Dairy Farms of America (DFA) and two former officials are to pay US$12m in penalties for attempting to manipulate milk futures.

DFA, its former CEO Gary Hanman and former CFO Gerald Bos will pay the civil monetary penalty for attempting to manipulate the Class III milk futures contract and exceeding speculative position limits in the contract, the Commodity Futures Trading Commission said yesterday (16 December).

Additionally, Frank Otis, former President and CEO of a DFA subsidiary, and Glenn Millar, former executive vice president of the subsidiary, will pay US$150,000 for aiding and abetting DFA's speculative position limit violation.

From 21 May to 23 June 2004, DFA, Hanman, and Bos attempted to manipulate the price of the Chicago Mercantile Exchange's June, July, and August 2004 Class III milk futures contracts through purchases of block cheddar cheese on the CME Cheese Spot Call market.

"Today's enforcement action punishes those responsible for DFA's manipulative scheme with a US$12m civil penalty and a trading ban, and ensures future compliance with federal commodities laws through the imposition of a monitor," said Stephen Obie, CFTC acting director of enforcement.

In addition to imposing civil penalties, the DFA order bars Hanman and Bos from trading futures for five years. It also bars DFA from engaging in speculative trading for two years.

DFA president and CEO Rick Smith has agreed to the settlement and said it was in the "best interests" of the cooperative and its members.

"Settling this matter will allow us to focus wholly on serving our members and moving the cooperative forward," said Smith. "The transactions addressed by the settlement took place over a one-month period more than four years ago. We have fully cooperated with the CFTC's investigation and wanted to put this matter behind us."