U.S. District Judge Edmond E. Chang in the Northern District of Illinois recently granted certification in a wheat market rigging suit filed against Kraft Foods Group Inc. (“Kraft”). The class, comprised of Chicago Board of Trade (“CBT”) wheat market investors, alleges that Kraft artificially manipulated the wheat commodities market by taking sizable futures positions to influence prices.
Specifically, the class of investors alleges that Kraft purchased $90 million (15 million bushels) of December 2011 wheat futures contracts “in order to depress cash market wheat prices and inflate the futures price of wheat”. Plaintiffs claim Kraft’s behavior was suspicious considering Kraft had never before purchased such a substantial quantity of wheat and did not have adequate storage capacity for such a purchase.
Judge Chang’s January 3, 2020 order certifies two classes: all persons who purchased a CBT December 2011/CBT March 2012 futures contract after October 31, 2011, and all persons who sold, put options, or purchased call options on the CBT December 2011/CBT March 2012 contract after October 31, 2011.
The Court rejected each of Kraft’s contentions in opposition to class certification, including that differences in when class member traded wheat futures precluded a predominance determination. Accepting the Plaintiffs’ fraud on the market theory, the Court also concluded that it was not necessary for plaintiffs to point to particular overt signals made by Kraft where plaintiffs had alleged that Kraft’s conduct affected the market as a whole.
Kraft serves as an example of the recent uptick in market fraud civil actions being asserted under both market manipulation and antitrust theories. The trend is not surprising considering U.S. antitrust laws come with the added benefit of treble damages. The Kraft case raises interesting questions regarding the compatibility of the two legal theories, specifically when the antitrust predicate is Section 2 of the Sherman Act.
Indeed, while, at first blush, market manipulation and antitrust laws are aimed at preventing the same type of improper conduct, the two theories carry different elements of proof and injury requirements. For example, Kraft effectively extends the fraud on the market theory concept—which relieves private securities fraud plaintiffs from establishing loss causation—to the antitrust arena. Antitrust claims, however, employ a different causation and damages model, namely, the “but-for” price determination.
More fundamentally, Sherman Section 2 claims are aimed at combating anticompetitive behavior by monopolists that causes long term injury to the market. Market fraud theories, on the other hand, can be established by showing intentional distortions in market prices, even if short-lived. Kraft, therefore, highlights the emerging new intersection between antitrust and market fraud theories that practitioners should continue to monitor.