Federal regulators have charged two major U.S. food companies, Kraft and Mondelez, with manipulating prices for wheat and wheat futures in a scheme that reaped more than $5.4 million in profit.
The Commodity Futures Trading Commission announced the civil charges Wednesday against the two companies. The agency said the companies used "manipulative trading strategies" in December 2011 to artificially lower wheat prices on the spot market.
The CFTC also said Kraft Food Groups Inc. and Mondelez Global LLC violated rules limiting the volume of futures contracts in wheat that financial investors can trade on exchanges.
The agency also accused the companies of making trades in wheat futures that violated rules of competition from 2003 through January 2014.
Kraft, based in Northfield, Illinois, makes Oscar Meyer cold cuts, Jell-O pudding and Velveeta cheese, among other well-known brands. Oreo cookies, Cadbury chocolate and Trident gum are among the brands of Deerfield, Illinois-based Mondelez.
Most of the alleged violations occurred while Mondelez and Kraft were still one company. They split in October 2012, with Kraft keeping North American grocery brands and Mondelez taking the snacks with a bigger global presence.
Kraft said in a statement that it doesn't expect the CFTC case to have a significant impact on its financial position. Mondelez disclosed in February that it expects "to predominantly bear any monetary penalties or other payments that the CFTC may impose."
The CFTC said it is seeking unspecified penalties and restitution as well as an injunction against future violations of U.S. commodities laws.
Faced with high wheat prices starting in the summer of 2011, Kraft and Mondelez used a strategy to buy $90 million of wheat futures for delivery in December 2011, amounting to a six-month supply of wheat, the CFTC said. But it said the companies never intended to take delivery of the wheat and instead deployed the strategy, expecting that the market would react to their large holding by driving down wheat prices, with futures prices on the exchange reflecting the moves. The price moves brought the companies more than $5.4 million in profit, according to the agency.
"This case goes to the core of the CFTC's mission: protecting market participants and the public from manipulation and abusive practices that undermine the integrity of the (futures) markets," CFTC Enforcement Director Aitan Goelman said in a statement.
Representatives for Mondelez didn't immediately respond to requests for comment on the CFTC action.
H.J. Heinz Co., the world's biggest ketchup maker, announced plans last week to buy Kraft — a move that will create one of the largest food and beverage companies in the world. The combination of the two storied companies, to be called Kraft Heinz Co., was engineered by billionaire investor Warren Buffett's Berkshire Hathaway and Brazilian investment firm 3G Capital, which teamed up just two years ago to buy Heinz.