The Chicago Mercantile Exchange (“CME”) Cheese Spot Call is a thinly traded market, which during the relevant time period opened for only fifteen minutes a day and comprised only 2% of the sales of cheese in the United States. Yet, the price at which cheese traded on the CME Cheese Spot Call effectively set the price for cheese purchases nationwide.
About a year ago, Minnesota Litigator noted a case arising out of alleged cheese price manipulation on the Chicago Mercantile Exchange, pending before U.S. District Court Judge John R. Tunheim (D. Minn.) (“Is there a right to cheap cheese?“).
In the intervening months, the Court decided that the case might be about something more than a claimed “right to cheap cheese.” That is, the Court denied the defendant Dairy Farmers of America’s motion for summary judgment, which was based on the theory that plaintiff could come up with no evidence that the DFA actually “intended to or actually created an artificial price for cheese or milk futures.”
A number of manipulation cases under the CEA involve fraud, deceit, misrepresentation, or some violation of exchange rules by the defendant. See, e.g., United States v. Reliant Energy Servs., Inc., 420 F. Supp. 2d 1043, 1058 (N.D. Cal. 2006). Those cases, however, do not support a conclusion that a plaintiff must show a defendant engaged in fraudulent activity or violated applicable trading rules to establish manipulation. Other cases addressing manipulation under the CEA demonstrate that a plaintiff need not show fraudulent conduct, a misrepresentation, or some violation of trading rules to establish manipulation. See, e.g., In re Amaranth, 587 F. Supp. 2d at 535 (“[T]he combination of a wrongful intent (or more accurately, the lack of a legitimate economic motive) and a legitimate transaction would constitute manipulation.”); In re Henner, 30 Agric. Dec. 1151, 1198 (U.S.D.A. 1971).
The Court went on to find that to establish that an artificial price existed for the purposes of a CEA manipulation claim, a plaintiff need not establish fraud, misrepresentation, or a violation of exchange rules on the part of the defendant.
The DFA sought immediate appeal on Judge Tunheim’s decision, which Judge Tunheim denied this week.