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.