Regulators reportedly probe milk prices

Investigation centers on possible price manipulation by dairy cooperative

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updated 9:54 a.m. ET May 19, 2008

WASHINGTON - Federal commodity regulators are investigating a price-manipulation scheme by the farmer-owned dairy cooperative that controls about a third of the nation's milk supply, according to a published report.

Separately, the Justice Department is preparing to investigate a recently disclosed $1 million transfer to a former director of the Dairy Farmers of America, the Wall Street Journal reported Monday, citing people close to the matter.

The Kansas City-based dairy cooperative, the nation's largest, also faces antitrust lawsuits by farmers and retailers for allegedly conspiring to suppress prices it paid for raw milk in the Southeast, while raising prices to the region's retailers, according to the Journal. The alleged scheme could have boosted its profit as a middleman in those transactions.

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The Journal said the Commodities Futures Trading Commission is looking into whether DFA tried to inflate the price of milk through cheese contracts traded at the Chicago Mercantile Exchange. An agency spokesman on Monday would neither confirm or deny any investigation.

Elsewhere, the co-op on May 7 told members of a secret $1 million payment to former chief executive Gary Hanman. DFA's new CEO Richard P. Smith said his predecessor arranged an improper and "unauthorized transfer of money" that was concealed through a DFA affiliate in 2001, according to the Journal report.

A DFA spokeswoman did not immediately return a call for comment Monday morning.