Securities Regulation Daily CFTC and Kraft inch towards settlement: a view from Judge Blakey’s courtroom
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Thursday, March 5, 2020

CFTC and Kraft inch towards settlement: a view from Judge Blakey’s courtroom

By Brad Rosen, J.D.

Judge Blakey and the parties grappled over difficult open terms of a settlement order being negotiated in light of the CFTC having been cited with egregious misconduct and an inevitable finding of contempt.

A hearing in the long running and often bitter litigation between the CFTC and Kraft Foods, Inc. and Mondelez Global, LLC was prompted when the defendants filed a sealed motion in connection with the parties’ second attempt to settle the matter. Judge Blakey struck that motion from the docket. Kraft then publicly filed an agreed motion to withdraw its motion for contempt and sanctions against the CFTC. At the onset, Judge Blakey made it abundantly clear to the parties that filing sealed motions in this matter would not be permitted. Judge Blakey’s candor and insistence for transparency persisted throughout the hearing (CFTC v. Kraft Foods Group, Inc., March 2, 2020, Blakey, J.).

Setting the scene. The CFTC and the defendants are in the process of negotiating a consent order for the second time, after an earlier agreement was set aside when Kraft charged the CFTC with contempt for having violated the terms of the first consent order. On February 14, 2020 Judge Blakey cited the CFTC for its egregious misconduct and indicated findings of fact and conclusions of law would be issued by separate order. Both the CFTC and Kraft expressed their consternation with regard to the unknown details surrounding Judge Blakey’s eventual order on this score.

A view from Judge Blakey’s courtroom. Some of the developments, issues and concerns around the pending settlement that emerged at the hearing are as follows:

  • Judge Blakey remarked that the new settlement contemplates a $16 million civil monetary penalty to be paid by Kraft. That is the same penalty amount as under the first settlement.
  • The proposed consent order will not contain any confidentiality or "gag" provision, as was the case with paragraph 8 of the original consent order.
  • Judge Blakey made it clear that he will be making a finding regarding the CFTC’s contempt and made clear that a pending motion is not necessary for him to issue an order. He stated, "I’ve got to do my job. If I see something, I need to say something."
  • The parties assured Judge Blakey the agreement did not include any side agreements, predicate agreements or understandings not contained in the draft consent order.
  • The parties indicated they had negotiated a draft press release. Judge Blakey requested, but did not order, that he be provided with a copy of the same.
  • Nicholas Panos, attorney for Kraft, addressed paragraph 5 of the proposed contempt order noting that Kraft’s agreement not to take a legal position if the CFTC decides to appeal an eventual contempt order. However, Kraft will not agree to remain silent if it takes issue with the CFTC’s rendering of underlying facts. Panos indicated that he will not allow Kraft to be blindsided in such a case.
  • Judge Blakey questioned why Kraft should be constrained at all in the event the CFTC pursued an appeal of his contempt order. He noted that the CFTC’s misconduct was directed to the court, the public and the defendants.
  • Robert Schwartz, Deputy General Counsel with CFTC’s Office of General Counsel, noted that the public interest favors concluding the case, and that no one is happy with how it has gone. Schwartz asserted that paragraph 5 of the proposed order provides comfort to all the parties.
  • Judge Blakey indicated that he was interested in concluding the case once and for all and indicated his strong preference that his contempt finding not be appealed. Blakey suggested that he would issue his findings in the near future and allow the parties to comment or otherwise respond. He noted that if the CFTC was agreeable not to appeal the order, then paragraph 5 could be removed from the proposed consent order. Judge Blakey indicated that he would be relying on Kraft’s prior contempt motion declaration, as well as his own dealings with the parties.
  • In response, Schwartz noted that the CFTC never disputed the accuracy of Kraft’s contempt declaration. It simply argued that it was not relevant in connection with the contempt inquiry.
  • In response, Judge Blakey noted that the government is not an ordinary party. They must negotiate in good faith. The judge was referring to the fact that the CFTC had requested that Kraft agree to removing the confidentiality provision from the original consent agreement, and that Kraft declined to do so. The CFTC then determined that it could make additional public statements but did not inform Kraft or the Court of its changing view of that provision. In that regard, Blakey stated it is incumbent that the CFTC not do a "bait and switch." Later, Blakey expressed his extreme disappointment with the CFTC. "The way to do it was to come back to the Court," he observed.
  • Judge Blakey indicated that he would rely on the record before him, but would be happy to have an evidentiary hearing noting that he did not want to precipitate another appeal. The judge pointedly asked Schwartz, if the CFTC would appeal in the event his findings of fact were based on Kraft’s contempt motion proffer. Schwartz politely demurred noting that decision would be subject to Commissioner input and determination.
  • Scott Williamson, the leader of the Division of Enforcement’s Chicago Regional Office, indicated that he believed that the legal team from the Chicago office did a great job in this case. He offered to provide the Court with a declaration describing how the team operated and how its processes worked. Blakey responded that he did not have any problem with the lawyers from the CFTC’s Chicago office that had appeared in front of him, and there was no need to defend them. In light of the judge’s statement, Williamson indicated he did not feel the need to file the noted declaration.

This case has being followed closely by the legal community and futures industry as it addresses important issues concerning market manipulation and transparency. As for next steps, it is anticipated that Judge Blakey will issue his finding of facts and conclusion of law in connection with the CFTC’s contempt. The next status hearing in this matter is set for March 26, 2020 at 9:45 a.m.

The case is No. 15-cv-2881.

Attorneys: Robert Schwartz, CFTC Office of General Counsel, Scott Williamson and Susan Gradman for the CFTC. Dean Panos (Jenner & Block LLP) for Kraft Foods Group, Inc. and Mondelez Global LLC.

Companies: Kraft Foods Group, Inc.; Mondelez Global LLC; Mondelez International, Inc.

MainStory: TopStory CFTCNews CommodityFutures Enforcement FraudManipulation RiskManagement IllinoisNews

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