For Release: August 26, 1999
CFTC FILES ADMINISTRATIVE COMPLAINT AGAINST CARGILL INC., CHARGING THAT CARGILL OFFERED TO ENTER AND ENTERED INTO ILLEGAL AGRICULTURAL OPTION CONTRACTS
CFTC Alleges that Cargill's Premium Offer Contract Violates the Commodity Exchange Act and CFTC Regulations
WASHINGTON - The Commodity Futures Trading Commission (CFTC) announced today that it has filed a one-count administrative complaint alleging that Cargill, Inc. (Cargill), a Delaware corporation headquartered in Wayzata, Minnesota, offered to enter into and entered into illegal agricultural trade option contracts in violation of section 4c(b) of the Commodity Exchange Act (CEA) and CFTC regulation 32.2.
The CFTC complaint alleges that from January 1998 to the present, Cargill's commercial grain marketing program offered certain grain contracts, called Premium Offer Contracts (POCs), that operate as call options. The terms of Cargill's POC are set forth in an addendum to Cargill's standard grain contracts. Under the POC, Cargill pays a non-refundable premium to a producer, which is added to the nearby grain delivery price, in exchange for the producer's "firm offer" to sell Cargill grain for deferred delivery if, at a specified date, the futures price is at or above a specified strike price. Because Cargill's POC does not mandate delivery of the agricultural commodity unless certain conditions occur, the complaint charges that Cargill's POC is a commodity option that is prohibited by the CEA and CFTC regulations. In addition, Cargill's offer and sale of the POC does not comply with the rules permitting the offer and sale of agricultural trade options because Cargill has not registered as an agricultural trade option merchant, and has not complied with the other requirements of rule 32.13, and because the call options sold by producers to Cargill were not combined with a long put option position as required by the rules.
A public hearing has been ordered to determine whether the allegations are true, and, if so, what sanctions, if any, are appropriate and in the public interest.
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