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Federal regulators say Kraft Foods fixed wheat prices

Regulators say Kraft Foods Group saved more than $5 million by using an illegal wheat buying strategy.

By Doug G. Ware
Kraft Foods Group and Mondelez Global were accused on April 1, 2015 of manipulating wheat prices through an illegal strategy that saved the companies nearly $5.5 million. Photo: UPI/Ismael Mohamad
Kraft Foods Group and Mondelez Global were accused on April 1, 2015 of manipulating wheat prices through an illegal strategy that saved the companies nearly $5.5 million. Photo: UPI/Ismael Mohamad | License Photo

NORTHFIELD, Ill., April 1 (UPI) -- The U.S. Commodity Futures Trading Commission on Wednesday announced consumer charges against Kraft Foods Group and a subsidiary company of manipulating the cost of wheat.

Kraft and Mondelez Global, investigators said, executed the initial move in December 2011 to buy up $90 million worth of wheat futures -- but never had the intention of taking delivery of the crop. What the companies did intend, the CFTC alleges, was for the cost of wheat to drop as a result of that strategy.

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"Kraft and Mondelez violated speculative position limits by holding wheat futures positions in excess of speculative position limits ... without a valid hedge exemption or a bona fide hedging need, and engaged in numerous noncompetitive trades in wheat.," the CFTC said in a statement announcing the charges.

"A market participant who is not happy with cash prices available to it may not resort to manipulative trading strategies in an attempt to artificially lower that price," CFTC Director of Enforcement Aitman Goelman said in a CNBC report.

Both Kraft and Mondelez said any financial penalty that may arise from this case will not have a serious impact on the companies or investors.

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"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 derivatives markets," Goelman said.

The CFTC accused the companies of using the strategy so "the market would react to their enormous long position by lowering cash wheat prices."

"Those price shifts did occur and, according to the CFTC Complaint, Kraft and Mondelez earned over $5.4 million in profits," the agency concluded.

The CFTC said it is seeking a permanent injunction to prevent future commodity laws from being broken by Kraft and Mondelez, punitive financial penalties, and the forfeiture of the money the companies saved by employing this strategy.

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