KANSAS CITY — The nation's largest dairy cooperative and two former officers will pay $12 million as part of a federal investigation into a possible price manipulation scheme.
The U.S. Commodity Futures Trading Commission had accused Dairy Farmers of America Inc. of violating federal regulations in 2004 with a series of speculative trades in cheese futures on the Chicago Mercantile Exchange.
The price of cheese futures can affect milk prices. The U.S. Department of Agriculture sets a minimum price of milk that is based in part on a survey of cheese prices that includes futures prices.
Under the agreement, which was announced separately Tuesday by the commission and the cooperative, Dairy Farmers of America will pay the fine and will not engage in speculative trading for two years.
The agreement also bans former cooperative Chief Executive Officer Gary Hanman, of the Kansas City suburb of Platte City, and former Chief Financial Officer Gerald Bos, of Weatherby Lake in northwest Missouri, from trading futures for five years.
Two former officers of a cooperative subsidiary, Frank Otis, of Ambler, Penn., and Glenn Millar, of Las Vegas, have agreed to a separate settlement and will pay $150,000.
The Kansas City-based cooperative, which represents more than 18,000 dairy farmers in 48 states, said it wasn't admitting or denying wrongdoing with the settlement. But it did say it has changed its trading policies.
"The transactions addressed by the settlement took place over a one-month period more than four years ago," said Chief Executive Officer Rick Smith, who took over the cooperative in 2006. "We have fully cooperated with the CFTC's investigation and wanted to put this matter behind us."
Hanman and Bos didn't immediately return phone calls seeking comment. Phone numbers were not available for Otis or Millar.
The commission said that between May 21 and June 23, 2004, the cooperative, Hanman and Bos bought block cheddar cheese on the exchange's Cheese Spot Call market in an attempt to manipulate milk futures contracts in June, July and August 2004. It also alleged the group's total of speculative contracts held on one or more days during that period violated the exchange's daily limit.
Otis and Millar were accused of helping the cooperative in the alleged scheme.
"Given the severity of the past misconduct, we are pleased that DFA has committed to reform its trading practices," said Stephen J. Obie, the commission's acting director of enforcement.