Regulators Investigating Mondelez Unit Over Wheat Contracts Trading -- Update

By Dow Jones Business News, 
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By Jacob Bunge

U.S. market regulators are investigating a unit of Mondelez International Inc. over trading in wheat futures markets, according to a regulatory filing.

Staff of the Commodity Futures Trading Commission, which oversees U.S. derivatives markets, are investigating trading in December 2011 wheat contracts by a unit of what was at the time Kraft Foods and is now Mondelez. The investigation was disclosed Friday in a regulatory filing with the Securities and Exchange Commission by Kraft Foods Group Inc., the North American business that was spun off from Kraft in 2012.

The filing gave no further details of the investigation. A spokeswoman for the CFTC, based in Washington, declined to comment.

"We are cooperating with the staff in this investigation but cannot comment specifically since this is ongoing," a Mondelez representative said. "Overall, we share the same views as what Kraft Foods Group detailed [in the filing]."

A probe into a food company is rare for the CFTC, where fines and regulatory actions typically target investment managers and financial firms accused of fraud and violating exchange rules.

The trading activity under scrutiny occurred before the spinoff, according to the filing, and Kraft is cooperating with regulators in the matter. A Kraft spokesman said it doesn't "expect this matter to have a financially material impact on Kraft."

"While the [CFTC] staff has advised us that they are prepared to recommend that the Commission consider commencing a formal action, we and Mondelez International are seeking to resolve this matter before any formal action being taken," Kraft officials wrote in the filing. Mondelez will bear the costs of the investigation and any penalties arising from it as per terms of the spinoff, according to the filing.

Wheat futures in the second half of 2011 gained 12% as drought afflicted the U.S. southern Great Plains. Production of hard-red winter wheat, grown in the southern Plains and used to make bread, in the 12 months that started on June 1, 2011, totaled 780 million bushels, which was the lowest in five years, according to the U.S. Department of Agriculture.

Kraft in the past has maintained various trading operations that deal in commodity futures, swaps and other derivatives to shield the company from shifts in the price of commodities, currencies and interest rates, according to notes from a meeting between Kraft officials and CFTC staff in February 2011, which are logged on the CFTC's website. In the meeting, Kraft aired concerns about its trading activities being swept up in new regulations called for by the Dodd- Frank financial law, aimed at curbing risk represented by financial firms' derivatives trading.

Annie Gasparro and Tony C. Dreibus contributed to this article.

Write to Jacob Bunge at jacob.bunge@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


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