United States CFTC v. Kraft Foods Grp., Inc.

United States CFTC v. Kraft Foods Grp., Inc.

Opinion

 [*1001]  MEMORANDUM OPINION AND ORDER

This matter concerns the alleged misconduct of Defendant Kraft in purchasing and selling wheat and wheat futures. Plaintiff, the Commodity Futures Trading Commission ("CFTC"), brought this action pursuant to 7 U.S.C. § 13a-1, and alleges four causes of action: [**2]  (I) use of a manipulative or deceptive device in connection with a contract for sale of a commodity or future, in violation of Section 6(c)(1) of the Commodities Exchange Act (the "Act"), and CFTC Regulation 180.1; (II) manipulation and attempted manipulation of the price of cash wheat and wheat futures in violation of Sections 9(a)(2) and 6(c)(3) of the Act, and CFTC Regulation 180.2; (III) exceeding the speculative position limit with regard to wheat futures in violation of Sections 4a(b) and (e) of the Act, and CFTC Regulation 150.2; and (IV) wash sales, fictitious sales and noncompetitive trading in violation of Sections 4c(a)(1) and (2) of the Act, and CFTC Regulation 1.38(a). Cmplt. Defendants moved to dismiss Counts I and II of the Complaint. [56]. For the reasons explained below, that motion is denied.

I. Background¹

The Defendants are Kraft Foods Group, Inc. ("Kraft") and Mondelēz Global LLC ("Mondelēz"). Kraft is one of North America's largest consumer packaged food and beverage companies, and operated the snack food business that [**3]  is the subject of this Complaint. at ¶¶ 8, 10. During the time period covered by this Complaint, Kraft Foods Inc. owned Kraft. Id. at ¶10. Through a spin-off agreement in which Kraft Foods Inc. altered its corporate structure, Defendant Mondelēz came to operate the snack food business formerly operated by Kraft. Id. In the same spin-off, Kraft Foods Inc. became Mondelēz International Inc., which now owns Defendant Mondelēz Global. The Court's discussion concerns primarily Kraft, not Mondelēz, because Kraft operated the snack  [*1002]  food business during the relevant time period.

Kraft is one of the largest domestic users of #2 Soft Red Winter Wheat. at ¶ 11. It is this type of wheat, and its futures contracts, which are at issue in this matter. Kraft consumes approximately 30 million bushels of wheat per year, 90 percent of which is milled into flour at its Toledo, Ohio flour mill (the "Mill"). Id. at ¶¶ 11, 14. Kraft can store five million bushels of unprocessed wheat at the Mill. Id. Kraft uses that wheat in the production of snack foods, including Oreo, Ritz, Triscuit, Wheat Thins, and Chips Ahoy! Id. at ¶ 11. Kraft typically purchases wheat on a daily basis throughout the year and [**4]  strives to maintain a two-month supply in its inventory. Id. at ¶ 14.

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