KANSAS CITY, MISSOURI, U.S. — The U.S. District Court for the Northern District of Illinois Eastern Division on June 27 partially denied a motion by Kraft Foods Group, Inc. and Mondelez Global LLC to dismiss complaints of wheat market manipulation in 2011.

The case, Harry Ploss as Trustee for the Harry Ploss Trust, on behalf of Plaintiff and all others similarly situated v. Kraft Foods Group, Inc. and Mondel?z Global LLC (No. 15 C 2937), is being heard by Judge Edmond E. Chang. The court refers to the plaintiff as Ploss and the defendant as Kraft. The suit originally was brought as an individual complaint by Ploss in April 2015 and later was amended to a Consolidated Class Action Complaint adding seven other plaintiffs who claim they lost money because of artificial prices caused by Kraft’s alleged manipulative actions as a result of its December 2011 wheat futures position.


The court granted Kraft’s motion to dismiss without prejudice two claims alleging manipulation under Section 9(a)(2) and Section 6(c)(1) of the Commodity Exchange Act (CEA) involving a “wash trading scheme.”

But the court denied Kraft’s motion to dismiss five other claims alleging manipulation under Section 9(a)(2) and Section 6(c)(1) of the CEA, and alleging principal-agent liability under Section 2(a)(1)(B) of the CEA, both involving a “long wheat futures scheme,” alleged violation of the Sherman Antitrust Act and alleged unjust enrichment.

The suit alleges Kraft manipulated the market by maintaining a large position in Chicago Board of Trade soft red winter wheat futures in an attempt to influence prices and not for any legitimate need for wheat (the long wheat futures scheme). It also alleges that Kraft manipulated the market by engaging in unlawful wash trades and reporting them to the public as legitimate transactions to create an impression of greater market activity (the wash trading scheme).

Kraft moved to dismiss the entire complaint, arguing that Ploss had not stated any viable claim.

In the long wheat futures scheme, the complaint alleges that “in the summer and fall of 2011, Kraft radically changed its wheat sourcing strategy when the cash price of No. 2 soft red winter wheat in the Toledo, Ohio, market rose from $5.74 to $7.72 per bushel.” Kraft processes 90% of its wheat at its primary flour mill in Toledo, the court said, adding that most of the wheat milled at the plant is sourced locally in the cash market. The mill can process 15 million bushels of wheat every six months but can store only five million bus at the facility, the court said.

“Even though there was enough wheat in the Toledo market to satisfy Kraft’s needs, senior management allegedly devised a strategy to use its status as a commercial hedger to acquire an enormous long position in December 2011 wheat futures contracts,” the court document said. The large long position gave the impression that Kraft would source needed wheat for its mill through the futures market, causing cash wheat prices in Toledo to decline. Ploss alleges that the long futures position was not a bona-fide futures trade because Kraft never intended to use futures market wheat for its commercial needs. The complaint is based in part on an alleged internal memo from Kraft’s senior director of global procurement to the chief financial officer outlining the plan.

Ploss also alleges that Kraft exceeded its speculative position limits in December 2011 because the company had failed to submit a renewal application for a hedge exemption to release it from speculative position limits of 600 contracts a month to the commercial end user limits of 5,460 long and 6,660 short positions.

The court denied Kraft’s motion to dismiss the five parts of the complaint involving the CEA, Sherman Act and unjust enrichment related to the long wheat futures scheme.

In the wash trading scheme, which the court said occurs when “the same investor simultaneously buys and sells a financial instrument in order to give the false appearance of higher trading volume,” Ploss alleges that from 2003-13 Kraft conducted unlawful exchange for physical (EFP) transactions that did not constitute bona-fide trades because they were between two of Kraft’s own accounts in violation of Exchange rules.

The court granted Kraft’s motion to dismiss the two CEA claims involving the wash trading scheme.

The court said Kraft must answer the complaint and the remaining counts by July 18, 2016, and parties must issue their first round of written discovery requests no later than July 22. The court will set the remainder of the discovery schedule at a July 14 status hearing.

The court opinion issued June 27 noted that at about the same time as Ploss filed suit against Kraft in April 2015, the Commodity Futures Trading Commission (CFTC) filed a parallel enforcement action against Kraft and Mondelez “with substantially similar allegations about Kraft’s participation in the wheat futures market,” although the CFTC action contained only CEA claims for the long futures scheme. The court in CFTC v Kraft denied Kraft’s motion to dismiss late last year.