`
`UNITED STATES DISTRICT COURT, DISTRICT OF NEBRASKA
`
`
`GREEN PLAINS TRADE GROUP LLC,
`GREEN PLAINS INC., GREEN PLAINS
`WOOD RIVER LLC, GREEN PLAINS ORD
`LLC, GREEN PLAINS ATKINSON LLC,
`GREEN PLAINS CENTRAL CITY LLC,
`GREEN PLAINS YORK LLC, GREEN
`PLAINS SHENANDOAH LLC, GREEN
`PLAINS OTTER TAIL LLC, GREEN PLAINS
`FAIRMONT LLC, GREEN PLAINS
`HEREFORD LLC, GREEN PLAINS MOUNT
`VERNON LLC, GREEN PLAINS MADISON
`LLC, GREEN PLAINS HOPEWELL LLC,
`GREEN PLAINS SUPERIOR LLC, GREEN
`PLAINS OBION LLC, GREEN PLAINS
`BLUFFTON LLC, individually and on behalf
`of all others similarly situated,
`
`
`Plaintiffs,
`
`v.
`
`
`ARCHER DANIELS MIDLAND COMPANY,
`
`
`Defendant.
`
`
`
`Case No.
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`
`JURY TRIAL DEMANDED
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`CLASS ACTION COMPLAINT
`
`
`
`
`
`
`
`Adam J. Levitt
`John E. Tangren
`Mark S. Hamill
`DICELLO LEVITT GUTZLER LLC
`Ten North Dearborn Street, Sixth Floor
`Chicago, Illinois 60602
`Tel.: (312) 214-7900
`alevitt@dicellolevitt.com
`jtangren@dicellolevitt.com
`mhamill@dicellolevitt.com
`
`
`
`Dated: July 14, 2020
`
`Greg G. Gutzler
`DICELLO LEVITT GUTZLER LLC
`444 Madison Avenue, Fourth Floor
`New York, New York 11022
`Tel.: (646) 933-1000
`ggutzler@dicellolevitt.com
`
`David A. Domina (#11043NE)
`DOMINA LAW GROUP PC LLO
`2425 South 144th Street
`Omaha, Nebraska 68144
`Tel.: (402) 493-4100
`ddomina@dominalaw.com
`
`
`
`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 2 of 57 - Page ID # 2
`
`SUMMARY OF THE CASE
`
`1.
`
`Archer Daniel Midlands Company (“ADM”) is a major producer and seller of
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`ethanol in the Midwest and throughout the United States. Most relevant to this lawsuit, ADM
`
`produces ethanol at multiple bioprocessing sites in the United States and sells ethanol into cash
`
`markets, including a cash spot market at the Kinder Morgan Argo Terminal in Argo, Illinois (the
`
`“Argo Terminal”). While being one of many cash spot markets, the Argo terminal is unique
`
`because it serves as the price reference point for nearly all physical and financial ethanol
`
`transactions across the world. As a producer and seller of ethanol, ADM should want pricing
`
`mechanisms that reflect actual market prices at the Argo Terminal and any other locations they
`
`sell ethanol.
`
`2.
`
`During the relevant time period from November 2017 to present (the “relevant time
`
`period”), ADM routinely acquired financial derivative contracts that went up in value if the price
`
`for ethanol at the Argo Terminal went down.
`
`3.
`
`As a physical producer of ethanol, ADM should want stable or rising prices so that
`
`its physical sales would earn a profit. However, because of the disproportionate size of its
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`derivative financial position, ADM manipulated prices to fall so that its financial derivatives would
`
`earn a profit. Instead, ADM sacrificed its profits on physical sales in order to leverage even larger
`
`profits on its derivatives contracts.
`
`4.
`
`To succeed, ADM needed to execute a three-step strategy. First, ADM needed to
`
`ensure that physical prices at the Argo Terminal would decline (i.e., to depress prices), which
`
`ADM did by: (i) flooding the Argo Terminal with ethanol, and (ii) hurriedly lowering offers or
`
`accepting low priced bids as the dominant seller in the MOC pricing window (the window that
`
`controls much of the pricing for the physical ethanol market, to be described in greater detail
`
`below), rather than asking or waiting for a higher price. Secondly, by selling on average one
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`2
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 3 of 57 - Page ID # 3
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`million gallons of ethanol daily in the MOC window, ADM was able to adversely impact the
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`pricing of over 32 million gallons of physical ethanol produced industry-wide per day. Finally,
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`ADM needed to gain enough leverage to turn its own physical ethanol losses at the Argo Terminal
`
`(and associated losses on its plant production), into financial wins at NYMEX and CBOT, which
`
`it did 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. ADM’s foregoing manipulation of the derivative contracts market is illegal; it is
`
`forbidden by the Commodities Exchange Act (“CEA”).
`
`5.
`
`In executing its strategy beginning in November 2017, ADM was a buyer in the
`
`MOC window only once for 210,000 gallons, but was a seller at all other times for a total of
`
`approximately 821 million gallons – a sea change from their pre-November 2017 trading behavior
`
`in which ADM was consistently a buyer. While selling in the MOC window, ADM was
`
`simultaneously purchasing physical gallons with the Argo terminal at prices above which it was
`
`selling in the window, which is completely uneconomic behavior for an ethanol producer that
`
`would be seeking to maximize the sell price of its physical sales.
`
`6.
`
`ADM used its size, proximity, and relationships to exploit and overwhelm the Argo
`
`terminal and force a desired, self-serving pricing outcome upon other financial and physical market
`
`participants. The uneconomic nature of ADM’s trading behavior left other participants in the dark
`
`about ADM’s strategy, and even those participants who understood it could not take on the
`
`enormous risk required to defend themselves through their own derivatives positions.
`
`7.
`
`ADM put ill-gotten money into its own pockets by its strategy of making
`
`uneconomic decisions that were not correlated to the actual price of ethanol in order to support its
`
`speculative financial positions. But ADM also knew that it would take hard-earned money out of
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`3
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 4 of 57 - Page ID # 4
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`the pockets of other ethanol producers by depressing prices at the Argo Terminal, hurting the
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`producers and imposing downstream pain on corn farmers and cooperatives.
`
`8.
`
`While the Argo Terminal is a critical point for ethanol price discovery, most
`
`physical ethanol sales and deliveries in the United States are made outside of the Argo Terminal,
`
`including sales contracts that are priced based on the Argo Terminal MOC window pricing
`
`mechanism. However, these physical ethanol sales are overwhelmingly tied to sales contracts that
`
`are priced based on the Argo Terminal pricing. Thus, as ADM knew when it developed and
`
`executed the illegal and unconscionable strategy (which it continues to do), ADM’s downward
`
`manipulation of prices at the Argo Terminal inevitably reduced the prices that ethanol producers
`
`received for sales under those contracts. ADM’s foregoing targeting of producers in the
`
`performance of their ethanol sales contracts is unlawful tortious interference with contractual
`
`relations.
`
`9.
`
`Thus, ADM harmed producers and traders through its manipulation of ethanol
`
`prices, depriving them of the benefits of a fair market, and also harmed producers through its
`
`tortious interference of lowering the Argo Terminal-based price index which it knew producers
`
`use as the pricing mechanism for their sales contracts, depriving producers of the benefits of
`
`contracting/pricing free from tortious interference.
`
`PARTIES
`
`10.
`
`In this complaint, Plaintiffs are collectively referred to as “Green Plains.” Green
`
`Plains is one of the largest sellers of ethanol, with annual production and sales of over one billion
`
`gallons of ethanol.
`
`11.
`
`Green Plains Inc. (“GPRE”) is an Iowa corporation with its principal place of
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`business in Omaha, Nebraska that owns fifteen single-member bioprocessing LLCs. GPRE also
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`4
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 5 of 57 - Page ID # 5
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`owned the single-member bioprocessing LLC Green Plains Holdings II LLC for certain parts of
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`the relevant time period; it has since dissolved and distributed the proceeds to GPRE.
`
`12.
`
`Green Plains Trade Group LLC (“Green Plains Trade”) is a Delaware limited
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`liability company and subsidiary of GPRE, with its principal place of business in Omaha,
`
`Nebraska. Pursuant to marketing agreements with the Green Plains single-member bioprocessing
`
`LLCs, Green Plains Trade markets and sells ethanol to outside third parties on behalf of Green
`
`Plains’ single-member bioprocessing LLCs.
`
`13.
`
`Green Plains Wood River LLC is a Delaware limited liability company and
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`subsidiary of GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Wood
`
`River LLC operates a bioprocessing plant in Wood River, Nebraska that produces ethanol for sale
`
`via its marketing agreement with Green Plains Trade.
`
`14.
`
`Green Plains Ord LLC is a Delaware limited liability company and subsidiary of
`
`GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Ord LLC operates a
`
`bioprocessing plant in Ord, Nebraska that produces ethanol for sale via its marketing agreement
`
`with Green Plains Trade.
`
`15.
`
`Green Plains Atkinson LLC is a Delaware limited liability company and subsidiary
`
`of GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Atkinson LLC
`
`operates a bioprocessing plant in Atkinson, Nebraska that produces ethanol for sale via its
`
`marketing agreement with Green Plains Trade.
`
`16.
`
`Green Plains Central City LLC is a Delaware limited liability company and
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`subsidiary of GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Central
`
`City LLC operates a bioprocessing plant in Central City, Nebraska that produces ethanol for sale
`
`via its marketing agreement with Green Plains Trade.
`
`5
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 6 of 57 - Page ID # 6
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`17.
`
`Green Plains York LLC is a Delaware limited liability company and subsidiary of
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`GPRE, with its principal place of business in Omaha, Nebraska. Green Plains York LLC operates
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`a bioprocessing plant in York, Nebraska that produces ethanol for sale via its marketing agreement
`
`with Green Plains Trade.
`
`18.
`
`Green Plains Shenandoah LLC is a Delaware limited liability company and
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`subsidiary of GPRE, with its principal place of business in Omaha, Nebraska. Green Plains
`
`Shenandoah LLC operates a bioprocessing plant in Shenandoah, Iowa that produces ethanol for
`
`sale via its marketing agreement with Green Plains Trade.
`
`19.
`
`Green Plains Otter Tail LLC is a Delaware limited liability company and subsidiary
`
`of GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Otter Tail LLC
`
`operates a bioprocessing plant in Fergus Falls, Minnesota that produces ethanol for sale via its
`
`marketing agreement with Green Plains Trade.
`
`20.
`
`Green Plains Fairmont LLC is a Delaware limited liability company and subsidiary
`
`of GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Fairmont LLC
`
`operates a bioprocessing plant in Fairmont, Minnesota that produces ethanol for sale via its
`
`marketing agreement with Green Plains Trade.
`
`21.
`
`Green Plains Hereford LLC is a Delaware limited liability company and subsidiary
`
`of GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Hereford LLC
`
`operates a bioprocessing plant in Hereford, Texas that produces ethanol for sale via its marketing
`
`agreement with Green Plains Trade.
`
`22.
`
`Green Plains Mount Vernon LLC is a Delaware limited liability company and
`
`subsidiary of GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Mount
`
`6
`
`
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 7 of 57 - Page ID # 7
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`Vernon LLC operates a bioprocessing plant in Mount Vernon, Indiana that produces ethanol for
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`sale via its marketing agreement with Green Plains Trade.
`
`23.
`
`Green Plains Madison LLC is a Delaware limited liability company and subsidiary
`
`of GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Madison LLC
`
`operates a bioprocessing plant in Madison, Illinois that produces ethanol for sale via its marketing
`
`agreement with Green Plains Trade.
`
`24.
`
`Green Plains Hopewell LLC is a Delaware limited liability company and subsidiary
`
`of GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Hopewell LLC
`
`operated a bioprocessing plant in Hopewell, Virginia that produced ethanol for sale via its
`
`marketing agreement with Green Plains Trade.
`
`25.
`
`Green Plains Superior LLC is an Iowa limited liability company and subsidiary of
`
`GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Superior LLC
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`operates a bioprocessing plant in Superior, Iowa that produces ethanol for sale via its marketing
`
`agreement with Green Plains Trade.
`
`26.
`
`Green Plains Obion LLC is a Tennessee limited liability company and subsidiary
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`of GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Obion LLC
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`operates a bioprocessing plant in Obion, Tennessee that produces ethanol for sale via its marketing
`
`agreement with Green Plains Trade.
`
`27.
`
`Green Plains Bluffton LLC is an Indiana limited liability company and subsidiary
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`of GPRE, with its principal place of business in Omaha, Nebraska. Green Plains Bluffton LLC
`
`operated a bioprocessing plant in Bluffton, Indiana that produced ethanol for sale via its marketing
`
`agreement with Green Plains Trade through November 15, 2018.
`
`7
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 8 of 57 - Page ID # 8
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`28.
`
`ADM is a corporation organized, created, and existing pursuant to the laws of the
`
`state of Delaware with its global headquarters at 77 West Wacker Drive, Chicago, Illinois 60601.
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`JURISDICTION AND VENUE
`
`29.
`
`This Court has subject matter jurisdiction over this action under Section 22 of the
`
`Commodity Exchange Act, 7 U.S.C. § 25, and under the Class Action Fairness Act of 2005, 28
`
`U.S.C. § 1332(d), which explicitly provides for the original jurisdiction of the federal courts over
`
`any class action where any member of the plaintiff class is a citizen of a state different from any
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`defendant, and where the matter in controversy exceeds $5,000,000, exclusive of interest and costs.
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`The total claims of class members here exceed $5,000,000 in the aggregate, exclusive of interest
`
`and costs.
`
`30.
`
`This Court has personal jurisdiction over ADM because, during the Relevant
`
`Period, ADM transacted business in the State of Nebraska and had substantial contacts with the
`
`State of Nebraska. In addition, ADM directed its conduct at, and had the intended effect of, causing
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`injury to persons residing in, located in, or doing business in the State of Nebraska.
`
`31.
`
`Venue is proper in this District under 28 U.S.C. § 1391(b). ADM transacts business
`
`and has agents in this District; a substantial part of the events giving rise to Green Plains’ claims
`
`arose in this District; and a substantial portion of the affected interstate trade and commerce
`
`described herein has been carried out in this District.
`
`32.
`
`The activities of ADM were within the flow of, were intended to, and did have a
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`substantial effect on the interstate commerce of the United States, including in the markets for
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`financial derivatives based on ethanol and the market for ethanol itself.
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`FACTUAL BACKGROUND
`
`A.
`
`The U.S. Ethanol Market
`
`33.
`
`Ethanol is a renewable fuel made primarily from corn and other grains.
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`8
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 9 of 57 - Page ID # 9
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`34.
`
`The current domestic ethanol market was initially created by federal law and state
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`regulations that set renewable fuel requirements for transportation fuel. In particular, the Energy
`
`Independence and Security Act of 2007 set Renewable Fuel Standards that increased the volume
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`of renewable fuel blended into gasoline. While federal law sets targets for renewable fuels, ethanol
`
`is a competitive alternative to gasoline and gasoline components all over the world.
`
`35.
`
`Renewable Fuel Standards require gasoline producers to buy a certain quantity of
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`renewable fuels (such as ethanol) each year to blend into gasoline used as transportation fuel.
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`Ethanol is the renewable fuel most used by obligated parties to meet this renewable fuel
`
`requirement. Legal and regulatory requirements, along with alternative economics of high-quality
`
`blending components, play a large role in the demand for ethanol by creating a class of “ethanol
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`consumers” consisting mostly of refineries, importers, blenders, and general gasoline resellers.
`
`36.
`
`Buyers in the ethanol market can get their ethanol primarily in two ways. First, they
`
`can buy ethanol directly from an ethanol producer, contracting to have the producer ship ethanol
`
`straight to the buyer’s facilities for blending with gasoline that is then shipped to retail markets.
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`Second, they can choose to buy ethanol at terminals located throughout the country, where ethanol
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`producers ship and store large quantities of ethanol via railcar, tanker truck, or barge. Ethanol
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`stored at terminals is available for immediate, or “spot,” sale to buyers. At these terminals, ethanol
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`and gasoline can be blended onsite for ease of shipment to retail end users; alternatively, buyers
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`can transport the ethanol purchased at terminals back to their own facilities or refineries for
`
`blending.
`
`37.
`
`Terminals also serve as locations where other buyers who do not blend ethanol for
`
`end use can acquire and ship it for resale elsewhere; prices can be lower as well. By doing so, such
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`9
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 10 of 57 - Page ID # 10
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`middlemen and resellers have an opportunity for market arbitrage. Terminals and markets
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`referenced in this complaint include New York Harbor, Gulf Coast and West Coast.
`
`38.
`
`In addition to the locations mentioned above, another market that is referenced in
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`this complaint is Chicago Rule 11. “Rule 11” is a railroad term for switching lines at a set
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`destination. When a railcar is traded at Chicago Rule 11, it is handed off from one Class I railroad
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`to another, where the shipper pays freight from the plant to the Chicago interchange, and the buyer
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`pays it from the Chicago interchange beyond (to the destination). The Rule 11 seller will learn the
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`ultimate end-route destination when the buyer provides nominations, which occurs prior to
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`creating a bill of lading and releasing the loaded cars at origin to the railroad. Upon delivery of the
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`Rule 11 contract, the seller will be notified when the cars are constructively placed at destination,
`
`then released empty to the railroad. The time that the car returns to the plant is estimated based on
`
`its past velocity. Actual title transfers at Chicago, when the rail line interchange occurs.
`
`39.
`
`The Rule 11 price is determined by an analysis of local plant values and destination
`
`basis, plus freight from the plant to the Chicago Rule 11 interchange. Car cost and uncertainty of
`
`delivery/end destination are not taken into account in pricing. In a normal market, to account for
`
`the throughput, Rule 11 trades flat to a slight discount to ethanol trading out of the Kinder Morgan
`
`Argo terminal.
`
`40.
`
`Below is a diagram showing the general flow of ethanol production and distribution
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`in the U.S.
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`10
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 11 of 57 - Page ID # 11
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`
`Source: Alternative Fuels Data Ctr., U.S. Dep’t of Energy, Ethanol Production & Distribution,
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`
`
`https://afdc.energy.gov/fuels/ethanol_production.html (last visited September 4, 2019).
`
`41.
`
`The Midwest is the epicenter of U.S. ethanol production, dwarfing every other
`
`region. The U.S. Energy Information Administration reports that 176 of the 200 ethanol plants in
`
`the U.S. (88%) are located in the Midwest, in a region defined as Petroleum Administration for
`
`Defense District 2, or PADD 2.
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`11
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 12 of 57 - Page ID # 12
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`Ethanol mills are concentrated in the Midwest and thus have higher capacities of
`
`
`
`42.
`
`ethanol production in the Midwest than elsewhere in the U.S. As shown in the diagram below, of
`
`the country’s nearly 16.3-billion-gallon annual production capacity, the Midwest region accounts
`
`for more than 14.8 billion gallons (91%) of total production. Shipping ethanol out of the Midwest
`
`for sale in other regions is therefore a routine part of the ethanol production business.
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`12
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 13 of 57 - Page ID # 13
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`
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`43.
`
`ADM is one of the country’s largest producers of ethanol, operating eight mills (a
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`mix of dry and wet mills located in Nebraska, Iowa, Minnesota, and Illinois) capable of producing
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`a total of 1.69 billion gallons of ethanol, or approximately 10% of the U.S. annual ethanol
`
`production of 16 billion gallons.
`
`B.
`
`The Argo Terminal and the Chicago Benchmark Price
`
`44.
`
`The Kinder Morgan Argo Terminal in Argo, Illinois is a critical locus in the
`
`Midwest price discovery in the broader U.S. ethanol market and is utilized at varying degrees for
`
`transporting ethanol to meet demand. Accordingly, the Argo Terminal price for ethanol influences
`
`the prices of ethanol sold at other terminals, as well as the prices that private parties negotiate in
`
`non-terminal ethanol sales. Critically, to everyone from producers to consumers, the Argo
`
`Terminal serves as the key indicator for the underlying value of ethanol as a commodity.
`
`45.
`
`The Argo Terminal is one of the largest storage facilities of the approximately 1,200
`
`ethanol terminals in the country and the largest in the critical PADD 2 region. It can handle
`
`shipments by rail, truck, and barge. Because of this multimodal capability, the Argo Terminal
`
`serves all segments of ethanol purchasers, from blenders and other end users to resellers and
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`middlemen. However, its capacity can be overwhelmed by a determined producer, which is how
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`ADM exploited the terminal to create the false appearance of oversupply of ethanol.
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`13
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 14 of 57 - Page ID # 14
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`46.
`
`In recognition of the key role the Argo Terminal plays in the U.S. ethanol market,
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`pricing services such as S&P Global Platts (“Platts”) and the Oil Price Information Service
`
`(“OPIS”) provide benchmark price assessments that reflect the trading price of ethanol at the Argo
`
`Terminal on a daily basis. Buyers and sellers of ethanol (whether at other terminals or in private
`
`negotiated transactions) use these Argo Terminal price assessments to determine what the fair
`
`market value of ethanol is at a given time nationwide. Market participants also use Platts and OPIS
`
`data to study market trends and predict future movement in ethanol prices for purposes of strategic
`
`planning, including hedging and speculation on ethanol derivatives.
`
`47.
`
`One of the impactful price assessments compiled by Platts at the Argo Terminal is
`
`the benchmark Chicago Ethanol (Terminal) price—what this complaint will refer to as the
`
`“Chicago Benchmark Price.” The Chicago Benchmark Price is calculated every trading day during
`
`the Market-on-Close (“MOC”) window from 1:00 p.m. to 1:30 p.m. C.T. and is based on Intertank
`
`Transfer (“ITT”) transactions: ethanol sold from storage tanks and deliverable at the Argo
`
`Terminal between 5 and 15 days forward from the date of sale. While the Platts assessment is
`
`critical to many market participants, it is important to note that all assessments in Chicago become
`
`co-dependent on establishing value, as they are tightly correlated and represent the same location
`
`and similar timing.
`
`48.
`
`Before each day’s MOC window, ethanol buyers post bid prices and ethanol sellers
`
`post offer prices. Under normal trading practices, buyers and sellers adjust their bids and offers in
`
`response to the prices proposed by their potential counterparties—motivated sellers will decrease
`
`their offers to beat the offers of competing sellers, while motivated buyers will increase their bids
`
`to beat those of competing buyers. Once there is a match between a buyer bid and a seller offer
`
`during the MOC, a sale is consummated.
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 15 of 57 - Page ID # 15
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`49. When an ethanol seller agrees to sell ethanol at the posted bid price of a buyer, this
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`practice is known as “hitting the bid.” The buyer equivalent to hitting the bid is referred to as
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`“lifting the offer,” and occurs when an ethanol buyer agrees to pay the posted offer price quoted
`
`by an ethanol seller.
`
`50.
`
`This back-and-forth negotiation between ethanol buyers and sellers is crucial for
`
`price discovery in the ethanol market and the calculation of the Chicago Benchmark Price. Without
`
`it, the Platts price assessment would lack a strong, market-based foundation.
`
`C.
`
`Physical Ethanol Sales Are Tied to the Chicago Benchmark Price
`
`51.
`
`As noted above, the Chicago Benchmark Price is a critical part of price discovery
`
`for the broad market for physical sales of ethanol in the United States and overseas.
`
`52.
`
`Green Plains, as well as many other ethanol producers, routinely enters into
`
`contracts for the physical sale of ethanol in which the per-gallon price is set by reference to the
`
`Chicago Benchmark Price plus or minus a small additional amount determined by location basis.
`
`53.
`
`Buyers and sellers of ethanol rely on the Chicago Benchmark Price as a benchmark
`
`for physical sales because they seek to transact at a price that reflects ethanol’s current and fair
`
`market value. Ethanol market participants assume that the Chicago Benchmark Price is a fair and
`
`accurate indication of ethanol’s current market value.
`
`54.
`
`ADM’s manipulation of the Chicago Benchmark Price and its uneconomic, even
`
`predatory, targeting of the Argo Terminal with unwanted supply, upset these market expectations
`
`and caused physical ethanol sales tied to the Chicago Benchmark Price to close at a price that did
`
`not reflect ethanol’s fair market value.
`
`D.
`
`Ethanol Derivatives Are Also Tied to the Chicago Benchmark Price
`
`55.
`
`Notably, the Chicago Benchmark Price is also used to establish the value of and to
`
`settle several important ethanol derivatives: (1) the Chicago Ethanol (Platts) Futures contract
`
`15
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 16 of 57 - Page ID # 16
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`(CME symbol: CU) traded on NYMEX (“CU”); (2) the Chicago Ethanol (Platts) Average Price
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`Option (CME symbol: CVR) traded on NYMEX; and (3) the CME’s Ethanol Futures Contract
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`(CME symbol: EH) traded on CBOT. The complaint refers to these futures and options contracts
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`collectively as the “Chicago Ethanol Derivatives.”
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`56.
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`A futures contract is a derivative that allows market participants to offset or assume
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`the risk of a price change of an underlying commodity over time. Futures contracts detail the
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`quality and quantity of the underlying commodity (including the place of delivery if physically
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`settled) and are standardized to be identical for all participants to facilitate trading on futures
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`exchanges such as the CME. Given the standardization of the contract specifications, the only
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`contract variable is price, which market participants discover by bidding and offering (also known
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`as quoting) until a trade occurs. The fact that futures contracts are standardized and exchange-
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`traded makes these instruments indispensable as means of hedging and speculating by commodity
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`producers, consumers, traders, and investors.
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`57.
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`A futures contract can be settled in one of two ways. A physically settled futures
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`contract is settled by physical delivery of the designated quantity of the underlying commodity at
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`a predetermined place on a fixed date (the expiration date) at the predetermined price. By contrast,
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`a cash settled futures contract results in a cash payment between the futures contract parties
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`reflecting the difference between the originally contracted price of the futures contract and the
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`final market price of the futures contract at the time of settlement. The value of a futures contract
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`fluctuates over time until the expiration date based on fluctuations in the price of the underlying
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`commodity.
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`58.
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`An option contract is a type of financial derivative that gives the buyer the right—
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`but not the obligation as with a futures contract—to either buy or to sell a particular commodity at
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 17 of 57 - Page ID # 17
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`a predetermined price (“strike price”), on or before a specified date in the future (the “expiration
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`date”). A “put” or “put option” is a financial contract that gives the owner the right, but not the
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`obligation, to sell an agreed quantity of a particular commodity at the strike price, by or on the
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`expiration date. A “call” or “call option” is a financial contract that gives the owner the right, but
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`not the obligation, to buy an agreed quantity of a particular commodity at the strike price, by or on
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`the expiration date.
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`59.
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`The value of an option contract also fluctuates over time until the expiration date
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`based on fluctuations in the price of the underlying commodity. That value, as well as the decision
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`to exercise the option, depends on whether it is “in-the-money” or “out-of-the-money.” An in-the-
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`money call option is one where the strike price is below the current price of the underlying asset.
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`An out-of-the-money call option is one where the strike price is above the current price of the
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`underlying asset. Whether an option is in or out-of-the-money depends on the relevant reference
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`price at the time of option settlement—the at-the-money price.
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`60.
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`The Chicago Ethanol (Platts) Futures Contract (CME symbol: CU) is the most
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`liquid, or most highly traded, financial derivative tied to the Chicago Benchmark Price. The
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`Chicago Ethanol (Platts) Futures Contract has had an average monthly trading volume on the CME
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`in excess of 99,000 contracts between November 2017 and today.
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`61.
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`Each Chicago Ethanol (Platts) Futures contract is traded on NYMEX, represents
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`42,000 gallons (or 1,000 barrels) of ethanol, and is valued as the size (42,000 gallons) multiplied
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`by the floating price quoted in increments of $0.0001, or one-hundredth of a cent, per gallon.
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`62.
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`Thus, one Chicago Ethanol (Platts) Futures contract with a Chicago Benchmark
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`Price of $1.50 per gallon would be worth $63,000 (42,000 gallons times $1.50 per gallon); if that
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`price were to increase to $2.00 per gallon, the futures contract would be worth $84,000. In other
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`8:20-cv-00279 Doc # 1 Filed: 07/14/20 Page 18 of 57 - Page ID # 18
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`words, any one cent change in the Chicago Benchmark Price results in a $420 change to the value
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`of each Chicago Ethanol (Platts) Futures contract.
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`63.
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`The Chicago Ethanol (Platts) Futures contract is cash settled, meaning that the
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`contract parties pay each other based on the difference between the contract price and the
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`settlement price, and there is thus no requirement for physical delivery to satisfy the contract.
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`64.
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`From November 1, 2017 through August 31, 2019, total volume in the Chicago
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`Ethanol (Platts) Futures contract as reported by CME was 2,180,005 contracts.
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`65.
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`The CME also offers Chicago Ethanol (Platts) Average Price Options contracts
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`(CME symbol: CVR), which are financially settled, non-early exercisable options of the
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`underlying Chicago Ethanol (Platts) Futures contract, that are traded on NYMEX. Accordingly,
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`the value of Chicago Ethanol (Platts) Average Price Options is also directly related to the Chicago
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`Benchmark Price calculated by Platts at the Argo Terminal.
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`66.
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`As the CME notes, for the Chicago Ethanol (Platts) Average Price Options, a “call
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`option represents the differential between the final settlement price of the underlying futures less
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`the strike price, or zero, whichever is greater, multiplied by 42,000 gallons. A put option represents
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`the differential between the strike price [less] the final settlement price of the underlying futures,
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`or zero, whichever is greater, multiplied by 42,000 gallons.”
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`67.
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`From November 1, 2017 through August 31, 2019, CME reports that total volume
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`in Chicago Ethanol (Platts) Average Price Options was 182,506 contracts.
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`68.
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`The CME also offers the CME’s Ethanol Futures Contract (CME symbol: EH). The
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`EH contract is a physically settled ethanol futures contract listed on CBOT, with each contract
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`representing 29,000 gallons of ethanol to be delivered in the contract month at the price of the
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`contract.
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`8:20-cv-00279 Do