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IN RE SOYBEAN FUTURES LITIG.

March 28, 1995

In re SOYBEAN FUTURES LITIGATION


The opinion of the court was delivered by: REBECCA R. PALLMEYER

REPORT AND RECOMMENDATION

 Plaintiffs, two subclasses of buyers and sellers of soybean futures, have filed a consolidated amended complaint *fn1" against Ferruzzi Finanziaria, S.p.A. and subsidiaries Ferruzzi Trading U.S.A., Inc., Ferruzzi Trading International, S.A., and Central Soya Company, Inc. Plaintiffs allege that Defendants, collectively referred to as the "Ferruzzi Parties," reaped unlawful gains from the July and August 1989 soybeans futures markets by: (1) manipulating futures prices in violation of Section 9(a) of the Commodity Exchange Act ("CEA"), 7 U.S.C. § 13(a); (2) engaging in "excessive speculation" in violation of Section 4a of the CEA, 7 U.S.C. § 6a; and (3) perpetrating common-law "fraud-on-the-market." *fn2"

 Defendants have moved for summary judgment on all three claims. For the reasons set forth below, the court recommends that Defendants' motion be denied as to Count I because there are unsettled issues of material fact. Defendants' motion should be granted as to Counts II and III, however, because Plaintiffs lack standing and a cognizable cause of action.

 FACTUAL BACKGROUND

 A. Overview of commodity futures market5

 A futures contract (or "future") is a specialized form of a forward contract, in which the parties agree to the price, quantity, quality, and date of delivery of a particular good in advance of the actual delivery. CHICAGO BOARD OF TRADE, COMMODITY TRADING MANUAL at 2, 4, 369 (7th ed. 1989). The distinguishing feature of the futures contract is that the contract terms are all standardized in order to facilitate the buying and selling of the contracts. Id. at 13, 369-70. The only remaining variable is the price, which is determined in an auction-like process by buyers and sellers of the futures who negotiate in organized commodity exchanges. Id.

 The party selling the future--that is, the party promising to make delivery--is called a "short" and is said to hold a "short open position," whereas the party buying the future--i.e., promising to take delivery--is the "long" and holds a "long open position." Id. at 372, 377; Cargill, 452 F.2d at 1156-57. The longs and shorts do not interact directly; rather, they buy from (or sell to) the commodity exchange, which acts as a third-party clearinghouse to settle accounts, clear trades, regulate delivery and ensure that market participants fulfill their contractual commitments. COMMODITY TRADING MANUAL, supra, at 15.

 A party holding a future must satisfy (or "liquidate") her obligation in one of two ways: (i) she may make an equal and opposite transaction (an "offset") in the futures market prior to the expiration of trading on that contract; or (ii) she may take (or make) delivery of the commodity itself, as specified in the contract. *fn6" Id. at 372, 374; Cargill, 452 F.2d at 1156; Volkart Bros., 311 F.2d at 55-56. As a practical matter, the majority of futures obligations are offset in the futures market--fewer than one or two percent of all futures transactions are settled through actual delivery of the commodity, according to some sources. Cargill, 452 F.2d at 1156 n.2, 1157; CHICAGO BOARD OF TRADE, EMERGENCY ACTION JULY 1989 SOYBEANS: THE STORY BEHIND THE ACTION (hereinafter "EMERGENCY ACTION") at 8 (1990) (P.Ex. 20). *fn7"

 The reason for this seeming imbalance is that the futures market is not intended to be the place to arrange for physical delivery of the commodity. EMERGENCY ACTION, supra, at 8. Delivery takes place in the "cash market," and the physical commodity is often referred to the "cash commodity." COMMODITY TRADING MANUAL at 12-13, 364. The primary purpose of the future market, on the other hand, is to provide a form of insurance against adverse changes in the price of the commodity prior to delivery. Id. This practice, called "hedging," requires that the trader take a position in the futures market equal and opposite to the position she expects to take in the cash market. COMMODITY TRADING MANUAL, supra at 14, 89-91. For example, a soybean processor may enter into a contract to deliver a certain quantity of soybean oil to a food producer in six months and at a fixed price. If the soybean processor is worried that prices of his raw material will rise before he delivers on his contract, the processor will purchase an offsetting number of futures contracts, i.e., take a long position or adopt a long hedge. Id. at 376. Because prices in the cash and futures markets tend to move in the same direction, an increase in prices for cash soybeans will likely be accompanied by an increase in the price for soybean futures. Id. at 13-14. Thus, if prices do rise by the time the soybean oil contract comes due, the processor can sell his futures at a profit in order to offset the cost of procuring his needed supplies of soybeans in the cash market. Id. at 90-91. Conversely, a merchant who purchases soybeans to resell at some later date may wish to avoid the risk that prices will fall. The merchant will sell futures, i.e., take a short position or adopt a short hedge, and cover any losses he subsequently suffers in the cash market with the profits he can make by buying the lower-priced futures. See Volkart Bros., 311 F.2d at 54.

 Of course, prices do not always move as one anticipates, which is why the market attracts speculators. Speculators assume the risks that hedgers avoid in order to make a profit from unexpected price movements. Id. at 15, 109-10, 377. Although hedging is the main purpose of the futures market, hedgers benefit from the presence of speculators in the market. Speculators add liquidity and capital to the futures markets; bridge price gaps between longs and shorts; dampen extreme price movements by assuming risk and adding to demand; and facilitate market entry and exit by increasing trading volume. Id.; Cargill, 452 F.2d at 1158.

 Because they fulfill such different roles, hedgers and speculators are subject to different rules. In particular, the CFTC, which regulates and monitors the futures markets, limits the size of speculative positions that a party may hold in order to prevent excessive volatility and other problems in the market. Hedgers, on the other hand, can be exempted from these limits, provided they can demonstrate that they are engaged in bona fide hedging and agree to liquidate their positions in an orderly and commercially reasonable manner as their futures contracts come due. EMERGENCY ACTION, supra, at 5. The CFTC may revoke a hedging exemption when it is being used to camouflage what is actually a speculative position. Id.

 The CFTC is charged with preventing other market abuses, including artificial manipulation of market prices. More will be said about manipulation in the Discussion section below. For now, two forms of manipulation require explanation--the "corner" and the "squeeze." Although these terms lack precise definitions, in general a party is said to "corner" a market when it has a net long position and owns all or substantially all of the deliverable supply of a particular commodity. See Cargill, 452 F.2d at 1161-62; Great Western Food Distributors, Inc. v. Brannan (hereinafter "Great Western"), 201 F.2d 476, 478-79 (7th Cir.), cert. denied, 345 U.S. 997, 97 L. Ed. 1404, 73 S. Ct. 1140 (1953); EMERGENCY ACTION, supra, at 10. A "squeeze" is a lesser form of a corner, in which the manipulator has a dominant long position but does not have an actual monopoly of the cash commodity; rather, the cash supply is limited due to drought, unexpectedly heavy demand, or other natural or economic forces that are not necessarily within the manipulator's control. Cargill, 452 F.2d at 1161-62; Frey v. Commodity Futures Trading Comm'n, 931 F.2d 1171, 1175 (7th Cir. 1991). In either case, the manipulator is in a position where he could force the shorts to pay artificially high prices as the delivery date approaches in order to settle their accounts. Id. at 1161-62; Frey, 931 F.2d at 1175; EMERGENCY ACTION, supra, at 10.

 B. The 1988 drought and the 1988-89 soybean markets

 In this case, Defendants are accused of pursuing a long manipulative squeeze of the soybeans futures market, as well as trading in excess of the CFTC's speculative limits and engaging in common-law fraud. Although Plaintiffs' claims focus on the July and August 1989 soybean futures contracts, the seeds of this conflict were sown at least a year earlier.

 In 1988, the United States experienced its most severe drought in over 50 years, one that sharply reduced its production of soybeans and other agricultural commodities. (Schnittker Aff. PP 4-6, D.Ex. A.) Compounding this problem were continued high demand for soybeans after the 1988 harvest and persistent weather-related concerns through the first half of 1989. (Id. PP 7-11.) As a result, public and private forecasters predicted that the domestic supply of soybeans--already the lowest in over a decade--would be virtually depleted before the 1989 harvest, which would necessitate the import of soybeans from other nations if the U.S. were to meet its demands. (Id. PP 5, 6.)

 Yet America's major foreign sources for soybeans--Brazil and Argentina--were experiencing similar drought concerns in early 1989. *fn8" Argentina's 1989 soybean harvest was 24% below what it had been in 1988. (Id. P 13.) Although the drought ultimately avoided Brazil, that nation's ability to export soybeans was limited by dock strikes and other economic problems that kept its soybean stocks off the market. (Id. PP 12-15.) These events put added pressure on U.S. soybean stocks through the middle of summer 1989 and, consequently, on prices in the cash and futures markets. (Id. PP 15-19.)

 C. The Ferruzzi Parties' strategy

 These and other related events were of direct interest to the Ferruzzi Group (or "Ferruzzi"), an affiliated group of companies that by 1989 had become one of the world's largest processors and exporters of soybeans and other grains. (Defendants' Memorandum in Support of Their Motion for Summary Judgment (hereinafter "Defs.' Mem. Supp.") at 5, 7-8.) Defendants represent the Ferruzzi Group's two main components--specifically, Central Soya is one of the Group's agri-industrial companies, and Ferruzzi Trading International ("FTI") and Ferruzzi Trading U.S.A. ("FUSA") are among its international grain merchandising and trading companies. (Id. at 7.) Defendant Ferruzzi Finanziaria S.p.A. is the holding company for the Group and owns 100% of FUSA and FTI. (Defs.' 12(m) Statement P 9.) Although it does not directly own Central Soya, the results of Central Soya's operations are consolidated into the financial statements of Ferruzzi Finanziaria. (Pls.' 12(n) Statement P 147; Defs.' 12(m) Reply PP 20, 147.) Each Defendant, then, had a different role to play in the Ferruzzi Group's response to shortages in the soybean market.

 Defendants' version of events. Not surprisingly, the parties to this action describe the Ferruzzi Group's response to these conditions in very different terms. Defendants insist that forecasts of tight supplies and high prices for soybeans presented real risks that exporters, such as FUSA and FTI, and processors, such as Central Soya would be unable to obtain the soybean supplies they needed if they did not act early to protect their interests. (Defs.' 12(m) Statement P 15; Defs.' Mem. Supp. at 11.) Central Soya was particularly vulnerable to supply shortages, according to Defendants, because in 1988 and 1989 its business activities were dependent solely on soybean processing, and its processing plants were located in states where the drought hit hardest and soybean stocks are typically the first to be depleted. (Defs.' Mem. Supp. at 8-10, 12-13.)

 Accordingly, the Ferruzzi Parties assert that they developed a two-part strategy to meet their legitimate processing and export needs. First, by spring 1988 Central Soya began to bid aggressively for soybeans in both its traditional supply areas and more distant locations in order to ensure that it would continue to have adequate supplies throughout the 1988-89 crop year. (Id. at 13-14.) Defendants claim that this plan enabled Central Soya to continue to earn substantial revenues later in the crop year after many of its competitors were forced to curtail their operations due to the lack of supplies. (Id.) Defendants also insist that Central Soya's inventory and available supplies continued to be lower than they had been in the past, despite its efforts to purchase soybeans throughout the year. (Id. P 20; Defs.' 12(m) Reply PP 31, 36, 82, 95-98, 102, 105, 119, 129, 157.)

 The Ferruzzi Group's senior management approved Central Soya's plans in the fall of 1988. (Defs.' Mem. Sup. at 14.) At approximately the same time, they also allegedly agreed on the second half of their strategy, in which they directed their trading companies--including FUSA and FTI--to establish and maintain long positions in soybean futures to hedge their own anticipated export commitments and Central Soya's unfilled requirements. (Id.; Defs.' 12(m) Statement P 13.) The trading companies were also to give Central Soya rights of first and last refusal to purchase from their stocks of cash soybeans and, according to Defendants, they did in fact supply Central Soya with substantial quantities of soybeans in 1989. (Id. PP 18, 19.) Defendants also assert that Ferruzzi's senior management assigned control of Central Soya's hedge to the trading companies, yet FUSA and the other trading companies did not reveal their long positions to Central Soya nor did Central Soya have any input into the structuring of these positions or any of the trading companies' other activities, other than informing FUSA of its own processing and purchasing activities. (Id. PP 14, 16, 17; Defs.' 12(m) Reply PP 30, 92, 97, 99-100.)

 Plaintiffs' version. Plaintiffs dispute Defendants' version of events, arguing instead that the Ferruzzi Parties deliberately took advantage of the shortage of soybeans and their positions in the cash and futures markets in order to manipulate soybean prices to their advantage. Plaintiffs assert that the Ferruzzi Parties had been deliberately purchasing large long positions in the soybean futures markets since 1987--the year before the drought struck. (Pls.' 12(n) Statement P 4.) Rather than offset these transactions, however, Defendants allegedly took the "unusual steps" of standing for delivery of the soybeans on some portions of their long contracts; refusing to retender the warehouse receipts they received (i.e., "strong stopping"); deliberately "rolling forward" the remaining portions of their long positions into later months; and shipping more than 100,000 tons of soybeans (approximately 4 million bushels) out of Chicago in order further to constrict the available cash supply. (Id. PP 4, 107, 108.) In this manner, Defendants allegedly were able to acquire large positions and control in the cash and futures markets through 1988 and 1989. (Id. P 6.) Defendants deny all these assertions.

 Plaintiffs also allege that Defendants' stated need to hedge against Central Soya's processing requirements was but a ruse to mislead the commodities market and its regulators. Plaintiffs maintain that Central Soya neither wanted nor needed the warehouse receipt soybeans acquired by the Ferruzzi trading companies on its behalf. (Pls.' 12(n) Statement PP 31, 105, 107, 109.) Plaintiffs also claim that by October 1988, Central Soya was holding 4.4 million bushels of soybeans that it did not need, and in June 1989 entered into an agreement with FUSA to store some 6.7 million bushels of unneeded beans in its warehouses. (Id. PP 36, 95-98.) Plaintiffs argue that these facts indicate not only the size of Defendants' cash holdings but also show that Defendants' "hedge" position far exceeded their actual unfilled needs. Thus, Defendants were not entitled to maintain their hedge exemption and were trading in excess of the speculative limits in the CFTC regulations, according to Plaintiffs.

 Similarly, Plaintiffs assert that Defendants misled regulators by overstating their export commitments to the former Soviet Union. It is undisputed that in 1988 the Ferruzzi Parties entered into two contracts to export soybeans to the Soviet Union--an August contract for 250,000 metric tons and a November contract for 200,000 tons. (Defs.' 12(m) Reply P 44.) Defendants reported these and other export contracts to the U.S. Department of Agriculture ("USDA"), which collects and disseminates such information to the agricultural markets. (Id. P 45.) In December 1988, however, the Soviet Union canceled the November contract. (Id. P 55.) Plaintiffs allege that Defendants never informed the USDA of the cancellation of this contract; rather, they continued to file reports that exaggerated their exports by some 200,000 tons. (Pls.' 12(n) Statement P 56.) The USDA allegedly (and unwittingly) disseminated this false information until at least April 1989. (Id. PP 58-59.) Plaintiffs argue that by misleading regulators--and through them, the market--about their true demand for soybeans, Defendants were able artificially to prop up soybean prices, which would have declined had news of the cancellation been made public. (Id. PP 57, 60.) Such an assertion, if true, may also indicate that the Defendants' long position was not entirely a bona fide hedge against the Ferruzzi Group's export needs.

 Defendants deny all of these assertions and any implication that their long position was not a bona fide hedge against their legitimate processing and export needs. In particular, Defendants deny that their export reports were in any way inaccurate, explaining that the export contracts in question were between the U.S.S.R. and FTI, which is not obligated to inform the USDA of its export activity because it is not a U.S. company. (Defs.' 12(m) Reply PP 11, 45, 55-57, 59-61.) Defendants further assert that there is no reliable evidence that news of the contracts or their cancellation had or would have had any effect on prices. *fn9" (Id. PP 40, 57, 60.) Also, Defendants dispute any assertion that Central Soya did not want or need the beans further and insist that Central Soya had no knowledge of or involvement in the Ferruzzi Group's futures trading activities. (Defs.' 12(m) Statement PP 16, 17; Defs.' 12(m) Reply PP 30, 31, 36, 92, 95-100, 105, 119, 157.)

 D. Defendants' position in the May 1989 futures

 It is also undisputed that by May 1989 the Ferruzzi Parties' holdings had attracted the attention of the CFTC and the CBOT. On or about May 16, 1989, the CFTC informed FUSA that it was concerned by the Ferruzzi Parties' large long position in May futures which exceeded the available supply of cash soybeans and therefore could have a "substantial impact" on whether the price of May futures became artificial. *fn11" (Letter from Kaas to Cronin of 5/16/89, supra.) Apparently unsatisfied with the Ferruzzi's response and concerned about the orderly liquidation of the May contract, the CFTC sent another letter to FUSA two days later, this time revoking FUSA's hedging exemption and ordering liquidation of its holdings that exceeded the three-million-bushel speculative limit. *fn12" (Letter from Mielke to Cronin of 5/18/89, supra.)

 Defendants maintained (and continue to maintain) that their long position was a legitimate hedge against their anticipated processing and export requirements. (Defs.' 12(m) Reply P 69.) They also state that neither the May 16 or May 18 letter had any practical effect because they already had decided to liquidate their May futures position and had made substantial progress in doing so. (Defs.' Mem. Supp. at 18 n.3, citing Cronin Dep. at 734-35; see also Mielke memo to files of 5/24/89 re: May 1989 soybeans, P.Ex. 60.) A senior CBOT official testified that the May contract expired without serious problems (Defs.' Mem. Supp. at 18 n.3, citing Weisenborn Dep. at 79-80), and the CBOT itself would later report that the May contract was liquidated in an orderly--if not entirely voluntary--manner. (EMERGENCY ACTION, at 9.)

 E. Defendants' position in the July and August 1989 futures

 In the eyes of regulators, however, the underlying problem had only been postponed, not resolved. The CBOT explains that rather than liquidating its long position in May futures outright, Ferruzzi exchanged its May futures for July futures, thus transferring its controversial holdings from one delivery month to the next. (Id.) Plaintiffs maintain that between May 5 and June 12, Defendants purchased 18 million bushels in July 1989 futures, which, when combined with their previous accumulation of 13 million bushels, gave Defendants a total of more than 30 million bushels in July futures. (Pls.' 12(n) Statement P 77.) This position, according to the CBOT, was nearly double the position in May futures that the Ferruzzi Group had been ordered to liquidate only a few weeks earlier. (EMERGENCY ACTION, at 9.) Furthermore, Defendants allegedly purchased nearly 15.5 million bushels of August 1989 futures during the same period of time; as a result, Defendants allegedly tripled their cumulative holdings in July and August futures to more than 39 million bushels of soybeans. *fn13" (Pls.' 12(n) Statement PP 77, 78.)

 Defendants dispute Plaintiff's assertions as unsupported by the record, and they further maintain that they were engaged in bona fide hedging against their anticipated needs, as they had informed regulators at the time. (Defs.' 12(m) Reply PP 77, 78, 82.) The CBOT itself explained that in early June 1989 it was not necessarily worried about the Ferruzzi Group's large cash and futures positions, because such large hedge positions are not uncommon, and there remained eight weeks prior to the expiration of the July contract. (EMERGENCY ACTION, supra, at 9.) Also, through meetings and letters during the second half of the month, Central Soya and FUSA sought to reassure the CFTC and CBOT about their anticipated requirements and the legitimacy of FUSA's long hedge position. (See Defs.' 12(m) Statement P 82; Memo to files from Glenn Schmeltz, CFTC, of 6/15/89, included in P.Ex. 2; Memo to files from Harold Hild, CBOT, of 6/6/89, included in P.Ex. 11; Letters from Mielke, CFTC, to Lockwood Marine, Central Soya, of 6/19/89 and 6/23/89, P.Ex. 2, D.Ex. 21; Letter from Marine to Mielke of 6/30/89, D.Ex. 20; Letter from Colm Cronin, FUSA, to Wallace Weisenborn, CBOT/BCC, of 6/30/89, included in P.Ex. 11.) Both Central Soya and FUSA also indicated that they would bid aggressively for cash soybeans--Central Soya because it was supposedly having difficulty obtaining sufficient quantities to meet its own needs, and FUSA because it had promised to liquidate its July long position in an orderly manner and on a "bushel for bushel" basis. (Id.)

 Despite these assurances, the CBOT and CFTC continued to monitor Ferruzzi's activities, particularly their impact on the orderly liquidation of the July 1989 futures market. (Letter from Wallace Weisenborn, Chairman, CBOT/BCC, to Colm Cronin, FUSA, of 6/27/89, P.Ex. 68.) During the month preceding July 11, regulators repeatedly asked the Ferruzzi Group to bid competitively for soybeans and reduce voluntarily its large position in July futures. (EMERGENCY ACTION, at 17-18; GENERAL ACCOUNTING OFFICE, CHICAGO FUTURES MARKET: EMERGENCY ACTION PROCEDURES at 4 (April 1990), P.Ex. 21.) Although Defendants assert that Central Soya was bidding more aggressively for cash soybeans in 1989 than it had in 1988 (Defs.' 12(m) Reply PP 98, 106), the CBOT apparently found few signs that the Ferruzzi Group seriously intended to liquidate its holdings--rather, the Group's long positions remained virtually unchanged; it had made only minor purchases of cash soybeans; and its cash bids had been substantially below market price. (EMERGENCY ACTION, at 15, 19; Letter from Weisenborn to Agostini of 7/7/89, supra.)

 Consequently, in a letter dated July 7, 1989, the CBOT informed Ferruzzi of its "extreme concern" regarding its July position and ordered it "to commence substantial daily reductions of its position immediately," which the CBOT explained should be of the order of 3 million bushels per day. (Id. (emphasis in original).) Although the Committee warned that this was Ferruzzi's "last chance to demonstrate the firm's good faith and to begin to honor its obligations as a member of the Exchange" (id.), FUSA officials responded that it would continue to hold its long positions unless it were able to obtain sufficient quantities of cash soybeans. (Letter from Colm Cronin and Edward Varin, FUSA, to Wallace Weisenborn, CBOT, of 7/10/89, included in P.Ex. 11.) FUSA also warned that if the CBOT prevented it from holding its hedge position in July futures, Ferruzzi would use whatever means necessary to recover damages incurred by such action. (Id.)

 F. CFTC's July 11 letter and CBOT's emergency order

 Before the CBOT could respond to the Ferruzzi's letter, the CFTC exercised its own authority on this matter. In a letter dated July 11, 1989 and addressed to Central Soya and copied to FUSA, the CFTC reminded Defendants that their long position in soybeans may be classified as a bona fide hedge "only to the extent that it represents unfilled anticipated requirements for processing" and "at no time should your long hedging position for unfilled requirements exceed the actual amount of your unfilled anticipated requirements." (Letter from Jean Webb, CFTC, to Lockwood Marine, Central Soya, of 7/11/89, P.Ex. 70, D.Ex.26; EMERGENCY ACTION, supra, at 19.) The CFTC then expressed its concern that the orderly liquidation of the July and August 1989 soybeans futures market was being threatened by the Ferruzzi Group's large cash and futures holdings and the shortage of available soybeans. (Id.) Consequently, the CFTC ordered the Ferruzzi Group not to hold any hedge positions in excess of the three-million bushel speculative limit during the last three days of trading on the July and August 1989 contracts. (Id.)

 Defendants seek to downplay the significance of the CFTC's order, describing it as only a "relatively minor adjustment" to the existing rules on anticipatory hedges. *fn14" (Defs.' Mem. Supp. at 19.) Defendants also interpret the CFTC's letter to mean that the Commission approved Central Soya's description of its anticipated requirements and acknowledged that the Ferruzzi Group was maintaining an anticipatory hedge of Central Soya's unfilled requirements. (Defs.' 12(m) Statement PP 26, 27.) Neither assertion appears explicitly in the letter, however. Rather, the CFTC stated only that Central Soya's data submission met the requirements in the relevant regulations; there was no specific statement as to the accuracy of the data or the legitimacy of Central Soya's stated needs. Furthermore, any attempt to infer that the CFTC "acknowledged" that the Ferruzzi Group was maintaining a hedge position must be viewed in light of the warnings, reminders, and orders that form the major portion of this letter. (See Pls.' 12(n) Statement PP 155-58.)

 The CFTC transmitted its order to Defendants the morning of July 11. (EMERGENCY ACTION, supra, at 19.) In the afternoon of the same day, the Chicago Board of Trade also elected to take action. (Id.) The CBOT issued a rare emergency order, in which it directed any party holding a July futures position in excess of the three-million bushel speculative trading limit to liquidate those positions in an orderly manner. (Id. at 3, 20; Memo to the Commission from Division of Trading and Markets, CFTC, of 9/7/89, at 7-13, included in P.Ex. 37.) The CBOT also imposed a specific timetable for liquidation, under which an affected party's long position had to be reduced 20% per day until it reached no more than three million bushels as of July 18 and no more than one million bushels as of July 20. (EMERGENCY ACTION, supra, at 3, 20.)

 Although the CBOT did not specifically name the Ferruzzi Group in its order, the Group was the only entity affected by the terms of the order. (Id. at 3.) The CBOT states that as of July 10 1989, the Ferruzzi Group's long position in July futures was 22 million bushels, which accounted for 53% of the contract's total open interest and was five times larger than the position held by the market's next largest participant. (Id. at 3, 13.) At the same time, the Ferruzzi Group owned over 85% of the deliverable supply of cash soybeans but was making no evident attempt to liquidate or offset its large futures position, according to the CBOT. (Id. at 3, 15.) Ferruzzi, however, held that the emergency order was unnecessary and had unnecessarily disrupted the market. (Transcript of remarks by David Swanson during Ferruzzi press conference of 7/24/89, included in P.Ex. 2.) Ferruzzi also explained that it had received the CBOT's order before it could act on the CFTC's July 11 letter, which forced Ferruzzi to exit the market in a very unusual way, causing heavy losses to the company and to many others. (Id.)

 This lawsuit was filed in September 1989, approximately two months after the CBOT's emergency order. The CBOT also investigated the matter and ultimately dismissed charges of manipulation and market demoralization against Ferruzzi. (Defs.' Mem. Supp. at 6.) The remaining charges, including excessive speculation and attempted manipulation, were settled prior to a hearing or decision by the CBOT's Board of Directors. (Id.)

 DISCUSSION

 Defendants have moved for summary judgment on all three of Plaintiffs' claims--unlawful manipulation of the soybean futures market (Count I), excessive speculation (Count II), and common-law fraud (Count III). Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). A defendant moving for summary judgment must prevail if the plaintiff falls to establish an essential element of its case. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). The burden is on the movant to show the absence of a genuine issue of material fact, id., ...


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