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Lawsuit alleges ADM manipulated cash ethanol market to profit from derivatives

Mark Weinraub

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CHICAGO, Sept 5 (Reuters) - Global grain trader and food processor Archer Daniels Midland Co allegedly manipulated the price of ethanol to profit from a short position it was holding in the derivatives market, according to a lawsuit by a rival firm.

AOT Holdings, a Swiss company that owns an energy trading subsidiary, filed the class action complaint late on Wednesday in U.S. District Court's Central District of Illinois Urbana Division, claiming damages from ADM's actions of up to $6.33 million.

The lawsuit follows reporting by Reuters last year that ADM's ethanol selling had led traders to complain to S&P Global Platts, which provides benchmark pricing for the physical ethanol contract at different U.S. delivery points including Chicago.

According to the lawsuit seen by Reuters, ADM was aggressively selling ethanol on the cash market at the Argo terminal just outside of Chicago. The selling would start 30 minutes ahead of the close of the trading day, it said.

"The evidence indicates that ... much of ADMs behavior was economically irrational and contrary to its self-interest as an ethanol producer -- unless it was intended to manipulate physical ethanol prices at the Argo Terminal," the lawsuit said.

Illinois-based ADM, a major ethanol producer, said in an email that it did not comment on pending litigation.

The selling on the physical market began in November 2017 and continues through "today," the lawsuit said.

ADM's selling came during an upheaval in the domestic ethanol market as U.S. demand flatlined and export markets, including China and Brazil, were cut off due in part to the effects of U.S. President Donald Trump's widening trade disputes.

Ethanol producers typically hold short positions as a hedging strategy but AOT claimed that ADM's actions far outstripped those risk management needs.

"These huge positions represented a significant departure from ADM's previous hedging activities and bore no rational relationship to hedging ADM's exposure to physical ethanol sales, the lawsuit said."

The lawsuit named ADM's Ray Bradbury and Adam Kuffel, two employees in the ethanol division, as the architects of the plan but said that senior executives also knew of their activities. Bradbury and Kuffel could not be reached for comment.

Shares of ADM were up 57 cents at $38.81 on Thursday after hitting a one-month high of $38.90. (Reporting by Mark Weinraub; Editing by Caroline Stauffer and Tom Brown)