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Commodity Futures Trading Commission 

CEA CASES 

NAME: CARGILL, INCORPORATED, ERWIN E. KELM, H. ROBERT DIERCKS, WALTER B. 

SAUNDERS, AND BENJAMIN S. JAFFRAY 

CITATION: 29 Agric. Dec. 880 

DOCKET NUMBER: 120 

DATE: AUGUST 13, 1970 

DOCUMENT TYPE: DECISION AND ORDER 

(No. 13,338) 

In re CARGILL, INCORPORATED, ERWIN E. KELM, H. ROBERT DIERCKS, WALTER B. 

SAUNDERS, and BENJAMIN S. JAFFRAY. CEA Docket No. 120. Decided August 13, 

1970. 

Manipulation -- Suspension of registration of corporate respondent -- Denial 

of trading privileges -- Sanctions suspended

The activities of the corporate respondent and four of its officers in 

manipulating the price of May 1963 wheat futures on the Chicago Board of Trade 

in 1963 and the price of cash wheat in Chicago in 1963 are violations of the act 

for which the registration of the corporate respondent as a commission merchant 

is suspended for a period of 90 days and all the contract markets are directed 

to refuse all trading privileges to all respondents for a like period. However, 

the sanctions as to all respondents are suspended. If any of the respondents is 

again found to have violated the act within two years the suspended sanctions 

will be taken into account in determining the sanctions to be ordered in 

connection with any such violation. 

Earl L. Saunders for Commodity Exchange Authority. 

Dorsey, Owen, Marquart, Windhorst and West, Minneapolis, Minn., and 

Calvin J. Anderson, general counsel, for Cargill, Incorporated. 

Neville, Johnson and Thompson, Minneapolis, Minn., for individual 

respondents. 

Benj. M. Holstein, Hearing Examiner. 

Decision by Thomas J. Flavin, Judicial Officer 

PRELIMINARY STATEMENT

This is an administrative proceeding under the Commodity Exchange Act (7 

U.S.C. 1 et seq.) against Cargill, Incorporated, a Delaware corporation engaged 

in the grain merchandising and export business, and four of its officers. The 

complaint, issued under section 6 (b) of the act (7 U.S.C. 9) by the Assistant 

Secretary of Agriculture, charges that respondents attempted to manipulate and 

did in fact manipulate the price of May 1963 wheat futures on the Chicago Board 

of Trade on May 21, 1963, and the price of cash wheat in Chicago on May 20 and 

21, 1963, in willful violation of sections 6 (b) and 9 of the Commodity Exchange 

Act (7 U.S.C. 9, 13). 

The respondents filed separate answers in which each respondent admits the 

jurisdictional allegations of the complaint and some of the transactions and 

positions described therein. Respondents Kelm and Diercks each admit that, as 

president and executive vice-president, respectively, of Cargill, Incorporated, 

they were generally familiar with the corporation's cash transactions and 
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futures positions, but they deny that they authorized and approved the 

transactions compained of (Kelm answer, paragraph VII, Diercks answer, paragraph 

VII). Respondent Saunders admits that, as a vice-president of the corporation, 

all of the transactions were carried out under his general direction and 

supervision (Saunders answer, paragraph VII). Respondent Jaffray admits that, 

as assistant vice-president, he directed and supervised the cash transactions 

(Jaffray answer, paragraph VII). 

All the respondents deny any attempted or actual manipulation or any purpose 

or intent to manipulate. Each respondent sets forth additional affirmative 

defenses, described below. 

Earl L. Saunders, Office of the General Counsel, United States Department of 

Agriculture, appeared as counsel for complainant. The corporate respondent was 

represented by John G. Dorsey, n1 Peter Dorsey, and James H. O'Hagan, of Dorsey, 

Owen, Marquart, Windhorst and West, a Minneapolis law firm, and by Calvin J. 

Anderson, general counsel of the corporation, and Donald C. Levin, its vicepresident and secretary. The individual respondents were represented by Philip 

Neville, of Neville, Johnson and Thompson, a Minneapolis law firm. Benj. M. 

Holstein, Office of Hearing Examiners, United States Department of Agriculture, 

was assigned as referee and presided at the hearing. 

n1. John G. Dorsey died in February 1966, while the hearing was in 

progress. 

 

Prior to the hearing, petitions to intervene for the limited purpose of 

submitting briefs after hearing and participating in other post-hearing 

procedure were filed on behalf of the Board of Trade of the City of Chicago, the 

Association of Commodity Exchange Firms, Inc., and the Great Plains Wheat Market 

Development Association, Inc. These petitions were granted (Ruling on Petitions 

for Intervention, June 7, 1965). 

A prehearing conference was held prior to the hearing and another such 

conference took place in the interval between conclusion of the government's 

case in chief and the presentation of evidence by respondents. At these 

conferences, the parties stated what they considered to be the issues, outlined 

their positions with respect thereto, exchanged information concerning witnesses 

and exhibits, and reached agreement on minor procedural matters (Summary of 

Prehearing Conference, March 26, 1965, February 1, 1966). 

The hearing took place at intervals in Minneapolis, Chicago and Washington, 

and was concluded in November 1966, after 32 days of hearing. The record 

contains 4715 pages of oral testimony by some 50 witnesses and over 200 

exhibits, many of which consist of multiple documents. Respondents' motions to 

dismiss the proceeding at the conclusion of the government's case in chief were 

denied by the referee after briefs and oral argument, and a request for 

certification of this ruling to the Judicial Officer was denied. (Ruling on 

Motions to Dismiss, December 22, 1965; Ruling on Request for Certification, 

January 17, 1966). Respondents' request for oral argument before the referee in 

support of their suggested findings, conclusions and order, made on the record 

after the close of the hearing and later renewed, was denied in a ruling filed 

June 25, 1968. Motions made orally at the close of the hearing to dismiss the 

proceeding as against all the respondents are pending (Tr. pp. 4706-4707). 

Suggested findings of fact, conclusions and orders, and supporting briefs 

were filed on behalf of the parties. Briefs supporting, in general, the 

position taken by respondents were also filed on behalf of each of the three 

intervenors. 

The referee issued a recommended decision (112 pages) to the general effect 

that respondents had violated the act as charged in the complaint and proposed 

an order suspending the registration of respondent Cargill, Incorporated, as a 

futures commission merchant under the act for a period of 90 days and an order 

to the 
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contract markets to refuse all trading privileges to all respondents for a 

period of 90 days. 

Respondents filed exceptions to the recommended decision and order as did 

also the intervenor, Board of Trade of the City of Chicago. Respondents 

requested oral argument upon their exceptions but the Board of Trade of the City 

of Chicago did not. Oral argument was held before the Judicial Officer, Thomas 

J. Flavin, in Washington, D. C. December 9, 1969. 

Respondents filed a motion on September 16, 1968, for disqualification of 

Thomas J. Flavin, Judicial Officer, as deciding officer in the proceeding 

alleging that he had prejudged the proceeding and had a personal bias against 

the respondents. The motion was supported by an affivadit dated October 14, 

1966, some years earlier, in which Mr. John Tripp, a retired employee of the 

United States Department of Agriculture, then working for Cargill in Washington, 

D. C., states he met Mr. Flavin on the bus and that Mr. Flavin upon sitting down 

with Mr. Tripp made a remark which Mr. Tripp remembered as being substantially 

"Your company (or you fellows) have rigged the market again". 

Mr. Flavin refused to disqualify himself because he stated that whatever 

remark he may have made to Mr. Tripp was purely in jest and before he had seen 

the complaint and before the hearing was held. He denied any prejudgment or 

personal bias against respondents. On August 27, 1969, Assistant Secretary Lyng 

denied the motion. 

The Findings of Fact below are substantially those recommended by the 

referee. Many deal with the background of trading in wheat futures and are not 

controverted. Others concern the physical facts of Cargill's trading in cash 

wheat and in May 1963 wheat futures on the Chicago Board of Trade. These facts 

too cannot be denied by respondents. The evidentiary facts in dispute and the 

inferences and conclusions from the facts found are discussed under the heading 

"Conclusions" below. 

FINDINGS OF FACT

1. Respondent Cargill, Incorporated, (hereinafter Cargill), is a corporation 

organized and existing under the laws of the State of Delaware, with its 

principal office and place of business in the Cargill Building, Minneapolis, 

Minnesota, and administrative offices in Wayzata, Minnesota, a suburb of 

Minneapolis. n2 Said corporation 

is now and was at all times material herein a clearing member of the Board of 

Trade of the City of Chicago, and registered with the Secretary of Agriculture 

as a futures commission merchant under the Commodity Exchange Act. Cargill is a 

closely held family corporation engaged in various diversified business 

activities, including the marketing of agricultural commodities domestically and 

in the export trade. The firm is over 100 years old, well established, has 

approximately 5500 employees, and is organized into divisions each of which is 

concerned with a specific activity. The grain division has the responsibility 

for marketing and warehousing wheat and other grains, and has offices in several 

cities including Chicago, Kansas City, St. Louis, Minneapolis and Buffalo. 

Cargill owns and operates a grain elevator in Chicago. (Cargill answer, 

paragraph I; Tr. pp. 1468-1488, 1492-1493, 1503). 

n2. This office is frequently referred to in the testimony as the Lake 

office. 

2. Respondent Erwin E. Kelm, an individual whose business address is the same 

as that of respondent Cargill, is now and was at all times material herein the 

president of respondent corporation, its chief executive officer, a member of 

its Board of Directors, and a member of the Board of Trade of the City of 

Chicago. At all such times respondent Kelm was in charge of all operations of 
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the corporate respondent, took an active part in its management, and was 

generally familiar with its cash transactions and futures positions (Kelm 

answer, paragraphs II, VII; Tr. pp. 2445, 3135-3138). 

3. Respondent H. Robert Diercks, an individual whose business address is the 

same as that of the respondent Cargill, is now and was at all times material 

herein an executive vice-president of respondent corporation, a member of its 

Board of Directors, and a member of the Board of Trade of the City of Chicago. 

At all such times respondent Diercks supervised and was responsible for the 

operations of Cargill's grain division, was generally familiar with Cargill's 

cash transactions and futures positions, and such transactions were made and 

positions taken with his knowledge and consent (Diercks answer, paragraphs III, 

VII; Tr. pp. 2416-2417, 2424). 

4. Respondent Walter B. Saunders, an individual whose business address is the 

same as that of respondent Cargill, is now and was at all times material herein 

vice-president of respondent corporation, manager of its grain division, and a 

member of the 

Board of Trade of the City of Chicago. At all such times respondent Saunders 

was in charge of Cargill's grain division and made the decisions with respect to 

trading in grain futures for Cargill's account, and the cash and futures 

transactions hereinafter described were carried out under his direction, 

supervision and control (Saunders answer, paragraphs IV, VII; Tr. pp. 1488, 

1491, 1497-1498, 1629). 

5. Respondent Benjamin S. Jaffray, an individual whose business address is 

1660 Field Building, Chicago, Illinois, is now and was at all times material 

herein an assistant vice-president of respondent Cargill, and a member of the 

Board of Trade of the City of Chicago. At all such times, respondent Jaffray 

was the manager in charge of the Chicago (Central Region) office of Cargill's 

grain division at the above address, and said respondent directed and supervised 

the cash grain transactions of Cargill in that region and was consulted 

concerning export sales which were then consummated through the Wayzata office 

(Jaffray answer, paragraphs V, VII; Tr. pp. 1492, 1632-1634, 1777-1781, 1857). 

6. Cargill Grain Company, Ltd., a Canadian subsidiary of Cargill's grain 

division, owns and operates a grain elevator and loading facility at Baie 

Comeau, Quebec, Canada, on the St. Lawrence River, which is used by Cargill as 

an export transfer point. Cargill ships grain in lake vessels or "lakers" from 

Chicago and other ports on the Great Lakes to Baie Comeau via the St. Lawrence 

seaway where the grain is transferred from the lake vessel into an ocean-going 

vessel for export (Tr. pp. 1493-1495). 

7. Tradax Internacional S. A., a Panama corporation with headquarters in 

Panama City, Panama, and Tradax Geneve, S. A., a Swiss corporation with 

headquarters in Geneva, Switzerland, were at all times material herein closely 

related to respondent Cargill, the three corporations having many shareholders 

and officers in common. Tradax Geneve is the management company for Tradax 

Internacional and the two corporations (hereinafter Tradax) are engaged in the 

business of merchandising grain of all origins to all parts of the world (Tr. 

pp. 1530-1531, 2099-2103). 

8. The Board of Trade of the City of Chicago (Chicago Board of Trade) is now 

and was at all times material herein a commodity exchange duly designated as a 

contract market under the Commodity Exchange Act. It is an organization which 

provides facilities where traders meet and engage in trading in various 

commodities 

under rules promulgated by the Board of Trade, but the Board of Trade does not 

engage in any trading activity (Answers, paragraph VI; Tr. p. 27). 
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9. A wheat futures contract on the Chicago Board of Trade is a contract made 

on or subject to the rules of the Board of Trade, in which one party agrees to 

sell and deliver and the other party agrees to buy and receive a specified 

quantity of wheat at a specified price in a designated month in the future. The 

normal trading unit is one contract consisting of 5,000 bushels. The parties 

determine the price, the number of contracts or quantity of wheat, and the month 

of delivery. All other terms and conditions of the contract are fixed by the 

rules of the Board of Trade and are incorporated into every contract. When the 

proper deposits are made, the clearing organization of the Board of Trade is 

substituted as buyer from the seller and seller to the buyer and thereafter each 

of the contracting parties is obligated only to the clearing organization. A 

wheat futures contract must be satisfied or liquidated by (1) an off-setting 

transaction in the same future prior to the expiration of trading in that 

future, or by (2) delivery of the specified quantity of wheat by the seller and 

its receipt and payment by the buyer during the specified delivery month and in 

conformity with the rules of the Board of Trade. A trader who fails to satisfy 

one or the other of these conditions is in default on his contract. A trader 

who has bought futures and is therefore obligated to take delivery or make an 

off-setting sale has an open long position and is referred to as a "long", and a 

trader who has sold futures and is obligated to deliver or make an off-setting 

purchase is a "short" and has an open short position (Tr. pp. 26-36, 44-45). 

The maximum net long or net short speculative position in any wheat future which 

any one person may hold or control on any one contract is 2,000,000 bushels (17 

CFR 150.1). 

10. The crop year for wheat in the United States is from approximately June 1 

to May 31 of the following year. At all times material herein the delivery 

months in which wheat futures could be traded on the Chicago Board of Trade were 

July, September, December, March and May (Comp. Ex. 1). The May 1963 wheat 

future was the last future for the 1962-1963 crop year (old crop), and the July 

1963 wheat future was the first future for the 1963-1964 crop year (new crop). 

June 1, 1962, was the first day for trading in the May 1963 future and May 21, 

1963 (Tuesday) was the last day for trading in such future. During the 

remaining seven business days in May, deliveries of wheat in satisfaction of 

May 1963 futures contracts could be made. May 31, 1963 (Friday) was the last 

day for delivery of wheat in satisfaction of a May 1963 futures contract. Any 

May 1963 futures contract open thereafter was in default (17 CFR 100.1; Tr. pp. 

38-43, 1508). 

11. Most futures contracts on the Chicago Board of Trade are offset by an 

opposite transaction or transactions. When a futures contract is satisfied by 

delivery, the delivery is effectuated by tender on the part of the seller and 

acceptance on the part of the buyer of a warehouse receipt or receipts covering 

a specified quantity of deliverable grade wheat stored in a designated warehouse 

in the Chicago area approved by the Chicago Board of Trade as regular for 

delivery. There are no delivery points outside of the Chicago area. Under the 

rules of the Board of Trade, during the last three business days of a delivery 

month delivery may also be made by tendering deliverable grade wheat loaded in 

railroad cars on track in the Chicago switching district, which cars are 

consigned to an approved Chicago warehouse elevator (Tr. pp. 28, 33-35). 

Delivery must be preceded by a notice of intention to deliver, issued by the 

seller or on his behalf on the day prior to delivery. Such notices could be 

issued during the period beginning with the last business day of the calendar 

month immediately prior to the delivery month and extending through the day 

prior to the last delivery day of such month. 

12. Under the rules of the Chicago Board of Trade in effect during May 1963, 

a trader who had an open short position in wheat futures was required (1) to 

make an off-setting purchase of futures in the trading pit or ring prior to the 

expiration of trading in the future, which purchase would cover his short 

position, or (2) issue a notice of intention to deliver within the period 

permitted for such issuance and deliver wheat in accordance with the notice on 
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the next business day. A trader who had an open long position in wheat futures 

was required (1) to make an off-setting sale of futures in the trading pit or 

ring prior to expiration of trading in the future which sale would liquidate his 

long position, or (2) take delivery of wheat on the business day after receipt 

of a notice of intention to deliver. Under the rules of the Board of Trade, a 

trader who had an open short position could, in addition to the options 

described above, enter into an ex-pit transaction in which he would exchange 

actual wheat for long futures with which to cover his short position, and a 

trader who had an open long position could, in addition to the options described 

above, enter into an ex-pit transaction in which he would exchange 

his long futures for actual wheat, thus liquidating his long position. After 

expiration of trading in the May 1963 future, such ex-pit transactions were 

permitted only between traders closing out positions in the future. 

13. Soft red winter wheat is one of various classes of wheat produced in the 

United States, and Chicago is one of the principal markets for such wheat. Soft 

red winter wheat is grown chiefly in Illinois, Indiana and Ohio, and comprises 

about 15 percent of the total United States wheat crop (Tr. p. 1505; Resp. Ex. 

76). Soft red winter wheat is used by mills in the Chicago area (Tr. pp. 1087, 

1098, 1794), and from 10 to 16 million bushels of such wheat are usually 

accumulated and warehoused in Chicago after harvest and thereafter sold to mills 

in Illinois and other states and for export (Tr. pp. 1506, 1780). Major 

consumers of soft red winter wheat in the Chicago area are the Eckhart Milling 

Company, Chicago, General Mills, Incorporated, Chicago, and the Pillsbury 

Company, Springfield, Illinois (Tr. p. 1794). The Chicago wheat futures 

contract is essentially a soft red winter wheat contract because No. 2 soft red 

winter wheat is the cheapest class and grade deliverable at par in satisfaction 

of the contract, and therefore the price of the Chicago wheat future tends 

generally to reflect the value of No. 2 soft red winter wheat (Tr. pp. 1285, 

3290-91). 

14. In early 1963, Cargill was of the opinion that there would be an ample 

supply of old crop (1962) soft red winter wheat available at the end of the crop 

year in May 1963. Based upon this opinion, Cargill hedged its inventory of soft 

red winter wheat by selling May 1963 futures on the Chicago Board of Trade, and 

in early March 1963 reached a maximum short position in such future in excess of 

eight million bushels (Resp. Ex. 32; Tr. pp. 1511-1513). During February 1963, 

Cargill sold substantial quantities of cash soft red winter wheat to mills in 

the southwestern part of the United States and this demand continued into March 

(Comp. Ex. 34). Cargill thereupon revised its evaluation of the supply-demand 

situation, concluded that stocks of old crop wheat would be in tight supply at 

the end of the crop year, and began to cover its short hedges by the purchase of 

May 1963 wheat futures (Tr. pp. 169-170, 1524-1525, 1787-1789, 3150-3152; Comp. 

Ex. 34, Resp. Ex. 32). In March 1963, the Spanish Government indicated a 

definite interest in the purchase of substantial quantities of wheat and Cargill 

responded that it was prepared to offer soft red winter wheat to Spain (Comp. 

Ex. 34). Cargill 

thereupon continued to purchase May 1963 wheat futures during March and into 

April and by April 11, 1963, Cargill had reduced its short position to 570,000 

bushels. On April 15, the next business day, Cargill bought 820,000 bushels of 

May 1963 wheat futures closing out its short hedge position and establishing a 

long speculative position of 250,000 bushels. (Comp. Ex. 3, Resp. Ex. 32). n3 

As of Friday, April 12, 1963, there was a total of 2,804,000 bushels of 

deliverable grade wheat stored in Chicago warehouses, of which 200,000 bushels 

were owned by Eckhart and stored in its warehouse which was not regular for 

delivery. Of the remaining 2,604,000 bushels held by others, Cargill held 

2,471,000 bushels (Comp. Ex. 19). 
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n3. All references to positions or open interest are as of the close of 

business on the date indicated unless otherwise stated. The figures on 

Complainant's Exhibit 3 are as of the close of business on each day, which 

is the same as the opening of business on the next day. The figures on 

Respondent's Exhibit 32 refer to the opening of business on each day. 

15. After April 15, 1963, Cargill continued to increase its long position in 

May 1963 wheat futures. On April 16, it purchased 875,000 bushels of such 

futures and on April 18 it purchased 100,000. On April 19, 1963, Cargill held a 

long position of 1,225,000 bushels of May 1963 wheat futures on the Chicago 

Board of Trade. On that date there was a total of 2,238,000 bushels of 

deliverable grade wheat in Chicago warehouses of which Cargill held 1,915,000 

bushels and Eckhart held 214,000 bushels (Comp. Ex. 3, 19; Resp. Ex. 32). 

16. On or about April 21, 1963, at a meeting attended by respondents Kelm, 

Diercks and Saunders, Cargill's operations in the May 1963 future were reviewed 

and respondent Saunders outlined the supply-demand situation and expressed the 

view that "the supply of wheat in Chicago would be very, very tight" due to the 

movement of such supplies into commercial channels. Respondent Kelm thereupon 

determined that Cargill's long speculative position was a good business venture 

and approved the same. On April 22, 1963, Cargill bought an additional 225,000 

bushels of May 1963 wheat futures, increasing its long position to 1,450,000 

bushels (Tr. pp. 3140-3141, 3150-3152, 3157-3158; Comp. Ex. 3, Resp. Ex. 32). 

17. During the latter part of April 1963, agents of the Spanish Government 

appeared in the United States and stated that their country was desperately in 

need of wheat (Tr. p. 1745). By April 30, 1963, Cargill had increased its long 

position in May 1963 wheat futures to 1,510,000 bushels (Comp. Ex. 3, Resp. Ex. 

32). 

 

On May 2, 1963, the Geneva office of Tradax informed Cargill that 

representatives of the Spanish Government felt "pretty confident" that Spain 

would hold a tender in mid-May for the purchase of 100 to 150,000 tons n4 of 

wheat and that red winter wheat would be "perfectly satisfactory" on such 

tender, but that shipment from the United States could probably not be made by 

Cargill before the government subsidy cut-off date (Resp. Ex. 7). At the time 

Cargill was so informed, the United States Department of Agriculture wheat 

export subsidy program required that old crop soft red winter wheat be loaded 

for export not later than May 31 in order to be eligible for the government 

subsidy applicable to such wheat. On May 6 and again on May 10, 1963, 

representatives of Cargill talked with representatives of the United States 

Department of Agriculture and discussed extension of the subsidy termination 

date (Comp. Ex. 58). During that week, Cargill increased its long position in 

the May 1963 future by 220,000 bushels, and held a long position of 1,745,000

bushels on Friday, May 10. On May 11, Cargill was informed by Tradax that the 

Spanish tender would be held and that it would require shipment by June 10, and 

Cargill so informed the United States Department of Agriculture. On the same 

day (May 11) the Spanish Government announced tender (Tr. pp. 1538-1540). On 

Monday, May 13, at 3:30 p.m., the United States Department of Agriculture 

announced that the final shipment date for eligibility under the subsidy program 

was extended to June 10, 1963 (Tr. pp. 1548-1550). 

n4. From 4 to 6 million bushels (Tr. p. 1537). One ton equals 

approximately 40 bushels. 

18. On Tuesday, May 14, 1963, Cargill offered to Tradax for re-offer to Spain 

on its tender of May 11 up to one million bushels of wheat, and on that day 

Tradax bought from Cargill one cargo of 12,500 tons or about 467,000 bushels of 

No. 2 red winter wheat at the current world price of $ 1.61 per bushel f.o.b. 

Baie Comeau for shipment between May 20 and June 10 (Tr. pp. 1571-1574; Comp. 

Ex. 35, Resp. Ex. 14). This price, plus the current subsidy of 62 cents, minus 

lake freight Chicago to Baie Comeau (9 1/2 cents) equaled $ 2.13 1/2 cents per 

bushel, or 10 1/2 cents over the Chicago May 1963 futures price of $ 2.03 on 
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that day (Resp. Ex. 14). This sale was registered for subsidy prior to 3:29 

p.m. on that day (Tr. pp. 1867-1868). On the same day, May 11, Cargill acquired 

135,000 bushels of May 1963 wheat futures on the Chicago Board of Trade which 

increased its long position to 1,880,000 bushels (Comp. Ex. 3). 

19. At 9:40 a.m. on Wednesday, May 15, 1963, respondent Jaffray sent the 

following wire from his Chicago office to the Cargill office at Wayzata (Comp. 

Ex. 15, p. 10): 

"Boys are going hammer wht smorn. Sugg [suggest] we watch CNS [Commodity 

News Service] and Dow-Jones and if no subsidy report next couple hours prob shud 

sow few seeds". 

A subsidy registration or report carried by the Commodity News Service or 

Dow-Jones News Service would inform the trade that Cargill had sold wheat for 

export (Tr. pp. 1866-1868). On the same day, respondent Saunders negotiated 

with Tradax over the telephone concerning the purchase by Tradax of a second 

cargo of wheat from Cargill for offer to Spain, and Cargill indicated the price 

at which it was willing to sell (Tr. pp. 1574-1577). During the trading session 

on that day Cargill bought an additional 50,000 bushels of May 1963 wheat 

futures on the Chicago Board of Trade and reached a long speculative position of 

1,930,000 bushels (Comp. Ex. 3). At 7:35 p.m. on that day Cargill sent a wire 

to Tradax in Geneva "for reply Sat May 18" offering a second cargo of up to 

15,000 tons of No. 2 red winter wheat at the then world price of $ 1.64 1/2 per 

bushel f.o.b. Baie Comeau for shipment between May 23 and June 10 (Comp. Ex. 

36A, 36B). This price, plus the current subsidy which had declined to 54 cents 

on May 15, minus lake freight, equaled $ 2.09 per bushel or 5 1/2 cents over the 

May 1963 Chicago futures price of $ 2.03 1/2 on that day (Resp. Ex. 14). 

20. On Thursday, May 16, Tradax, on the basis of its negotiations with 

Cargill, offered two cargoes of approximately 27,500 tons of No. 2 red winter 

wheat to Spain and so informed Cargill by wire (Comp. Ex. 36C). Later that day 

Tradax informed Cargill that the Tradax offer on the Spanish tender was "pretty 

attractive and we expect will hv some luck this time" (Resp. Ex. 11). 

21. On Friday, May 17 and Saturday, May 18, Cargill loaded out of its Chicago 

elevator and shipped to Baie Comeau for transshipment overseas, 770,000 bushels 

of No. 2 soft red winter wheat, which left Cargill with a total of approximately 

370,000 bushels of such wheat remaining in its Chicago elevator. Cargill 

personnel were instructed to keep the loading confidential (Tr. pp. 1560-1570; 

Comp. Ex. 34, p. 2, Comp. Ex. 45). On May 18, the Spanish Government accepted 

the Tradax offer of May 16 described in 

 

Finding 20, and Tradax so informed Cargill and accepted Cargill's offer of the 

second cargo as described in Finding 19 (Comp. Ex. 36D, 36E, Resp. Ex. 26, 27; 

Tr. pp. 2062-2066). 

22. Just before consumation of the sales to Tradax, in accordance with 

Cargill's regular practice, respondent Saunders and other Cargill 

representatives consulted Mr. Donald Levin, who was general counsel of 

respondent Cargill at that time, concerning Cargill's long position in the May 

1963 future, its cash holdings, and the prospective Spanish sales. Mr. Levin 

approved the proposed sales, expressed the opinion that Cargill's operations 

were legal and proper, and stated that the legal problem "would be that if 

Cargill would sell wheat out of Chicago at an uneconomic price, that it would 

not be legal and proper" (Tr. pp. 1645, 1649-1652, 1657-1658, 3143-3144). 

23. During the first half of May 1963, prices of the May 1963 wheat future on 

the Chicago Board of Trade showed a downward trend, declining from $ 2.11 3/4 at 

the close on May 1 to $ 2.03 3/4 at the close on May 15. On Thursday, May 16 

and Friday, May 17, prices increased and closed at $ 2.05 1/4 and $ 2.09 1/8, 

respectively (Comp. Ex. 8). Chicago cash price quotations for No. 2 red winter 
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wheat showed a parallel trend, declining from about $ 2.18 on May 1 to $ 2.09 

1/2 on May 15, and then rising to $ 2.11 and $ 2.15 1/4 on May 16 and 17 (Comp. 

Ex. 17). William G. Catron, vice-president of Eckhart Milling Company at the 

time, testified that on Thursday, May 16 and Friday, May 17, the market started 

to react to rumors that wheat would be shipped out of Chicago over the coming 

weekend. (Tr. pp. 1094-1095, 1105). 

24. On May 20, 1963, Eckhart purchased 25,000 bushels of No. 2 red winter 

wheat from the Central Soya Company at $ 2.27 and 25,000 bushels from Cargill at 

$ 2.28, delivered Chicago, and at the same time liquidated 45,000 bushels of 

long May futures which it held (Comp. Ex. 46, 55, 56, 61; Tr. pp. 1100-1102). 

On May 21, Eckhart bought an additional 50,000 bushels of No. 2 red winter wheat 

from General Grain Company, Indianapolis, Indiana, at $ 2.26 1/2, delivered 

Chicago for which it exchanged 50,000 bushels of long May futures. This 

transaction involved an abnormal movement of wheat from Indianapolis to Chicago 

(Comp. Ex. 57; Tr. pp. 1103-1104). These cash purchases by Eckhart transferred 

its long futures position into cash wheat and were motivated by the shipments of 

wheat out of Chicago by Cargill over the previous weekend, by Eckhart's need for 

wheat to supply the operational 

 

requirements of its mill until new crop wheat became available, and because it 

wanted wheat in satisfaction of its long futures contracts and did not wish to 

risk receiving settlement on its contracts rather than wheat, in the event of 

defaults in the May future (Tr. pp. 1098, 1102-1103, 1107). On May 20, 1963, 

General Mills, which had a short position in the May future, changed its 

evaluation of the futures market and covered its short position by the purchase 

of futures when it was informed that substantially all the wheat in Chicago was 

being loaded for shipment. All of the wheat owned by General Mills and stored 

in its Rialto elevator in Chicago was needed in its milling operations and was 

not for sale (Tr. pp. 1085-1088). 

25. At the opening of the trading session on Monday, May 20, Cargill held a 

long open contract position of 1,930,000 bushels in the May 1963 wheat future on 

the Chicago Board of Trade (Comp. Ex. 3, Resp. Ex. 32). The future had closed 

at $ 2.02 1/8-$ 2.09 1/2 the previous day, May 17, and opened at $ 2.11-$ 2.14

on May 20 (Comp. Ex. 8). At a meeting of Cargill representatives on that day it 

was determined that Cargill should begin the liquidation of its futures position 

and respondent Saunders placed an order during the trading session to sell 

100,000 bushels of May 1963 futures at $ 2.19 for Cargill's account (Comp. Ex. 

4; Tr. pp. 78-85, 1591-1593). However, the floor broker was able to sell only 

40,000 bushels at $ 2.19, and after such execution returned the order to Cargill 

with a notation upon its face that there was no market for the balance at that 

price (Comp. Ex. 4; Tr. pp. 2346-2347). The high price reached during that day 

was $ 2.19. Under the rules of the Chicago Board of Trade, the maximum 

permissible high price for that day was $ 2.19 3/8. n5 The market closed at $ 

2.18 3/8-$ 2.18 1/2, an increase of 9 3/4 cents from the previous day's closing 

price (Comp. Ex. 8). 

n5. The maximum permissible price fluctuation is 10 cents above or below 

the previous day's closing price (Tr. p. 181). 

26. Between May 1 and May 20, 1963, the total open interest in the May 1963 

wheat future on the Chicago Board of Trade declined from about 27 million 

bushels to about eight million bushels. During the same period, Cargill 

increased its long position in the future by 405,000 bushels (Comp. Ex. 3). May 

21, 1963, was the last day for trading in the May 1963 wheat future on the 

Chicago Board of Trade, and at the opening of business on that day respondent 

Cargill held a long open contract position of 1,890,000 

 
Page 10 

bushels in such future or about 24 percent of the open interest (Comp. Ex. 3, 

Resp. Ex. 32). The next largest long position in the future held by any trader 

was 350,000 bushels. The largest short position held by any trader at that time 

was 700,000 bushels (Comp. Ex. 6). At the same time, the quantity of 

deliverable wheat in Chicago warehouses owned by persons other than Cargill and 

available for purchase was approximately 20,000 bushels (Comp. Ex. 19; Tr. pp. 

1247-1248). 

27. When the Chicago Board of Trade opened at 9:30 a.m. on May 21, the last 

day of trading in the May 1963 future, the May 1963 wheat future traded at $ 

2.22-$ 2.20 3/4 and then gradually declined. Between 10:30 and 10:57 prices 

ranged between $ 2.18 1/2 and $ 2.17 1/2 (Comp. Ex. 7). Sometime during this 

interval Cargill placed an order to buy 100,000 bushels of May 1963 futures and 

the order was executed by the purchase of 50,000 bushels at $ 2.18 and 50,000 

bushels at $ 2.17 1/2 (Tr. pp. 1593-1594, 2334). These purchases gave Cargill a 

long speculative position in the future of 1,990,000 bushels. Thereafter prices 

again declined and at 11:02 a.m. the future was sold at $ 2.15 1/4 which was the 

low price for the day (Comp. Ex. 7). At or about 11:00 a.m., respondent Jaffray 

sold 50,000 bushels of cash wheat for Cargill's account to the Continental Grain 

Company at 11 cents over the May 1963 future and agreed with a representative of 

Continental to sell 50,000 bushels of the future for Continental's account 

before the expiration of trading on that day in order to price the transaction. 

In a letter to the Commodity Exchange Authority describing this transaction, Mr. 

Donald C. Levin of Cargill stated that ". . . the price received for the futures 

would make a difference to Cargill because Cargill would receive a flat price of 

11 over what the futures were sold for. Thus Cargill wanted control of this 

futures transaction . . ." (Comp. Ex. 13, pp. 3-4). 

28. Beginning shortly after 11:00 o'clock on May 21, the May 1963 futures 

price rose gradually and between 11:28 and 11:30 ranged between $ 2.22 and $ 

2.21. At or about this time Cargill ordered the sale for Continental's account 

of 50,000 bushels of May futures at $ 2.26 or at the close of the market (Comp. 

Ex. 14, p. 2; Tr. p. 681). After 11:30, prices again declined and at 11:39 a.m. 

the price was $ 2.16 1/2 (Comp. Ex. 7). Thereafter, prices advanced and by 

11:45 the future was trading at $ 2.20. At this point Cargill transmitted six 

orders to the floor of the Chicago Board of Trade directing the sale for its 

account of 1,990,000 

 

bushels of May 1963 wheat futures, as follows (Comp. Ex. 5; Tr. pp. 681-682, 

2335): 

200,000 bushels at $ 2.27 

200,000 " " 2.27 1/4 

300,000 " " 2.27 1/2 

400,000 " " 2.27 3/4 

500,000 " " 2.28 

390,000 " " 2.281/4 

These orders, as well as the order to sell for Continental's account at $ 

2.26, were limit orders, which meant that the sales could not be made below the 

prices specified (Tr. pp. 54-55). The maximum price at which the May 1963 

future could be bought or sold on May 21 was $ 2.285/8 (Comp. Ex. 8, p. 2; see 

footnote 5 and Tr. p. 132). 

29. At 11:52 a.m., on May 21, the May 1963 future was trading at $ 2.21-2.21 

1/4. Thereafter it rose rapidly and shortly after 11:53 reached $ 2.26 and $ 

2.27, the prices specified in Cargill's order for Continental and in the first 

of Cargill's liquidating orders. Thereafter and until the termination of 

trading at about 12:00.5 p.m., the May future traded intermittently at prices 

between $ 2.26 and 2.28 5/8 and closed at the latter price, which was the high 

price limit for the day (Comp. Ex. 7). At 11:53 a.m., Cargill held 1,990,000 

bushels of long May futures for its own account and the 50,000 bushels which it 

was authorized to sell for Continental, or about 62 percent of the remaining 

open interest (Comp. Ex. 18A). Between 11:53 and 12:00.5 p.m., Cargill's 
Page 11 

broker, acting pursuant to the orders received from Cargill, sold 50,000 bushels 

at $ 2.26 for Continental's account and 1,625,000 bushels for Cargill's account 

at prices ranging from $ 2.27 to $ 2.28 5/8, but due to confusion in the pit 

during the closing period the broker was unable to execute the remainder of the 

Cargill order, which left Cargill with a long position of 365,000 bushels in the 

May 1963 future after the termination of trading, out of a total of 420,000 

bushels which remained open after trading ended (Tr. pp. 2338-2342; Comp. Exs. 

3, 29). 

30. When trading in the May 1963 future ended on May 21, Cargill was the only 

source of warehouse receipts for deliverable wheat in Chicago (Tr. pp. 663-664, 

670, 1251). Shortly after the termination of trading, Mr. Carl Bostrom, Acting 

Chairman of the Business Conduct Committee of the Chicago Board of Trade, called 

at Cargill's office and inquired as to Cargill's intentions with 

 

respect to its remaining long position of 365,000 bushels in the May future. 

Mr. Bostrom requested Cargill's cooperation in the orderly liquidation of its 

position, pointed out the apparent short supply of soft red winter wheat in the 

Chicago area, and suggested that Cargill offer to sell cash soft red winter 

wheat to the unresolved shorts. Thereafter, Cargill was approached by various 

commission firms holding short May futures positions and these firms offered to 

purchase warehouse receipts for a total of 320,000 bushels. On May 23, 1963, in 

response to Mr. Bostrom's inquiry, respondent Jaffray informed Mr. John G. 

McCarthy, President of the Chicago Board of Trade, that Cargill was willing to 

settle its position at $ 2.28 1/4 but could not sell warehouse receipts for 

320,000 bushels because it had no more than 35,000 bushels of deliverable wheat 

for disposition. Respondent Jaffray stated further that, in view of this 

situation, Cargill would sell warehouse receipts to the shorts at $ 2.28 1/4 

only upon assurance that Cargill would receive the receipts on delivery, a 

condition which was a prerequisite to the sale of the receipts. Respondent 

Jaffray also stated that Cargill had made commitments to various commission 

firms to sell 295,000 bushels "subject to our receiving this wheat against our 

long position", but that if this procedure was not satisfactory to the Chicago 

Board of Trade, Cargill would liquidate its position at $ 2.28 1/4 in any manner 

consistent with Board of Trade or Clearing House regulations. The Chicago Board 

of Trade approved the suggested liquidation procedure and assured Cargill that 

at least some of the receipts which Cargill sold to the shorts would be 

redelivered to it early in the delivery process, and McCarthy replied to 

respondent Jaffray's letter as follows: "I have received your letter as of May 

23, 1963, and appreciate your kind offer to help us liquidate the positions in 

May wheat. On behalf of the Board of Trade Governors of the Board of Trade 

Clearing Corporation, I want to thank you" (Tr. pp. 1932-1935, 1939-1940, 2146-

2161; Comp. Ex. 13, pp. 2-3, Comp. Ex. 29). 

31. On May 23 and 24, 1963, in accordance with the arrangement described in 

Finding 30, Cargill entered into written contracts with nine commission firms 

holding open short positions in the May future for the sale to such firms of 

315,000 bushels of No. 2 red winter wheat at $ 2.28 1/4 (Comp. Exs. 30A-30J). 

Cargill then turned over to one or more of the said commission firms about 20 

warehouse receipts issued by Cargill, each of which covered 5,000 bushels of No. 

2 red winter wheat, for a total of 100,000 bushels of such wheat held by Cargill 

and stored in its Chicago 

 

elevator. Approximately 75,000 bushels of such wheat were committed under prior 

sales (Tr. p. 1933; Cargill Findings, p. 120). These receipts were then 

tendered for delivery by these commission firms, received by Cargill, returned 

or resold by Cargill to other shorts, redelivered and received by Cargill or by 

other longs, again returned or resold by Cargill or by such other longs and 

again delivered, and this process was repeated between May 24 and May 28 until 

315,000 bushels of long futures contracts held by Cargill plus 55,000 bushels 
Page 12 

held by other long interests were liquidated (Comp. Ex. 31; Tr. pp. 2162-2167). 

In the course of such circulation, the warehouse receipts for these 55,000 

bushels which were received by longs other than Cargill were sold by such longs 

to holders of short contracts, redelivered by the shorts and received by 

Cargill, with the result that Cargill was the ultimate receiver of the 100,000 

bushels which it had initially sold to the shorts and which had been used in the 

delivery process. 

The only other wheat used in deliveries on the May 1963 future consisted of 

10,000 bushels brought into Chicago by the Continental Grain Company, which it 

delivered against its short position on May 31. These 10,000 bushels were also 

received by Cargill, with the result that 325,000 bushels of its long position 

were liquidated by delivery. The remaining 40,000 bushels of long contracts 

which Cargill held were liquidated on May 24 by an exchange of long futures for 

40,000 bushels of cash wheat owned by Archer, Daniels, Midland Company which was 

in transit to Chicago on May 23 for delivery against its short position. This 

exchange was made by Archer-Daniels because it believed that the cars might not 

reach Chicago by May 31 in time for delivery against the future (Comp. Ex. 13, 

p. 2). Thus, liquidation of the long interest of 420,000 bushels which remained 

open after the close of trading on May 21 was accomplished as follows: 

Cargill exchange long futures for cash 40,000

Cargill warehouse receipts received by Cargill 315,000

Continental warehouse receipts received by Cargill 10,000

Total Cargill long position 365,000

Cargill warehouse receipts received by other longs 55,000

Total long contracts liquidated 420,000

32. Goodbody and Company was one of the nine commission firms which had 

customers with outstanding short contracts in the May future after the 

termination of trading and which purchased warehouse receipts from Cargill at $ 

2.28 1/4, as described in Finding 31. Goodbody delivered these receipts on May 

24 

 

against short positions of its customers. After such delivery, Goodbody 

discovered that through error one of its customers was long 10,000 bushels, and 

Goodbody instructed Leonard T. Young, an employee, to sell the receipts in 

question. Mr. Young offered the receipts to Cargill first and was told to 

return after Goodbody had received delivery of the wheat. Cargill also 

suggested to Young that "Goodbody try to locate some of the unresolved shorts 

from the May contract [because] an outstanding short would pay more to close out 

his position than Cargill could economically afford to pay" (Comp. Ex. 13, pp. 

4-5). Following the offer to Cargill, Young offered the receipts to General 

Mills and Continental Grain Company, and received bids of approximately $ 2.05 

per bushel. On May 27, Young sold the receipts to Hayden Stone and Company, 

another commission firm, for $ 2.18 per bushel, and Hayden Stone delivered them 

on May 28 against short positions held by its customers (Comp. Ex. 31; Tr. pp. 

550-551, 670-673). 

33. On Friday, May 3, 1963, there was a total of 1,509,000 bushels of wheat 

in Chicago warehouses. Of this total, Cargill held 1,248,000 bushels in its 

Chicago elevator and Eckhart held 250,000 bushels, leaving 11,000 bushels held 

by others (Comp. Ex. 19). On Friday, May 24, after the loadout by Cargill on 

the previous weekend, there were 221,000 bushels of wheat in Chicago elevators. 

Of this total Cargill held 100,000 bushels n6 and Eckhart owned 100,000 bushels 

which it held for milling (Tr. p. 1098), leaving 21,000 bushels owned by others 

(Comp. Ex. 19). During the month of May 1963, approximately 346,000 bushels of 

wheat of classes deliverable in satisfaction of May futures were received in 

Chicago. Of this total, 153,000 bushels were received or purchased by Cargill 

prior to arrival in Chicago, 144,000 bushels were received or purchased by 

Eckhart, 33,000 bushels were transshipped to other destinations, 4,000 bushels 

were received or purchased by General Mills and 4,000 bushels were delivered on 

May futures by Continental Grain Company, leaving about 8,000 bushels of Chicago 
Page 13 

receipts in May which were available for purchase by the holders of short May 

futures contracts (Comp. Exs. 22-28; Tr. pp. 424-428, 433-491). 

n6 This 100,000 bushels was used in the sales to the shorts described in 

Finding 31. 

34. The Commodity Exchange Authority issues an official statistical summary 

each week showing stocks of grain in deliverable position in the Chicago area, 

as represented by outstanding warehouse receipts of licensed warehouses. Such 

statistics are based 

 

upon information furnished to the Commodity Exchange Authority by such 

warehouses, are released on Tuesday of each week, and reflect the situation as 

of the close of business on the preceding Friday (Comp. Ex. 21; Tr. pp. 399-

412). 

35. On May 20 and 21, 1963, Cargill made the following sales of old crop No. 

2 soft red winter wheat: 

Chicago Complainant's 

Date Buyer Quantity Price Exhibits 

5-20 Eckhart Milling Co. 25,000 $ 2.28 n7 46, 56, 61 

5-20 Pillsbury Company 50,000 2.29 47, 62, 63 

5-21 Continental Grain Co. 50,000 2.37 n8 14 

n7. Described in Finding 24. 

n8. Described in Findings 27 and 28. 

After settlement of the outstanding May futures contracts as described in 

Finding 31, Cargill had approximately 88,000 bushels of old crop wheat remaining 

in its Chicago elevator. On June 5, it sold 34,000 bushels of such wheat to 

Pillsbury at $ 2.12 1/4 per bushel f.o.b. Chicago (Resp. Ex. 104). Between June 

4 and June 13, it disposed of the remaining 54,000 bushels at Chicago prices 

ranging from $ 2.10 to $ 2.13 per bushel (Comp. Ex. 34, p. 3, Comp. Ex. 83-88, 

inc., Comp. Ex. 90). 

36. Between May 20 and May 31, 1963, sales of old crop red winter wheat were 

made by sellers other than Cargill as follows: 

Date Buyer Seller Chicago 

Quantity Price Reference 

5-20 Eckhart Central Soya 25,000 $ 2.27 Comp. Ex. 55 

5-23 General Archer-Daniels, 5,000 2.11 Comp. Ex. 53; Tr. 

 Mills etc. pp. 1082-1085 

5-24 Pillsbury Pillsbury 15,000 2.26 1/2 n9 Resp. Ex. 103; Tr. 

 pp. 3868-3869, 

 4236-4243 

5-27 Hayden Goodbody 10,000 2.18 n10 Tr. pp. 550-551 

 Stone 

5-27 F. W. Central Soya 15,000 2.22 n11 Resp. Ex. 49; Tr. 

 Stock pp. 2692-2693 

5-28 Eckhart Archer-Daniels, 1,500 2.10 Comp. Ex. 26 

 etc. 80,000 2.22 n12 Tr. pp. 3115-3118 

5-31 Internat'l. Anderson Grain Milling 

n9. This was a transaction between Pillsbury's Minneapolis and 

Springfield, Illinois, offices. The transaction was for No. 1 grade f.o.b. 

Minneapolis @ $ 2.11, which equates to $ 2.26 1/2 for No. 2 grade at 

Chicago. 

n10. This was the 10,000 bushels received in error by Goodbody as 

described in Finding 32. 
Page 14 

n11. Sold f.o.b. Decatur, Indiana, @ $ 2.12. Truck rate to Chicago 10 

cents. 

n12. Sold f.o.b. Toledo @ $ 2.15. Water rate to Chicago 7 cents. 

 

37 During the last two trading days (May 20 and 21), the May 1963 wheat 

future on the Chicago Board of Trade advanced 18 5/8 cents while the July future 

remained stable, resulting in an increase of 18 5/8 cents in the May-July 

futures price spread. There was no comparable movement on the Chicago Board of 

Trade in the May futures price or in the May-July futures price spread during 

the last two trading days in the nine years prior to 1963. The greatest May 

futures price advance during the last two days in these nine prior years was an 

increase of about 8 1/4 cents in 1958. In two of the prior years the increase 

in the May futures price was less than two cents and in six prior years the May 

futures price declined. With respect to the May-July price spread, the greatest 

increase during the last two days of trading in the May future in these nine 

prior years was an increase of about 8 1/2 cents in 1958. In 1955 the spread 

increased less than one cent and in the seven other years the spread decreased 

or remained the same (Comp. Exs. 8, 9, 38). The Commodity Exchange Authority 

investigated the May futures price movement toward the end of trading in 1958 

and found that the price on the last trading day was artificial, but the 

investigation did not indicate that the price had been brought about 

intentionally (Tr. p. 1394). 

38. Contemporaneously with the increase of 18 5/8 cents during the last two 

days in the price of the May 1963 future on the Chicago Board of Trade and the 

increase by the same amount in the Chicago May-July futures price spread, 

described in Finding 38, the price of the May 1963 future on the Kansas City 

Board of Trade increased 3 1/2 cents and the May-July price spread increase was 

about the same (Comp. Exs. 10, 11, 39). As a result of the May futures price 

movements on the two exchanges during these two days the Chicago May future, 

which had ranged from six to ten cents below the Kansas City May future 

continuously from May 1 through May 19 and which was six cents below Kansas City 

at the opening of business on May 20, closed out approximately 9 1/2 cents above 

Kansas City when trading in the future ended on May 21. There was no comparable 

movement of the Chicago futures price relative to the Kansas City May futures 

price in any of the nine years prior to 1963 (Comp. Exs. 8, 10, 40). 

39. The highest prices quoted by the United States Department of Agriculture 

Grain Market News for No. 2 soft red winter 

 

wheat at Chicago, Kansas City, St. Louis, and Toledo n13 from Friday, May 17 

through Thursday, May 23, 1963, were as follows (Comp. Ex. 17): 

Market May 17 May 20 May 21 May 22 May 23 

Chicago $ 2.15 1/2 $ 2.18 3/4 $ 2.28 $ 2.15 $ 2.11 1/4 

Kansas City 2.22 1/4 2.24 2.21 1/2 2.20 2.20 1/2 

St. Louis 2.26 1/4 2.26 1/2 2.22 2.22 2.23 1/4 

Toledo 2.06 1/2 2.06 2.05 2.03 2.04 1/2 

n13. Toledo prices are the only prices appearing in the quotations. 

Chicago, Kansas City, and St. Louis prices are the high prices of a range 

in each case. 

The increase or decrease in the highest cash prices for No. 2 soft red winter 

wheat on these four markets during the last two days of trading in the May 1963 

wheat future (May 20 and 21) and during the two days immediately thereafter (May 

22 and May 23), as reported by the Grain Market News, were as follows (Comp. Ex. 

17): 

Market Last Two Two Following

Trading Days Days 

Chicago +12 1/2 cents -16 3/4 cents 
Page 15 

Market Last Two Two Following

 Trading Days Days 

Kansas City -3/4 cents -1 cent 

St. Louis -4 1/4 cents + 1 1/2 cents 

Toledo -1 1/2 cents -1/2 cent 

40. On May 20, 1963, the United States Department of Agriculture Grain Market 

News price quotations for No. 2 red winter wheat at Chicago were $ 2.18 1/2-$ 

2.18 3/4. On May 21, such quotations were $ 2.18-$ 2.28. During the remaining 

seven business days of that month, Chicago quotations were in a range from $ 

2.10-$ 2.15 down to $ 2.03 1/4 (Comp. Ex. 17). The Sosland Publishing Company, 

publisher of a daily card with price quotations, showed quotations for No. 2 red 

winter wheat in Chicago on May 20 at $ 2.27 1/2-$ 2.28 1/2, and on May 21 at $ 

2.40-$ 2.42. During the remaining seven business days of the month, such 

quotations ranged from $ 2.11 1/8 on May 23 down to $ 2.03 3/8 bid on May 31. 

Between May 22 and May 24, the Sosland price quotations for wheat on track in 

Chicago were between $ 2.09 and $ 2.12 1/4. During the same period such 

quotations for Chicago warehouse receipts were between $ 2.28 and $ 2.38 (Comp. 

Ex. 70, 73; Tr. pp. 3834, 3845-3846, 4330-4331). 

41. Anthony S. Rojko, head of the Price Research and Methods Section in the 

Economic and Statistical Analysis Division of the Economic Research Service of 

the United States Department of Agriculture, made a study of cash prices for 

soft red winter wheat covering a 14-year period from 1950 to and including 1963, 

and 

 

found that historically certain economic relationships existed among the supply 

and demand factors which determined prices. Applying these relationships to the 

1962-1963 marketing season, Mr. Rojko found that the average economic value 

(i.e., the value which reflected basic supply and demand factors) of No. 2 soft 

red winter wheat at Chicago during the 1962-1963 season, calculated in 

accordance with a formula derived from and based upon such relationships, was 

within the range $ 2.03-$ 2.10 and that the average economic value of No. 2 soft 

red winter wheat at Chicago during May 1963, similarly calculated, was within 

the range $ 2.10-$ 2.17. The actual average price of No. 2 soft red winter 

wheat at Chicago during the 1962-1963 marketing season, as determined from 

quotations in the United States Department of Agriculture Grain Market News, was 

$ 2.10 and the actual average price of such wheat at Chicago during May 1963, 

similarly determined, was $ 2.13 (Comp. Exs. 48, 48A, 49, 49A, 50, 50A; Tr. pp. 

711-722, 725-752, 771-779, 781-870, 887-970). 

42. By use of the formula described in Finding 41, Mr. Rojko calculated the 

average economic value of No. 2 soft red winter wheat at Chicago during several 

marketing seasons in addition to the 1962-1963 season and the average economic 

value of such wheat at Chicago during May of such marketing seasons. The 

results of such formula calculations, and the actual season average and May 

average prices as determined from United States Department of Agriculture Grain 

Market News quotations, were as follows (Tr. pp. 955-956, 1007-1008; Comp. Ex. 

48): 

Calculated Actual Calculated Actual 

Marketing Season Season May May 

Season Average Average Average Average

1955-56 $ 2.161 $ 2.13 

1956-57 2.243 2.26 $ 2.146 $ 2.14

1957-58 2.168 2.17 2.221 2.22

1958-59 1.941 1.94 1.904 1.89

1959-60 2.036 1.99 2.067 2.07

1960-61 1.965 1.98 1.863 1.88

1961-62 2.040 2.05 2.162 2.17

1962-63 2.067 2.10 2.137 2.13

43. In addition to the Cargill interoffice messages described above, the 

following wires were included among those transmitted by respondent Jaffray from 
Page 16 

Cargill's Chicago office to its Wayzata office in April and May 1963. On April 

19 (Comp. Ex. 59; Tr. pp. 1975-1985): 

"Any more info on Spain. Like to have this info reach Uhl-mann [Uhlmann 

Grain Company] from some source other than Cargill . . ." 

On April 24 (Comp. Ex. 15, p. 5; Tr. pp. 1728-1735, 1800-1816): 

". . . Have to conclude Casey [Pillsbury buyer] underestimatting our 

unshipped sales but he knows his grind cud well control Chgo situation unless we 

see more demand from Burrus etc. Next two wks going tell tale and poss 

[possibility] no intentions on May 1 [to deliver on May futures] will force hand 

of these boys." 

On April 26 (Comp. Ex. 15, p. 6; Tr. pp. 1703-1711, 1818-1822): 

"G M [General Mills] trying awfully hard to convince us they don't need wht 

but were also worried abt [about] how much wht left here [Chicago] June 1. In 

other words they going fight the prems [premiums] and bank on dely [delivery on 

the May future] unless see Chgo stock disappear . . ." 

On April 29 (Comp. Ex. 15, p. 7; Tr. pp. 1714-1719, 1827-1830): 

"Altho C S [Central Soya Company] been selling some truck wht Chgo they 

admitted to third party they about cleaned up and this vol [volume] wudnt change 

mill dependence on G X [Chicago] visible [supplies]." 

On May 6, in answer to a wire received by Cargill personnel summarizing crop 

conditions in the St. Louis area (Comp. Ex. 15, p. 9; Tr. pp. 1722-1723, 1839-

1849): 

"Excellent wht summary. Question is how much wht going be avail June 15 so 

we can fig old crop needs and what is going cost our pals." 

On May 10 (Resp. Ex. 17; Tr. pp. 1851-1853): 

"Hear locals [speculative traders] stating C K W [Chicago May Wheat Future] G 

G [going] to collapse to 185." 

On May 16 (Resp. Ex. 18; Tr. pp. 1874-1876): 

"Lamson [Lamson Bros., a commission firm] reports that a broker said that 

mills were told Cargill unable offer wht since all under offer to Spain." 

44. On July 30, 1963, Samuel F. Gordon and two other representatives of the 

Commodity Exchange Authority interviewed respondent 

 

Saunders, Donald C. Levin, then Cargill's secretary and general counsel, and Mel 

Middents, Cargill's assistant head wheat merchant, with reference to Cargill's 

transactions in the May 1963 wheat future (Tr. pp. 155, 159). Among the 

statements made by Mr. Levin or respondent Saunders or both during this 

interview were the following: That Cargill's operations in the May 1963 wheat 

future were undertaken after consulting with and receiving the approval of 

respondents Kelm and Diercks; that it was felt that the May future had to 

advance as a result of the sales to Spain and therefore respondent Saunders had 

Cargill increase its long May futures position; that this position was 

speculative; that if the sales to Spain had not been made the future might not 

have advanced as it did subsequently and might, in fact, have declined and 

resulted in losses to Cargill; that the Spanish business came at a good time 

because without it if Cargill had "bulled" the market there would have been 

criticism; that Cargill expected Chicago stocks of old crop wheat to be depleted 

by June 1, 1963, and that this depletion would not be helped by the movement of 

wheat from Toledo to Chicago because movement in this direction was unusual; 

that Cargill purchased 100,000 bushels of May futures on the last day because 

respondent Saunders felt that the future had to advance to reflect the true 
Page 17 

price of cash wheat before trading ended; that Cargill's liquidating order 

prices on May 21 were based upon what was believed to be the price in Chicago of 

old crop wheat brought in from other points; that these liquidating orders were 

held off the market on May 21 until futures prices rose to the price necessary 

to bring wheat into Chicago; that prior to the entry of these orders on that day 

respondent Saunders "waited and watched because he knew the market was going 

up"; that the price of $ 2.28 1/4 which Cargill charged for warehouse receipts 

after trading ended was based upon the highest price specified in Cargill's 

liquidating orders of May 21; and that cash prices declined after May 21 because 

mill demand had been satisfied (Tr. pp. 169-177, 363-370, 382-396, 1738, 3782-

3794, 3802-3804). 

45. The prices of $ 2.28 and $ 2.29, which Cargill received for old crop No. 

2 soft red winter wheat in Chicago on May 20 and 21, 1963, and the prices of $ 

2.27 to $ 2.28 1/4 which it demanded and received for long May futures on the 

Chicago Board of Trade on May 21, did not reflect basic supply and demand 

conditions but were artificially high. Such prices were out of line with 

prevailing May futures prices in Kansas City and prevailing cash 

prices in Kansas City, St. Louis and Toledo. Respondent corporation was able to 

demand and receive such prices because of its controlling long position in the 

Chicago May future and the limited supply of wheat available in Chicago for 

users of wheat and for delivery on the future on May 20 and 21. These factors 

resulted in a squeeze which was intentionally brought about by respondent 

corporation and the individual respondents, and which they exploited. 

CONCLUSIONS

I

Trading in commodity futures is somewhat of a mystery to the general public 

and there is little literature upon the subject. It is a highly complex matter 

that is practically esoteric. 

Much of the material in the lengthy record here, however, and indeed many of 

the Findings of Fact are devoted to explanations of the workings of the system 

and are not in dispute. 

Too, many of the Findings of Fact above deal with indisputable physical facts 

such as purchases and sales of wheat futures and wheat by Cargill, etc. The 

contested issues deal mainly with the inferences to be drawn from the 

evidentiary findings of fact and with questions of law as to what constitutes 

price manipulation prohibited by the act. 

Complainant contends that respondent corporation caused abnormally high and 

artificial prices for cash wheat in Chicago on May 20 and 21, 1963, and 

abnormally high and artificial prices for May wheat futures on the Chicago Board 

of Trade on May 21, 1963; that it acted willfully and with manipulative intent 

in so doing; and that it thereby attempted to and did in fact manipulate prices 

in violation of the Commodity Exchange Act as alleged in the complaint. 

Complainant contends further that the transactions in question were undertaken 

with the active participation of respondents Saunders and Jaffray and with 

knowledge, authorization and approval of respondents Kelm and Diercks, and that 

these individual respondents therefore acted with similar intent and are equally 

chargeable with respondent corporation for the violations in question. 

Respondent Cargill says, in brief, that the evidence does not support the 

charges that the corporation manipulated or attempted 

 

to manipulate cash or futures prices or that it had any intent to do so; or that 

the cash and futures prices reached on May 20 and 21, 1963, were, in fact, 

artificial or manipulated. It claims that such prices were justified by supply 
Page 18 

and demand conditions and represented sound, normal and profitable business 

transactions. Other Cargill contentions will be discussed hereinafter. 

The individual respondents adopt the brief and arguments of Cargill's counsel 

with respect to these principal issues and claim additionally that, irrespective 

of what conclusions may be reached as to the corporation, the individual 

respondents should not be held answerable. Counsel for the individual 

respondents argues that before taking any action, respondents Kelm, Diercks and 

Saunders, in accordance with the policy of the corporation, consulted with its 

legal counsel and relied upon counsel's advice that all contemplated 

transactions were legal and proper; that respondent Jaffray had no authority to 

make and did not in fact make any futures trades or export sales for Cargill; 

and that all the individual respondents acted in good faith and without any 

intent to violate the law. The individual respondents also rely upon the 

additional defenses urged by Cargill. 

II

The complainant charges that the respondent corporation with manipulative 

intent attempted to and did manipulate May 1963 wheat futures on May 21, 1963. 

As we observed in In re Volkart Brothers, Inc. et al., 20 Agric. Dec. 306 (20 

A.D. 306) (1961) (rev. Volkart Brothers Company, Inc., et al. v. Freeman, 311 

F.2d 52 (Fifth Cir. 1962)) at p. 328, it is not uncommon for futures prices on 

an exchange to advance toward the end of trading, particularly on the last day, 

not because of any change in supply or demand factors generally for the spot or 

actual commodity on a regional or national market, but because of the technical 

condition within the futures market itself of a shortage of readily available 

supplies for shorts who must then buy futures to get out of the market. This 

condition, often called a "squeeze", may be a natural one, this is a non-planned 

accidental one, or it may be accomplished intentionally by one person or a group 

holding on to their dominating or substantial long position until the last 

moments of trading for the purpose of pushing prices up. See Technical Bulletin 

No. 747 (January 1941), United States 

 

Department of Agriculture, Grain Prices and the Future Market, p. 70. 

In one of the standard works on futures trading, Hoffman, Futures Trading 

Upon Organized Commodity Markets in the United States (V. Par., 1932), Chapter 

XVI entitled "Deliverable Cash Supplies and Futures Prices", under the heading 

(p. 313) "3. Artificial Factors Causing Abnormal Conditions", the following 

appears (p. 315): 

"The Threat of Taking Delivery. Having greater possibilities of success and 

much more common is the threat of taking delivery. Here the long interests 

attempt to profit at the expense of the 'shorts'. By continuing long up to and 

into the delivery month, speculative short sellers find it increasingly 

difficult to buy in their contracts. The short interest, it will be recalled, 

has the option of choosing the day during the delivery month when the actual 

commodity will be delivered. This option only serves to postpone the time when 

an ultimate settlement will have to be made. With the hope that prices will 

break or that the long interest will take the initiative and liquidate, they may 

carry along their position well into the delivery month with little thought of 

acquiring the necessary supplies. At the end of the month when delivery must be 

made, supplies may be scarce and, in a frantic effort to close out their 

position, the current future advances rapidly. This process may or may not be 

accompanied by any manipulative intent but in any event it is an artificial 

situation producing a temporary derangement in prices." 

To the same effect see Report of the Federal Trade Commission on the Grain 

Trade, Vol. VII (1926), p. 284; Baer and Saxon, Commodity Exchanges and Futures 

Trading, p. 83 (Harper, 1949). 

We think that the evidence in this proceeding compels the conclusion that the 

sharp price rise on May 21, 1963, in the May future was due to a squeeze and 
Page 19 

resulted in an artificially high price for the future, a price unrelated to 

basic supply and demand conditions for wheat or trading opinion of such 

conditions. 

The cause is plainly visible from facts that are uncontested. On May 20 and 

21, there was very little wheat available on the Chicago market to the shorts 

for delivery on their futures contracts. While other longs were liquidating, 

Cargill sat on its 1,990,000-bushel 

 

long position until about 11:45 a.m. on May 21 with only 15 minutes of trading 

left. Then, when the future was selling at $ 2.20 after going up from $ 2.16 

1/2 at 11:39 a.m., Cargill gave orders to sell on an ascending scale of prices

from $ 2.27 to $ 2.28 1/2 and at 11:53 a.m., with seven minutes to go, Cargill 

had about 62 percent of the open interest and got its prices, except that 

365,000 bushels remained unsold due to congestion in the pit and even as to this 

quantity Cargill got $ 2.28 1/4 a bushel as described in Finding of Fact 30. 

Shorts to the extent of 2,000,000 bushels had to come to Cargill and had to, and 

did, pay Cargill's prices in order to get out of the market. 

The cause of the price rise is practically self-evident but the record 

evidence almost conclusively establishes that the futures prices reached on May 

21, 1963, and the cash prices on May 20 and 21, 1963, were artificially high. 

Respondents claim, and introduced testimony to the effect, that the rise was 

due to supply and demand factors for wheat or the trading opinion thereof. They 

argue that the wheat price was too low and that the rise was "corrective". But, 

as Finding of Fact 37 shows, the July futures price remained stable while the 

May futures price rose 15 5/8 cents in the May-July futures price spread, a 

phenomenon which had not occurred at such a time for the nine years prior to 

1963. Again, during the last two days of trading, the May 1963 wheat futures 

price rose only 3 1/2 cents on the Kansas City Board of Trade and the spread 

increase between the May and July future was about the same. Too, the Chicago 

May future which had ranged from six to ten cents below the Kansas City May 

future, May 1-May 19, and which was six cents below Kansas City when trading 

opened on May 20, closed out 9 1/2 cents above Kansas City when trading ended on 

May 21. There was no such relationship with respect to the two futures in the 

nine years preceding 1963. 

Chicago cash prices for No. 2 red winter wheat also climbed sharply toward 

the end of trading in the May 1963 future and then dropped. On May 20 the 

Sosland Chicago quotation was 9 to 10 cents over the May future ($ 2.11-$ 2.19). 

The Grain Market News cash quotation was $ 2.18 1/2-$ 2.17 3/4. On the next 

day, May 21, the Sosland Chicago quotation was 55 to 57 cents over the July 

future ($ 1.85-$ 1.86). The Grain Market News quotation for that day was $ 

2.10-$ 2.28. On May 22, the Sosland Chicago quotation dropped by about 30 cents 

and the Grain Market News quotation 

 

declined to $ 2.10-$ 2.15. Finding of Fact 39 graphically depicts the sudden 

and sharp upward surge in Chicago cash wheat prices on May 20 and May 21 and the 

precipitous decline immediately thereafter. n14 

n14. "It appears . . . that comparison between cash prices at a time 

when the grain is and when it is not needed for delivery, should give some 

indication of the effect of this particular use upon the price and 

therefore of the effect of corners and squeezes." Report of the Federal 

Trade Commission on the Grain Trade (1926), Vol. VII, p. 245. 

Dr. Will M. Simmons, economist and Chief of the Commodity Analysis Branch of 

the Economic and Statistical Analysis Division, Economic Research Service, 

United States Department of Agriculture, pointed out that the price rise for 

cash wheat in the Chicago market was not duplicated in other markets but that, 
Page 20 

in fact, prices moved downward in these other markets at the time. He also 

examined cash price movements in Chicago and other markets during May in other 

years, and reviewed the statistics with respect to total stocks of wheat and 

stocks in the Chicago area during 1963 and other years. On the basis of this 

analysis, Dr. Simmons concluded that the prices and price movements of No. 2 

soft red winter wheat in Chicago on May 20 and 21, were artificial and that they 

did not reflect basic supply and demand factors and that this artificiality was 

brought about by the movement of wheat out of Chicago at a time when there was 

an insufficient supply of deliverable grade wheat in Chicago to satisfy the open 

interest, and that this situation produced an over-reaction and caused a 

temporary price surge (Tr. pp. 990-1047). Dr. Simmons pointed out also that he 

reached this conclusion independently of and prior to the study by Mr. Rojko 

described in Findings 42 and 43 (Tr. pp. 1052-1055). 

Even testimony from respondents' witnesses ascribed the sharp price rises on 

May 20 and May 21 as due to the depletion of Chicago stocks of deliverable wheat 

close to the expiration of trading in the future. See testimony of Dr. Willard 

W. Cochrane, Professor of Agricultural Economics, University of Minnesota (Tr. 

pp. 3443, 3444), n15 Owen Nichols, vice president of Mitchell Huchins & Company, 

a commodity brokerage firm (Tr. p. 2551) and Richard M. Withrow, a partner in 

Lawson Brothers, a commodity brokerage firm (Tr. pp. 2651-2653). 

n15. ". . . One should not be surprised at the sharp rise [in cash wheat 

prices on May 20 and 21], one, that there was a large Spanish sale and it 

was particularly large in terms of the available stocks at the time. This 

was bound to have a strong price-enhancing effect . . . Then you have the 

man-made rule that [the May future] has to come to an end." 

III

The next question for consideration is whether Cargill's activities described 

above were done with manipulative intent, that is, with intent to influence 

prices upward. Of course Cargill was not long because it wanted delivery of 

wheat upon its long contracts, or because it was hedging. Its long position was 

a speculative one and, at the least, it hoped or expected that the May futures 

price would go up. But we think that the preponderance of the evidence reveals 

that Cargill was not content merely with hopes and expectations and that it 

intentionally undertook to influence the May futures price and cash price 

upward. 

Cargill intended that its sales of wheat to Tradax and the export of the 

wheat from Chicago would raise the wheat price in Chicago (Findings of Fact 19 

and 44). In fact, on May 17 and 18, Cargill loaded two cargoes or about 770,000 

bushels of its Chicago elevator for shipment to Baie Comeau although as of May 

17 the Spanish Government had not yet accepted the offer made to it by Tradax on 

May 16 nor had Tradax accepted the offer of the second cargo made to it by 

Cargill on May 15. Indeed, before the second cargo of wheat was offered to 

Tradax for sale to Spain, respondent Saunders conferred with Donald C. Levin, 

Cargill's then secretary and general counsel, concerning the proposed offer and 

Mr. Levin said that "the legal problem . . . would be that if Cargill would sell 

wheat out of Chicago at an uneconomic price, that it would not be legal or 

proper" (pp. 1657, 1658). Cargill then offered the second load at a price 

equivalent to $ 2.09 a bushel, 5 1/2 cents a bushel over the Chicago futures 

price on that day. Saunders' conversation with Levin must have been about the 

effect upon Chicago wheat prices of the shipment of the wheat out of Chicago. 

On May 15, the day Cargill made the second offer, Cargill bought an 

additional 50,000 bushels of May 1963 futures reaching a total long position of 

1,930,000 bushels. During the last two days of trading, May 20 and 21, and up 

until the last few minutes of trading while other long traders liquidated some 

10,700,000 bushels of May futures, Cargill increased its long position and when 

it finally gave orders to sell its almost 2,000,000 bushels of futures 15 

minutes before the bell, the orders called for sales at prices seven to eight 
Page 21 

cents higher than the price at which the future was then selling and within a 

fraction of a cent of the high price limit for the day and the high price for 

the life of the future. 

Respondents urge for a number of reasons that they did not manipulate wheat 

prices in violation of the act. Among other reasons, they contend that there 

were stocks of deliverable wheat inside and outside of Chicago which the shorts 

could have delivered on their contracts under the Board of Trade's rule 

permitting delivery for seven days after the end of trading. Outside of soft 

red wheat being utilized by mills in Chicago, there was practically no available 

deliverable wheat in Chicago except that held by Cargill. 

As far as soft red wheat outside Chicago is concerned, if there were supplies 

which could be economically deliverable by the shorts after May 21, it would 

hardly be necessary for the Chicago Board of Trade to come to Cargill after the 

end of trading and participate in the arrangement of dubious validity described 

in Finding of Fact 30. 

As Mr. Charles Robinson of the Commodity Exchange Authority pointed out in 

the course of his testimony (Tr. p. 3861), that ". . . the warehouse receipt 

calls for 5,000 bushels and is a unit which can be delivered on a futures 

contract . . . . The track price is a price for a car. A car might range from 

1,500 to 1,900 or 2,000 bushels of the same wheat, but unless the short can get 

-- can be sure of getting -- his hands on 5,000 bushels in carlots, he can't 

meet his obligation in the future contract, so where we have a situation where 

the shorts are willing to pay substantially more for wheat in quantities which 

will enable them to meet their obligations on futures contracts, than anyone . . 

. is willing to pay for one car or two cars of wheat, that to me is evidence of 

a squeeze in the futures market." 

When Nelson D. Cornelius, Manager of the Grain Department of Merrill Lynch, 

Pierce, Fenner & Smith, Inc., was asked why he purchased Cargill's warehouse 

receipts rather than purchasing wheat from sources outside of Chicago, he 

testified as follows (Tr. pp. 665-666): 

A. Well, as I said in my previous testimony, the only wheat that I tried to 

obtain or considered obtaining was this barge weight, yellow had wheat that was 

coming in. I knew it was coming into Chicago. 

Q. And why was it that that was the only wheat that you considered obtaining? 

A. Well, because of the time element. In other words, it had to -- first of 

all, it had to be either in store in Chicago elevator to be delivered on the 

Board of Trade contracts or it had to be on track in Chicago the last, I think 

it's three business days, of the month, consigned to a Chicago elevator and I 

knew it was impossible to get the wheat into Chicago on that basis, unless it 

was already en route. 

It is plain that there were time and economic impediments to the importing of 

wheat into Chicago by shorts for delivery within the seven days allowed. The 

shorts preferred to pay the premiums caused by Cargill since that was less risky 

and less expensive. 

Cargill accomplished a squeeze or "little corner". This is a manipulative 

technique "whereby a trader . . . gains control of the supply or future demand 

of a commodity and requires the shorts to settle their obligations, either by 

the purchase of deliverable quantities of the supply or off-setting long 

contracts, at an arbitrary abnormal and dictated price imposed by the cornerer". Great Western Food Distributors, Inc. v. Brannan, 301 F.2d 476, 478 (7th 

Cir. 1953) cert. denied 345 U.S. 997 (1953). 

As we observed in In re General Foods et al., 6 Agric. Dec. 288, 305 (6 A.D. 

288, 305) (1947), manipulation of prices occurs when a person or group causes 
Page 22 

prices to go up or down by means directed to either such end or prevents prices 

from going up or down by means directed to either such end. n16 

n16. "An artificial or manipulated price is created whenever the 

manipulator makes the market price of a commodity, or of a futures 

contract, behave in some manner in which it would not behave if left to 

adjust itself to uncontrolled supply and demand." Campbell, Trading in 

Futures, 26 Geo. Wash. Law Review, 215, 234 (1958). 

Arthur R. Marsh, a former president of the New York Cotton Exchange, in a 

hearing before a Congressional Subcommittee (Cotton Prices, Hearings Before a 

Subcommittee of the Committee on Agriculture and Forestry, U. S. Senate, 70th 

Cong., 1st Sess., pursuant to S. Res. 141, at pp. 201-203 (1928)), testified 

that manipulation is: 

". . . any and every operation or transaction or practice, the purpose of 

which is not primarily to facilitate the movement of the commodity at prices 

freely responsive to the forces of supply and demand; but, on the contrary, is 

calculated to produce a price distortion of any kind in any market either in 

itself or in its relation to other markets. If a firm is engaged in 

manipulation it will be found using devices by which 

 

the prices of contracts for some one month in some one market may be higher than 

they would be if only the forces of supply and demand were operative; or using 

devices by means of which the price or prices of some month or months in a given 

market may be made lower than they would be if they were freely responsive to 

the forces of supply and demand. Any and every operation, transaction [or] 

device employed to produce those abnormalities of price relationship in the 

futures markets is manipulation." (Emphasis supplied.) 

We think it elementary that the successful pressuring of prices upward by the 

tactics employed by Cargill violated the act's prohibitions of the manipulation 

of prices. n17 Comment, Yale Law Journal "The Delivery Requirement": An 

Illusory Bar to Regulation of Manipulation in Commodity Exchanges (73 Yale Law 

Journal 171) says: 

n17. Mr. Donald Levin, Cargill's then secretary and general counsel, 

stated in the July 30, 1963, meeting with representatives of the Commodity 

Exchange Authority that the Spanish business came along at a good time; 

that "If we had not sold to Spain and set there and bulled the market we 

could have been criticized." (Tr. p. 390) (Emphasis supplied). The verb 

"to bull" means to advance in price. (Webster's Third New International 

Dictionary, 1964). Mr. Levin did not appear as a witness at the hearing to 

explain what he meant and it should be assumed that he used the word in its 

ordinary meaning. 

"A squeeze, on the other hand, involves no such preparation of the market for 

exploitation, although the holding of a large futures position late in the 

delivery month, playing upon seller expectation that delivery will not be 

required is recognized as manipulative, it will often appear so like ordinary 

market behavior that substantial problems of proof, along with a substantial 

risk of penalizing necessary market behavior, will come into existence if 

regulation is essayed" (Emphasis supplied). 

The Comment disagrees with the Fifth Circuit in Volkart, supra, and makes the 

point that the problem in squeeze situations is whether there is shown to be 

manipulative intent present, it sets out guidelines to ascertain whether this is 

the case and it concludes that an intentional squeeze violates the act. We have 

concluded above that the evidence in this case clearly demonstrates manipulative 

intent. 

In Volkart there was a small supply of available deliverable cotton and 

Volkart stood on its long position, more than twice the size of the deliverable 
Page 23 

supply, into the last day of trading, pressuring the price upward. Volkart, 

however, had nothing to do with the fact that the available deliverable supply 

of cotton was 

 

small. The Court held that the weight of the evidence did not support our 

finding or conclusion that Volkart had manipulated cotton futures prices. 

In Volkart we think that the underlying view of the Court was that Volkart 

had merely exploited a situation which it had not created, n18 i.e., a shortage 

of deliverable cotton, and that this was not manipulation in violation of the 

act. 

n18. Of course Volkart created at least part of the situation since it 

intentionally made a demand for cotton double the available supply by not 

liquidating its long position until near the end of trading. 

Here Cargill prepared the market for exploitation by the Spanish shipments 

out of Chicago with the intent that the exports would raise Chicago wheat 

prices. The setting is different from that in Volkart. The hearing examiner has 

listed a number of differences between the facts in Volkart and the facts here, 

concluding that Volkart does not control the outcome here. We agree. But if 

the ruling in Volkart is to the effect that intentional squeezes are not 

manipulation in violation of the act we, of course, do not agree. It is the 

purpose of the act to eliminate all manipulations. H. R. Rep. No. 421, 74th 

Cong., 1st Sess. 1-3 (1936); 62 Cong. Rec. 9406, 9414 (1922); 80 Cong. Rec. 

6161, 6164 (1936) (remarks of Senator Pope). We believe that even if Cargill 

had not been the one to move the wheat out of Chicago on the Spanish sales, its 

trading in the future alone on May 21, 1963, constituted a manipulative squeeze 

in violation of the act. 

IV

Respondents urge that at any rate the complaint should be dismissed insofar 

as the individual respondents are concerned. Respondents Kelm and Diercks had 

knowledge of the Cargill operations in issue and their purpose and approved 

them, and respondents Saunders and Jaffray actively participated in the 

operations. The individual respondents are, therefore, liable as well as the 

corporate respondent. 

Respondents claim that under section 8 (b) of the Administrative Procedure 

Act (now 5 U.S.C. 558 (c)) they were entitled to notice and an opportunity to 

demonstrate or achieve compliance before the issuance of the complaint. n19 In 

cases of "willfulness", 

 

however, these requirements do not apply and "willfulness" means that there need 

be present no more than an intention to perform the acts constituting the 

violation. Great Western Food Distributors, supra, at p. 484; Goodman v. United 

States, 286 F.2d 896 (7th Cir. 1961). 

n19. The statutory provisions referred to apply to "licenses". A 

commodity futures trader does not have to have any permit, registration, or 

any other form of permission from the Secretary to trade. Of course, a 

futures commission merchant or a floor broker must register with the 

Secretary. 

We have not gone into as much detail with respect to contentions of the 

respondents as did the referee (hearing examiner) in his recommended decision 

(112 pages). Any conclusion of his not mentioned specifically herein has our 

agreement and approval and, of course, any objection, exception, etc., of 

respondents inconsistent with this decision and order are overruled or denied. 
Page 24 

This proceeding unfortunately has been a protracted one. Cases of this kind 

are usually lengthy and time-consuming. But there were factors present in this 

case, not attributable to respondents, which made for unusual delay and are not 

likely to recur in other proceedings under the act. Respondents have been under 

the constraints of the proceeding since the complaint was filed in June 1964. 

Taking this into consideration, together with respondents' apparent reliance 

upon the Circuit Court decision in Volkart, supra, as legitimatizing the conduct 

in issue, we conclude that the sanctions proposed by the referee should be 

suspended. 

ORDER

The registration of respondent Cargill, Incorporated, as a futures commission 

merchant is suspended for a period of 90 days. 

All contract markets shall refuse all trading privileges to respondents 

Cargill, Incorporated, Erwin E. Kelm, H. Robert Diercks, Walter B. Saunders, and 

Benjamin S. Jaffray, for a period of 90 days, such refusal to apply to all 

trading done and positions held directly by any of the said respondents, and 

also to all trading done and positions held indirectly through persons owned or 

controlled by them, or any of them, or otherwise. 

The sanctions above, however, are suspended for each respondent. If any of 

the respondents is again found to have violated the act, after opportunity for a 

hearing, within two years from the date hereof, the suspended sanctions will be 

taken into account in determining the sanctions to be ordered in connection with 

any such violation. 

A copy of this decision and order shall be served upon each respondent and 

upon each contract market. 

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