Kobre & Kim offices in Washington, D.C. (Photo: Diego M. Radzinschi / ALM)

A new federal public records lawsuit in Manhattan seeks to force a U.S. regulatory agency to open up about why it agreed to a rare gag provision that limited public statements about a closely watched $16 million settlement with major food producers.

The law firm Kobre & Kim filed the Freedom of Information Act suit Thursday in U.S. District Court for the Southern District of New York against the U.S. Commodity Futures Trading Commission.

CFTC leaders in Washington had apparent concerns about agreeing to a provision that would limit what the agency could say publicly about the settlement with Kraft Foods Group Inc. and Mondelēz Global. A Chicago judge recently voided the settlement amid complaints—from defense lawyers for the companies—that the CFTC's press statements violated the secrecy provision.

The agency has since removed three press statements from a government website, as the judge now considers whether to hold the agency—but not individual commissioners—in civil contempt. Lawyers for the agency have denied making any improper statements.

Kobre & Kim's public-records suit squarely focuses on the settlement's gag requirement, and it raises questions about how any continued secrecy could "threaten to chill legitimate market behavior while failing to deter potential misconduct in the future." The suit noted how much attention regulatory and compliance lawyers had been paying to the Kraft litigation.

"In effect, the CFTC negotiated a private resolution that left the industry without any intelligible guidance and with a potential misimpression that the legal theories asserted against Kraft had a sound legal basis," Kobre & Kim lawyers, including Benjamin Sauter in New York, said in their complaint.

The New York-based law firm said it expects that documents "will shed light on a question of great public interest: why did the CFTC, the nation's principal regulator of commodities and derivatives markets, try to conceal the factual and legal bases for its litigation settlement with Kraft Foods Group Inc. and Mondelēz Global LLC and agree never to discuss that settlement in public?"

At the time of the mid-August settlement, the CFTC said the gag provision limited only what the agency could say about the litigation, but not individual commissioners.

"We do not expect the commission to agree to similar language in the future, except in limited situations where our statutory enforcement mission of preventing market manipulation is substantially advanced by the settlement terms and the public's right to know about commission actions is not impaired," the agency said in August in a press statement.

U.S. Commodity Futures Trading Commission. (Photo: Diego M. Radzinschi / ALM)

Two Democratic CFTC commissioners—Dan Berkovitz and Rostin Behnam—went further, issuing a separate statement that questioned the soundness of the agency agreeing to a gag provision.

"Commissioners, as public officials, must be able to explain to Congress and the public the basis for the sanctions obtained, as well as the rationale for entering into a settlement agreement rather than pursuing litigation," said Behnam and Berkovitz, a former Wilmer Cutler Pickering Hale and Dorr partner in Washington. "Although we disagree with any provision restricting the five-member commission's capacity to make public statements, this provision does not impede our ability to provide information about this case to the public in light of each commissioner's right to discuss this case freely."

The CFTC said in August it was "pleased" with the Kraft settlement, which resolved more than four years of litigation. The agency said in a press statement that the penalty was "nearly three times the unlawful profit the commission alleged the defendants obtained." Lawyers for Kraft and Mondelēz, represented by teams from Jenner & Block and Eversheds Sutherland, have disputed the accuracy of the statement asserting the size of the penalty.

The agency had accused Kraft and Mondelēz of price manipulation in the wheat market. Neither company admitted liability in settling the case.

"The CFTC's secret settlement in the Kraft case, like its handling of other recent market manipulation cases, is a disservice to the industry the CFTC oversees," the Kobre & Kim lawyers said in their suit. "It is just the latest example of the CFTC obfuscating the law on market manipulation by pressing legal theories that are inconsistent with what the courts have articulated and using its leverage to secure private settlements purportedly validating the CFTC's own theories."

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