Ethanol: ADM Seeks New Court Venue In Price-Manipulation Suit – DTN

The U.S. District Court for the District of Nebraska has stayed proceedings in a lawsuit alleging ethanol market manipulation by Archer Daniels Midland, pending a motion to change venue in the case.

Omaha-based Green Plains Inc. filed a class-action lawsuit in the court in July alleging ADM conducted a scheme to illegally depress the ethanol cash spot market.

Green Plains attorneys filed a brief on Tuesday opposing a change of venue from the Nebraska court to a district court in Illinois where ADM is headquartered.

There are two other similar lawsuits filed in the U.S. District Court for the Central District of Illinois, one by Midwest Renewable Energy and another by Swiss company AOT Holdings. Both cases allege ethanol market manipulation by ADM.

In a brief arguing against a change of venue, attorneys said Green Plains is the only plaintiff to experience damage to its physical ethanol sales.

“Plaintiffs are the first plaintiffs in any case — and, so far, the only plaintiffs — to allege that defendant Archer Daniels Midland Company’s market manipulation adversely impacted their sales of physical ethanol,” Green Plains argued in its brief.

“They are also the only plaintiffs to allege that such market manipulation constitutes tortious interference with their physical ethanol sales contracts. These unique claims should be heard in the forum of plaintiffs’ choosing. Since Nebraska is the locus of the harm caused by ADM’s illegal conduct, plaintiffs’ unique claims should be heard in their chosen home forum.”

Green Plains expressed concern in its brief the Nebraska court would transfer the case to Illinois, where it would be combined into one lawsuit with the other legal cases.

“Although many of the facts of ADM’s market manipulation presented in the two cases filed in the Central District of Illinois are similar to those here, the claims and legal theories are distinct among each of the three cases,” Green Plains said in the brief.

“That ADM, who has already harmed plaintiffs, seeks to further burden them for its own convenience should carry no weight. Plaintiffs respectfully urge this court to deny ADM’s motion and maintain this action in the District of Nebraska.”

The Argo terminal is the daily location for ethanol trading. The 30-minute trading window at the terminal is considered crucial because it is used to set the daily Chicago benchmark price to determine the value of Chicago ethanol derivatives.

That benchmark price is used to price and settle ethanol derivatives on the New York Mercantile Exchange and the Chicago Board of Trade.

Green Plains alleges in its complaint ADM used a strategy to bring down prices. Green Plains alleges ADM flooded the Argo terminal with ethanol starting in November 2017 and accepted low-priced bids as the dominant seller rather than asking or waiting for a higher price.

ADM also has asked the court to dismiss the lawsuit, alleging the law does not allow Green Plains to sue for losses selling a commodity such as ethanol.

MANIPULATION ARGUED

Green Plains stated ADM was selling 1 million gallons of ethanol on average near the market closing window. That adversely affected industry-wide prices for ethanol.

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ADM offset lower prices on its own physical ethanol sales at the Argo terminal by “acquiring short-sided speculative derivative contracts at an unprecedented scale, and then targeting the terminal and pricing mechanism used to determine the price of those derivative contracts,” Green Plains stated in its lawsuit.

Derivatives are contracts with values derived from other assets such as stocks, commodities or currencies.

A derivative is a contractual agreement generally between two parties. When one party buys a derivative security, it is said to be long the derivative. When a party is short a derivative, it is a seller of the derivative.

Green Plains alleged that, by executing this strategy with derivatives, ADM used the closing market window to sell approximately 821 million gallons of ethanol, which Green Plains called “a sea change” in ADM’s market trading behavior before November 2017.

Green Plains operates 13 ethanol plants across the Midwest, including five in Nebraska. In all, the company has an annual production capacity of about 1.1 billion gallons. ADM operates eight ethanol plants across the Midwest, with about 1.7 billion gallons in annual production capacity.

The lawsuit said ADM used its “size, proximity and relationships to exploit and overwhelm” the Argo terminal and “force a desired, self-serving pricing outcome” on other market participants.

During the time of the alleged scheme, the lawsuit said, ADM had five ethanol plants within 250 miles of Argo with about 1.2 billion gallons of production capacity.

Green Plains said this means ADM had “a greater ability to flood the Argo terminal” with ethanol and sell it at lower prices.

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

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