intending to take delivery of the commodity.

Kraft's strategy, the CFTC alleged, was to use its enormous trading position to drive down the spot-market price of wheat, which it could then buy, while increasing the price of the futures contracts it could later sell for a profit.


Kraft loses bid to toss federal claims it manipulated wheat markets in 2011


Kraft Foods will need to continue to fight an action brought by federal commodities trading regulators after a federal judge refused to toss the U.S. Commodity Futures Trading Commission’s lawsuit alleging the food company improperly manipulated wheat prices to their benefit.

On Dec. 18, U.S. District Judge John Robert Blakey ruled in Chicago federal court, rejecting the request by Northfield-based consumer-packaged food maker Kraft’s to dismiss the Trading Commission’s legal action.

The CFTC had brought the action in early April against both Kraft and Deerfield-based food company Mondelez Global, alleging the two companies, which formerly operated under the same corporate umbrella, bought up large amounts of wheat futures contracts in the fall of 2011 to lower the price the companies would pay for wheat, saving them millions of dollars.

The alleged actions came at a time wheat prices were spiking worldwide. The complaint alleged Kraft, together with Mondelez, bought up more than $90 million in wheat futures contracts, equivalent to about a six-month supply of wheat for the companies, allegedly inducing wheat sellers to believe Kraft would take delivery of and refine that wheat for use in its food products. That would lead wheat sellers to lower their prices.

The actions allegedly marked a sharp departure from Kraft’s usual behavior, which, according to court documents, involved the company keeping on hand no more than a two-month supply of the grain, while using the futures markets to hedge its wheat costs.

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According to court documents, the strategy worked, as Kraft’s futures contracts increased from $5.75 per bushel on Nov. 28, 2011, to $6.12 on Dec. 2, 2011, and the cash price declined from $6.16 per bushel on Dec. 2, 2011, to $5.86 on Dec. 9. The moves allegedly netted Kraft at least $5.4 million in profit.

In its motion to dismiss, Kraft had argued the CFTC had failed to state a strong enough case because the company said the regulators had failed to fully demonstrate how Kraft allegedly manipulated the market, that Kraft had the ability or intent to manipulate the market or that Kraft’s actions sent the signals to traders and wheat sellers the CFTC says they did.

Blakey, however, said Kraft’s arguments fell short at this stage. While later discovery and proceedings may back Kraft’s counterarguments to the CFTC allegations, the judge said, for now, the CFTC has done enough to sustain its legal action.

Blakey particularly pointed to an email, cited in the CFTC’s complaint, sent by senior Kraft management which the judge said “shows that Kraft ‘expected’ its actions to affect the market by lowering the cost for cash wheat and raising the cost for wheat futures. It also shows that Kraft had a ‘plan’ in place that it expected would allow it to save money on cash wheat and make money on wheat futures.”

“Kraft intended that the market would believe it would take delivery of the wheat for use in its mill and react to that belief by lowering the price of cash wheat,” Blakey said.

Kraft is defended in the CFTC action by attorneys with the firms of Jenner & Block, of Chicago, and Sutherland Asbill & Brennan, with offices in New York, Washington, D.C., and Atlanta.

The case is docketed in the U.S. District Court for the Northern District of Illinois as 1:15-cv-02881 U.S. Commodity Futures Trading Commission v. Kraft Foods Group, Inc. et al.

The regulatory civil action has spurred class actions against Kraft, as well. Those cases, brought by commodities investors and consolidated under docket 1:15-cv-02937 Ploss v. Kraft Foods Group Inc., are still pending in Chicago federal court, where U.S. District Judge Edmond Chang is expected to soon deliver a judgment on Kraft’s motion to dismiss those claims.

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Kraft is taking the CFTC to court keep the lid on a $16 million fine in market manipulation case

Kraft and Mondelez are taking the Commodity Futures Trading Commission to court in a bid to keep the agency from discussing a $16 million fine to settle allegations of manipulating the wheat markets.

The two food companies agreed to pay the fine as part of a deal with the CFTC that the companies say restricted what regulators could say about the case. Kraft and Mondelez, which was created when Kraft split into two companies in 2012, are now suing the CFTC for contempt. They filed a motion in federal court in Chicago on Friday, saying the regulator violated the order in an Aug. 15 press release announcing the deal.

"The CFTC and its Commissioners engaged in a deliberate, orchestrated effort to violate the Court's Consent Order within minutes of its entry," the companies said in the filing. The two sides face off in court Sept. 12, according to court documents.

According to the CFTC, Kraft intentionally drove down the price of wheat in 2011 by buying an excessive amount of futures contracts on the grain.

Food companies have made such moves to hedge fluctuations in commodities prices by agreeing to pay a specific price at a specific date in the future. Unlike a hedge fund or trading firm, companies like Kraft are limited in their futures purchases and are prohibited from speculating.

Kraft was allowed to have a futures position of roughly 3 million bushels of wheat, the CFTC said in the original complaint. Instead, Kraft allegedly bought futures contracts for 15.75 million bushels, worth more than $93 million.

The consent order included a clause that read "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."

The order also prohibited the CFTC from saying whether either defendant violated federal law.

After the agreement, the CFTC issued a press release on Aug. 15 saying the penalty was "valued at three times the alleged gain" and included statements from Chairman Heath P. Tarbert and links to statements from individual commissioners.

"Market manipulation inflicts real pain on farmers by denying them the fair value of their hard work and crops," Tarbert said in his statement. "It also hurts American families by raising the costs of putting food on the table. Instances of market manipulation are precisely the kinds of cases the CFTC was founded to pursue."

The CFTC told the court Saturday that its public statements didn't violate the order and that its individual commissioners were not bound by the agreement. The CFTC voluntarily removed the announcement from its website until the next court appearance.

The CFTC and Kraft declined to comment for this article. Mondelez did not respond to a request for comment.

The segments of Kraft and Mondelez named as defendants in the case were part of the same company in 2011 when the trades took place. In 2012, Kraft Foods changed its name to Mondelez and spun off Kraft Foods Group Inc., which merged with Heinz in 2015 to form the Kraft Heinz Co.

Kraft's futures position in 2011 represented 87% of the active futures market for that particular month and type of wheat, according to the CFTC. The agency accused the company of taking this position to try to lower the price of wheat in the spot market where it was buying the grain.

With Kraft signaling to the market that it intended to change its normal plan and buy wheat through the futures market instead of the spot market, the price of wheat in the futures market rose and the cash price fell, allowing Kraft to reap a profit, according to the complaint.

When the company bought wheat in the spot market and unwound a large portion of its futures position, it generated a gain of more than $5 million, according to the CFTC.

Some companies are allowed to file for exemptions to the caps on futures positions for hedging purposes. The CFTC said Kraft did not have an exemption and that its futures position represented a six-month supply of the wheat it needed at its Toledo area-flour mill and was not for legitimate business purposes.

The regulator also said Kraft performed illegal offsetting trades of futures contracts with itself.

Kraft has been one of the worst-performing large cap stocks in 2019, shedding more than 40% of its share price this year. The stock of Mondelez International, the parent company of the defendant in this suit, is up more than 35% this year.

Clarification: The headline of this article was changed to clarify that Kraft hasn't filed a new lawsuit against the CFTC. The company filed a contempt motion in an already existing lawsuit by the agency.


Kraft, Mondelez to End Fight With Regulator Over Manipulation Claims

Kraft and Mondelez had been fighting with the CFTC over comments the regulator made following last year’s settlement on the same wheat-market matter.

Dave Michaels

WASHINGTON—Kraft Foods Group Inc. and Mondelez Global MDLZ 0.35% LLC are poised to pay $16 million to settle regulatory allegations they manipulated the market for wheat futures.

The deal, if approved by a federal court in Chicago, would resolve an unusual legal standoff: The companies had accused the Commodity Futures Trading Commission of violating an earlier settlement with them by commenting on it. The deal had limited what could be said about the case.

A judge has considered sanctioning the CFTC and its commissioners over the comments.

Now, the CFTC and the companies appear to have reached a pact with the same penalty amount as the one announced in 2019, a person familiar with the matter said, but without restrictions on what CFTC commissioners can say about the outcome.

On Wednesday, Kraft and Mondelez—previously a single corporate entity—withdrew their request for the CFTC to be sanctioned. The judge, John Robert Blakey, said in a notice posted in the court’s docket Thursday that he would take the motion “under advisement.” He has scheduled another hearing for March 26.

The companies cried foul last year after the CFTC released three statements—a press release, a statement by all five commissioners, and a separate statement by its two Democrats—that explained the settlement and its unusual gag order.

The original settlement didn’t explain how the company’s trading ran afoul of the law, an unusual omission in regulatory enforcement orders. It also didn’t require the companies to agree with the regulator’s claims that they had violated the law.

A spokeswoman for Kraft on Thursday declined to comment. A spokesman for Mondelez didn’t respond to a request seeking comment.

Judge Blakey last month said the CFTC statements were “egregious misconduct” and indicated he would issue findings that could spell out consequences for the commission. An appeals court panel said last year that CFTC commissioners can’t be held in contempt individually because the law authorizes them to opine about any enforcement action.

The judge said at a hearing on Thursday that he blames the “collective entity” of the CFTC for the statements, according to a transcript. Judge Blakey said the result of his findings could be “an admonishment” to not “do this kind of thing again.”

Judge Blakey also said Thursday that he didn’t know “why you guys are agreeing to $16 million, but, you know, that’s your call, not mine.”

The case before Judge Blakey involves claims from 2015 that Kraft illegally manipulated the price of wheat by amassing a huge position in futures contracts while never intending to take delivery of the commodity.

Kraft’s strategy, the CFTC alleged, was to use its enormous trading position to drive down the spot-market price of wheat, which it could then buy, while increasing the price of the futures contracts it could later sell for a profit.

&mdashDylan Tokar contributed to this article.

Write to Dave Michaels at dave.michaels[email protected]

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8


Commission: Kraft Reaped $5.4 Million in Illegal Profits Amid Falling Sales

Kraft Foods and snack food giant Mondelez Global have been accused of manipulating the price of wheat futures in 2011 to reap $5.4 million in unlawful profits by the Commodity Futures Trading Commission.

Perhaps the making of noxious foods that cause disease in children, as well as in the general public, just isn’t so profitable anymore.

Food products from Kraft are filled with toxic preservatives like sodium benzoate, aspartame, and more. Further, they are filled with questionable genetically modified ingredients which have not been proven to be safe. Shockingly, many of these toxic ingredients have been removed from products sold in the UK, but not the US.

Kraft also uses gluten – a wheat byproduct – in many products. Gluten has caused allergies in many hundreds of thousands of people, and also causes an imbalance in our gut flora – which is said to account for much of our immunity.

But if that isn’t enough to make you feel sick to your stomach, a federal complaint has been filed against Mondelez Global (Mondelez now manages Kraft’s snack food arm, including brands such as Oreos, Triscuits, Wheat Thins, and Chips Ahoy) for tampering with commodities markets and making illegal gains on wheat futures.

Allegedly, they engaged in a series of noncompetitive commodity trades between 2009 and January 2014 by participating on both sides of an exchange-for-physical Chicago Board of Trade wheat contract, holding wheat futures “in excess of speculative position limits established by the Commission.”

According to the complaint filed, Kraft consumes approximately 30 million wheat bushels annually, and in 2011, the price of wheat futures increased substantially from $6.57 to $7.97. Kraft is still trying to explain to the Commission why they purchased $90 million worth of futures in 2011 in order to depress the price of wheat in the cash market and inflate future prices.

We, along with the Commission, are wondering how they could even store such an enormous amount of wheat. What is more likely is Kraft’s brands parent company made a killing by purchasing wheat at a cheaper price in the cash market and then reselling it at an inflated price later. This earned executives a cool $5.4 million, albeit, illegally.

If the complaint is seen as valid, Kraft faces a penalty of three times’ their monetary gain and an injunction against betting in futures market.


From May 2019 to May 2021

WASHINGTON--Kraft Foods Group Inc. and Mondelez Global LLC are poised to pay $16 million to settle regulatory allegations they manipulated the market for wheat futures.

The deal, if approved by a federal court in Chicago, would resolve an unusual legal standoff: The companies had accused the Commodity Futures Trading Commission of violating an earlier settlement with them by commenting on it. The deal had limited what could be said about the case.

A judge has considered sanctioning the CFTC and its commissioners over the comments.

Now, the CFTC and the companies appear to have reached a pact with the same penalty amount as the one announced in 2019, a person familiar with the matter said, but without restrictions on what CFTC commissioners can say about the outcome.

On Wednesday, Kraft and Mondelez--previously a single corporate entity--withdrew their request for the CFTC to be sanctioned. The judge, John Robert Blakey, said in a notice posted in the court&aposs docket Thursday that he would take the motion "under advisement." He has scheduled another hearing for March 26.

The companies cried foul last year after the CFTC released three statements--a press release, a statement by all five commissioners, and a separate statement by its two Democrats--that explained the settlement and its unusual gag order.

The original settlement didn&apost explain how the company&aposs trading ran afoul of the law, an unusual omission in regulatory enforcement orders. It also didn&apost require the companies to agree with the regulator&aposs claims that they had violated the law.

A spokeswoman for Kraft on Thursday declined to comment. A spokesman for Mondelez didn&apost respond to a request seeking comment.

Judge Blakey last month said the CFTC statements were "egregious misconduct" and indicated he would issue findings that could spell out consequences for the commission. An appeals court panel said last year that CFTC commissioners can&apost be held in contempt individually because the law authorizes them to opine about any enforcement action.

The case before Judge Blakey involves claims from 2015 that Kraft illegally manipulated the price of wheat by amassing a huge position in futures contracts while never intending to take delivery of the commodity.

Kraft&aposs strategy, the CFTC alleged, was to use its enormous trading position to drive down the spot-market price of wheat, which it could then buy, while increasing the price of the futures contracts it could later sell for a profit.


Mondelez, Kraft To Pay $16M To Resolve Allegations Of Futures Market Manipulation

Food giants Mondelez International Inc (NASDAQ: MDLZ) and Kraft Food Groups will pay $16 million to settle allegations they created unfair advantages in wheat futures, The Wall Street Journal reported.

The Mondelez, Kraft Settlement

Mondelez and Kraft were once part of a single corporate entity, and they and appear to be set on resolving a dispute with the Commodity Futures Trading Commission, the newspaper reported Thursday.

Kraft was accused of building a large position in wheat futures in 2015 when it had no intention of ever accepting physical delivery. Doing so would have driven down the spot-market price of wheat, which the food company would take advantage of for its business.

Kraft and Mondelez reached a 2019 settlement with the CFTC, but the companies cried foul when the regulatory body violated terms of the agreement by issuing public comments.

Specifically, the CFTC issued a press release, a statement by all commissioners and a separate statement signed by the two Democrats on the commission.

Judge Says Regulator Showed 'Egregious Misconduct'

What's particularly odd about the legal fiasco is that the CFTC never explained how the food companies' trading strategies in the future markets violated the law, according to the WSJ.

Judge John Robert Blakey noted the CFTC's statements at the time represented "egregious misconduct" and the regulatory body could face consequences of its own.

Nevertheless, the food companies now appear to be willing to settle for the same $16-million fee but without any restrictions on what the CFTC can say about the outcome, sources told WSJ.

What's Next For Kraft, Mondelez

Any settlement needs to be approved by a federal court in Chicago, according to WSJ.

Kraft shares were down 1.99% at $26.12 at the time of publication Friday, while Mondelez shares were down 2.53% at $55.42.


David Perlman is a partner in the energy practice in Bracewell's Washington, D.C. office. He represents and counsels clients in regulatory and compliance matters concerning the Federal Energy Regulatory Commission, Commodity Futures Trading Commission and state public utility commissions, energy-related transactions and financings, and in the establishment of compliance programs and training. His clients include utilities, commodities merchants, oil and gas pipeline companies, electric generators, energy marketers, industrial customers, generators, lenders and financial institutions, and oil & gas producers.

Bob Pease represents clients involved in the energy sector in Commodity Futures Trading Commission (CFTC) and Federal Energy Regulatory Commission (FERC) regulatory, compliance and enforcement matters involving power, gas, and crude oil, as well as Dodd Frank implementation. Bob has more than 25 years of senior-level experience at CFTC and FERC handling energy-related policy, compliance and enforcement matters. Most recently he served as Counsel to the Director in the Division of Enforcement with the CFTC.


Watch the video: Why Are Wheat Prices Surging? (January 2022).