Between Bridges by Gary DeWaal – September 3, 2019: Contempt and Sanctions Hearing Against the CFTC Arising From Manipulation Complaint Settlement Delayed to October 2

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Published Date: September 02, 2019

The Commodity Futures Trading Commission received a short delay of the hearing date to determine if it should be subject to a contempt determination, sanctions and other relief for publishing a press release, a formal statement, and a statement by two commissioners contemporaneously with its August 15 publication of the consent order of settlement resolving an enforcement proceeding brought by it against Kraft Foods Group, Inc. and Mondelez Global LLC.

The evidentiary hearing now scheduled for October 2 follows a motion made by defendants claiming that the CFTC violated a gag order included in the order that had been mutually agreed by both parties to resolve the enforcement action commenced by the CFTC in 2015 charging the two firms with manipulating or attempting to manipulate the price of the December 2011 wheat futures contract traded on the Chicago Board of Trade and cash wheat and their agreement to pay a fine of US $16 million. (Click here for background regarding the August 14 consent order memorializing the settlement agreement between the CFTC and the defendants in the article “Mum’s the Word – Maybe: CFTC Officially Agrees to Keep Quiet About Settlement of Manipulation Complaint That Nets US $16 Million Penalty; Unofficially?” in the August 18, 2019 edition of Bridging the Week.)

The gag order precluded either party from making any public statement regarding the enforcement proceeding other than to reference the terms of the settlement agreement or public documents filed in the enforcement action. However, claimed the defendants, “[a]ll three documents the CFTC published on its website are replete with self-aggrandizing and often false, statements that violate [the consent order’s] prohibition on public statements.” The defendants claimed that the CFTC's violation of the gag order was willful and that the Commission "...never intended to comply with the bargain they struck to settle the case." (Click here to access defendants' Motion for Contempt, Sanctions and Other Relief – Public Redacted Copy.)

The defendants sought remedies against the CFTC promptly after it published the three controversial documents. The CFTC's press release summarized the settlement terms, while including commentary that “[t]he $16 million penalty is approximately three times defendants’ alleged gain” and a quotation by new CFTC Chairman Heath Tarbert regarding the harm of market manipulation to farmers while the separate CFTC statement expressed the Commission's belief "that the Consent Order advances our mission of fostering open, transparent and competitive markets." The  joint statement by the two commissioners – Rostin Behnam and Dan Berkovitz – discussed two "unusual features" of the consent order, mainly the gag order as well as the lack of inclusion of findings of fact or conclusions of law.

In response to the defendants' contempt allegations, the CFTC claimed that the prohibition against public statements in the consent order solely applied to the Commission and not individual commissioners. “Under the CFTC’s organic statute, the Commodity Exchange Act, the CFTC and individual commissioners are legally distinct,” argued the CFTC (click here to access CEA §2(a)(10)(C)). Moreover, claimed the Commission, “[t]he language Defendants complain about [in its statements] largely either summarizes information contained in public record documents in this case or asserts the Commission’s general commitment to vigorously enforcing the Commodity Exchange Act in the public interest.” (Click here to access the CFTC’s Response to Defendants’ Motion for Contempt, Sanctions and Other Relief.)

Following the CFTC’s and defendants’ initial filings related to defendants' contempt allegations, the court hearing this matter – the United States District Court for the Northern District of Illinois – scheduled an evidentiary hearing on defendants’ motion for September 12, and the CFTC voluntary agreed to pull from its website the three controversial documents. The September 12 hearing has now been delayed.

Because most of the pleadings in response to defendants’ motion have been sealed by the court, the basis for the CFTC asking for a delay in the September 12 hearing is not known. The parties are required to submit relevant papers to support their positions by September 23.

My View: Initially, the consent order in this matter was strange enough in that – without precedent – it contained no findings of fact or conclusions of law and contained a gag order on both the defendants and the CFTC. However, subsequent events have rendered a very strange and unusual situation surreal.

Following the publication of the three documents by the CFTC and two commissioners, the defendants filed a motion for contempt, sanctions and other relief. In response, not only did the CFTC delete the three controversial documents from its website, but also a copy of the consent order itself. (Click here for a copy of the consent order.)

Initially the judge presiding over this matter – the Hon. John Blakey – scheduled a hearing on September 12 to hear defendants’ motion. In connection with that, he ordered CFTC Chairman Tarbert, Commissioners Behnam and Berkovitz, and Jamie McDonald, Director of the CFTC’s Division of Enforcement, to appear before him to “provide live testimony as needed.” However, pending further proceedings, the CFTC asserted a Fifth Amendment right against self-incrimination, and Commissioners Behnam and Berkovitz provisionally asserted such right.

Subsequently the CFTC filed a flurry of court papers to delay the September 12 hearing which were responded to by defendants. However, all of these papers were sealed by the court and, as a result, not public. A delay has now been granted not by the Hon. John Blakey but by another judge, the Hon. Sharon Johnson Coleman. 

No matter what the outcome of this subsequent matter, the public deserves insight into how the CFTC and the defendants got to this point in what seems like an episode of The Twilight Zone – in Rod Serling’s words, “a dimension as vast as space and as timeless as infinity[,] the middle ground between light and shadow, between science and superstition, [lying] between the pit of man’s fears and the summit of his knowledge.” Maybe that's a bit of an exaggeration, but this entire episode is quite bizarre to say the least. Nevertheless, stay tuned for more. (Click here for the most recent docket entries before the US District Court for the Northern District of Illinois related to this matter.) 

The next regularly scheduled edition of Bridging the Week is September 9, 2019.

For further information:

Contempt and Sanctions Hearing Against the CFTC Arising From Manipulation Complaint Settlement Delayed to October:

The information in this article is for informational purposes only and is derived from sources believed to be reliable as of September 1, 2019. No representation or warranty is made regarding the accuracy of any statement or information in this article. Also, the information in this article is not intended as a substitute for legal counsel, and is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The impact of the law for any particular situation depends on a variety of factors; therefore, readers of this article should not act upon any information in the article without seeking professional legal counsel. Katten Muchin Rosenman LLP may represent one or more entities mentioned in this article. Quotations attributable to speeches are from published remarks and may not reflect statements actually made. Views of the author may not necessarily reflect views of Katten or any of its partners or other employees.

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Gary DeWaal

Gary DeWaal is currently Special Counsel with Katten Muchin Rosenman LLP in its New York office focusing on financial services regulatory matters. He provides advisory services and assists with investigations and litigation.

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