Price Manipulation Suit against ADM Can Proceed

by Andrew Maloney (Chicago Daily Law Bulletin) A federal judge will allow price-manipulation claims against food processing giant Archer Daniels Midland to go forward in a central Illinois courtroom. U.S. District Judge Colin S. Bruce last week found plaintiffs made plausible claims that ADM artificially lowered ethanol prices to boost the value of short bets it made on the product.

The named plaintiff, energy trader AOT Holding AG, accused Chicago-based ADM of aggressively selling off the corn-derived fuel to lower its market value and increase the payout of derivatives bets that the price would continue to decline. The plaintiff’s complaint compared the strategy to “an owner of a baseball team betting against his team while bribing his players to throw the game.”

On Friday, Bruce dismissed two individual statutory claims but upheld the claim of market manipulation under the Commodities Exchange Act, calling it plausible and particular enough at this stage to go forward.

In an issue of first impression, he also ruled the federal law allows a plaintiff to recover punitive damages against an entity like ADM, writing that language directing damages collection at “floor brokers” who violate the act also reaches the customers they serve.

“A constrained reading of [Section] 25(a)(3) to allow punitive damages only against the floor broker who executed the illegal trades, but not against the corporate entity customer that allegedly concocted the scheme and directed the broker’s actions, would not serve the CEA’s stated purpose of ensuring financial integrity of market transactions, protecting market participants from fraudulent/abusive sales practices, and especially to deter and prevent market price manipulations,” Bruce wrote in the decision Friday.

“Indeed, it would serve to insulate from liability the entity responsible for the scheme in many cases.”

The plaintiffs alleged ADM, one of the largest ethanol producers in the United States, shorted the product beginning in November 2017. They alleged the company began selling at irrationally low prices during a specific window of trading at a fuel terminal in Argo, Ill., which is crucial in determining the Chicago Benchmark Price, a daily measure that settles ethanol derivatives on the New York Mercantile Exchange and the Chicago Board of Trade.

At the same time, AOT alleged, it was making bets the price of ethanol would continue to go down.