Ceres Global Ag Corp. has been ordered to pay a $3 million civil penalty to settle charges with a U.S. regulator over attempts to manipulate the price of oat futures contracts.
On October 24, the Commodity Futures Trading Commission (CFTC) issued an order simultaneously filing and settling charges against Ceres, based in Golden Valley, Minnesota, for attempting to manipulate the price of the July 2016 and March 2017 oats futures contracts.
According to the order, senior personnel at Ceres knew about and facilitated the building of large long positions at or close to the spot month speculative limits, holding those long positions into the delivery period, and taking delivery of oats, intending both to boost the price of oat futures in those contracts and to obtain higher quality oats at lower delivery prices.
The order requires Ceres to pay a $3 million civil monetary penalty and to cease and desist from further violations of the Commodity Exchange Act (CEA), as charged. The order also recognizes Ceres has undertaken significant remedial steps to ensure future compliance with the CEA.
“If Ceres thought it could roll the oats market without consequence, it was mistaken,” said director of enforcement Ian McGinley said in a statement. “The CFTC will act decisively to protect all its agricultural markets, as well as the producers, market participants, and consumers who rely on them.”
According to reports, Ceres said it has now resolved the matter with the CFTC.
Ceres said that the $3 million penalty is consistent with the amount accrued as a legal settlement reserve in the corporation's financial statements for fiscal 2023.
The company doesn't anticipate any other charges or fines from this investigation by the Department of Justice.
Case background
CFTC's order stated Ceres attempted to manipulate the July 2016 and March 2017 oats futures contracts.
In June 2016, a former officer directed the company’s oat traders to flip the company’s existing short position in the July 2016 oat futures contract and attempt to reach a long position of 600 contracts, or 3 million bushels, the speculative position limit set by the exchange.
In addition to building its long futures position, the former officer directed oats traders to buy back shipping certificates the company previously tendered to other market participants in a way that would not “tip [their] hand” about Ceres’s plan to take delivery at the expiration of the contract.
In connection with this attempt to affect the July 2016 oats futures contract price, Ceres took delivery of 484 contracts and entered into offsetting transactions of an additional 53 contracts.
The order also found Ceres engaged in similar activity in connection with the March 2017 oats futures contract, again intending to affect the futures price. The company built a long position in the March 2017 oats futures contract, held its long position into delivery, and took delivery of 337 contracts and entered into offsetting transactions of an additional 224 contracts, even though it had no immediate need for the oats.
