According to the U.S. Commodity Futures Trading Commission (”CFTC”), that the Dairy Farmers of America, Inc. (DFA), its former Chief Executive Officer Gary Hanman, and its former Chief Financial Officer Gerald Bos will pay a $12 million civil monetary penalty for attempting to manipulate the Class III milk futures contract and exceeding speculative position limits in that contract.
Additionally, Frank Otis, former President and CEO of a DFA subsidiary, and Glenn Millar, former Executive Vice President of the subsidiary, will pay $150,000 for aiding and abetting DFA’s speculative position limit violation.
According to CFTC Acting Director of Enforcement Stephen J. Obie: “Today’s enforcement action punishes those responsible for DFA’s manipulative scheme with a $12 million civil penalty and a trading ban, and ensures future compliance with federal commodities laws through the imposition of a monitor. Given the severity of the past misconduct, we are pleased that DFA has committed to reform its trading practices.”
The Commission’s DFA order finds that, from May 21 through June 23, 2004, DFA, Hanman, and Bos attempted to manipulate the price of the Chicago Mercantile Exchange’s (CME) June, July, and August 2004 Class III milk futures contracts through purchases of block cheddar cheese on the CME Cheese Spot Call market. The order finds that the pricing relationship between the CME block cheese market and the Class III milk futures market is well known throughout the industry, and the CME block cheese market price plays a significant part in establishing Class III milk futures prices.
Additionally, the DFA order finds that on several days in 2004, DFA’s speculative Class III milk futures contracts exceeded the CME’s speculative position limit, in violation of the Commodity Exchange Act.
A separate order against Otis and Millar finds that they aided and abetted DFA’s speculative position violation by directing trading of Class III milk futures in an internal sub-account designated for a DFA subsidiary.
In addition to imposing civil penalties, the DFA order bars Hanman and Bos from trading futures for five years. It also bars DFA from engaging in speculative trading for two years, and orders DFA to comply with certain undertakings, including: 1) retaining a monitor to ensure that DFA does not engage in speculative trading and that DFA’s Cheese Spot Call market cheese purchases are made for legitimate business purposes; 2) implementing a compliance and ethics program; and 3) providing future cooperation to the CFTC.
The DFA is a dairy marketing cooperative based in Kansas City, Missouri. Hanman and Bos reside in Platte City, Missouri, and Weatherby Lake, Missouri, respectively. Otis resides in Ambler, Pennsylvania, and Millar is a resident of Las Vegas, Nevada.