Daneshrad v. Trean Grp., LLC
| Decision Date | 14 February 2022 |
| Docket Number | Case No. 20 C 3887 |
| Parties | Jacob DANESHRAD, Joseph Daneshrad, Hassan Blurfrushan, Plaintiffs, v. TREAN GROUP, LLC, Nancy Stubenrauch, Mark Frantz, and Does 1 to 100, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Joseph Daneshrad, Pro Hac Vice, Joseph Daneshrad, Daneshrad Law Firm APC, Los Angeles, CA, Patrick J. Keating, Keating Law LLC, Homewood, IL, for Plaintiffs.
Holly Hannah Campbell, Thompson Coburn LLP, Chicago, IL, Lukas Sosnicki, Thompson Coburn LLP, Los Angeles, CA, for Defendants Trean Group, LLC, Nancy Stubenrauch, Mark Frantz.
In this diversity case, three commodities traders, plaintiffs Joseph Daneshrad, Jacob Daneshrad, and Hassan Blurfrushan, assert several claims against their introducing broker, Trean Group, LLC, and two Trean employees, Nancy Stubenrauch and Mark Frantz. Plaintiffs’ claims arise out of Trean's termination of its relationship with plaintiffs in December 2018. Defendants move for summary judgment on all claims, pursuant to Federal Rule of Civil Procedure 56. For the following reasons, the motion is granted.
The following facts come from the parties’ Local Rule 56.1 statements and responses and the associated exhibits. They are either undisputed or presented from the point of view of plaintiffs, the non-moving parties.
Plaintiffs Joseph Daneshrad and Jacob Daneshrad are investors with more than fifteen years’ experience trading futures options. In 2018, seeking a new brokerage firm, they received an inquiry from defendant Mark Frantz, a salesman for defendant Trean Group, LLC ("Trean").
Trean is a full-service brokerage firm that provides independent introducing broker services. As an introducing broker, Trean connects investors with futures commissions merchants ("FCMs"), who execute trades for the investors on the Chicago Mercantile Exchange. Trean receives a share of the commission on each trade placed by a customer it introduces, but it is responsible to the FCM (which is in turn responsible to the exchange) for any trading losses the customer incurs.
Among the commodities traded on the Chicago Mercantile Exchange ("CME") are Standard & Poor's ("S&P") 500 futures contracts.1 The Daneshrads were interested in trading naked S&P 500 futures options.2 Frantz spoke with the Daneshrads about the possibility of connecting them, via Trean, with an FCM, FCStone International, Inc. ("FCStone"). He informed them that their accounts would have to be margined according to the CME framework known as "SPAN," which stands for "standard portfolio analysis of risk." Additionally, Frantz explained that FC Stone's risk department analyzed each day's trading, and, depending on the price of the underlying commodity and the level of volatility in the market, FC Stone sometimes required its customers to adjust their positions to reduce the risk they presented to the firm, even if SPAN margin requirements were met. Frantz also requested the Daneshrads to provide a statement from one of their former FCMs, as a sample of their trading, for him to pass along to FC Stone.
After FC Stone reviewed the prior trading statement, it approved opening new accounts for the Daneshrads and their trading partners, who included plaintiff Hassan Blurfrushan, William Josephson, and Emil Daneshrad. Plaintiffs and their trading partners opened four accounts with FC Stone, depositing a combined sum of $1,020,000. Joseph Daneshrad ultimately made all the trading decisions for all four accounts.
On at least five occasions between October 9, 2018, and December 24, 2018, plaintiffs’ accounts were on margin calls (i.e. , FC Stone had directed plaintiffs to deposit additional funds to continue trading) or FC Stone asked Joseph to adjust plaintiffs’ positions to reduce risk. Trean, through Frantz or defendant Nancy Stubenrauch, one of Trean's managing partners, emailed Joseph on October 11, 2018, November 12, 2018, November 26, 2018, December 11, 2019, and December 20, 2018, about margin or risk issues. Joseph typically handled the margin/risk issues not by depositing additional funds but by contacting FC Stone's risk department to learn how he could adjust his positions to stay within FC Stone's risk parameters. Frantz and Stubenrauch often emailed Joseph not only to inform him of margin or risk issues, but also to follow up by asking him to inform them as to what he had done to address them. Joseph became frustrated with Trean's insistence on staying "in the loop" because, from his point of view, Trean was merely an "intermediary" that was not participating constructively in helping Joseph adjust plaintiffs’ positions to satisfy FC Stone's risk requirements. (See Defs.’ LR 56.1 Stmt. Ex. 5, Joseph Daneshrad Dep. at 140:7-20, ECF No. 59-5.) Trean, for its part, became frustrated with Joseph's reluctance to keep Trean informed (see id. Joseph Daneshrad Dep. Ex. 12, Dec. 11, 2018 Email from Frantz to Daneshrads, ECF No. 59-5 at 123), despite the fact that, as the introducing broker, Trean was liable to FC Stone for any debit plaintiffs’ accounts might run.
Following the December 20, 2018 margin call, the tension between Joseph and Trean began to boil over. The S&P 500 lost about 13% of its value between December 3 and December 22. On December 22, 2018, Frantz emailed Joseph about the margin call, frustrated that it was still outstanding two days later: (Id. Ex. 1, Stubenrauch Decl. Ex. G, ECF No. 59-1 at 240.) Joseph responded by disputing the validity of the margin call, contending that it was based on an incorrect calculation, and stating that he had made some adjustments the previous day and would make more on the following business day. He concluded, (Id. )
The following week, on December 28, 2018, Frantz sent an email to Joseph and Jacob apologizing for the fact that they "have been unhappy with [their] treatment," but explaining that "Trean is [financially] responsible for [plaintiffs’] accounts," as with "all accounts [Trean] introduce[s]." (Pls.’ LR 56.1 Stmt. of Add'l Facts Ex. 100, Joseph Daneshrad Aff. Ex. E, ECF No. 66 at 33-34.) He explained, based on his conversations with compliance and risk personnel at FC Stone, how and why FC Stone was making the margin calls and asking for the risk adjustments that had frustrated Joseph, and he provided certain options plaintiffs could take if they remained unhappy. He recognized that plaintiffs could move their accounts, but cautioned them to speak with compliance personnel at other FCMs first and suggested that they might find that "the margin and risk treatment is the same." (Id. at 34). Later that same afternoon, Frantz and Joseph had a long phone conversation, and Joseph recalls that he agreed to stay with Trean.
However, on December 31, 2018, Frantz sent an email to Kevin Brennan at FC Stone informing him that Trean was planning to ask Joseph Daneshrad to move plaintiffs’ accounts to another brokerage, although Trean had no problem with FC Stone "dealing directly with Joseph" if it was "comfortable" keeping his business. (Stubenrauch Decl. Ex. I, ECF No. 59-1 at 248.) Brennan responded that he would raise the matter with his colleagues, but he was personally inclined to "let [plaintiffs] go." (Id. ) Later that afternoon, Frantz sent an email to Joseph and Jacob informing them of Trean's decision: (Id. Ex. J, ECF No. 59-1 at 255.)
Although Trean had expressed no opposition to FC Stone working directly with Joseph, FC Stone ultimately decided not to keep plaintiffs’ business. Joseph claims that an FC Stone representative explained to him in a phone conversation that FC Stone feared that it would damage Trean's trust in FC Stone if FC Stone continued to work with investors who had been brought in by Trean. On January 2, 2019, Brennan informed Joseph and Jacob via email that FC Stone had put plaintiffs’ accounts on "liquidation only" status. Jacob responded that it would take some time to transfer the accounts, and he asked if FC Stone would consider enabling plaintiffs to trade so they could "buy protections" until they were able to complete the transfers. (Id. , ECF No. 59-1 at 252.) FC Stone agreed to "turn off the liquidation only setting and set the margin on the trading platforms to 150% to allow a little maneuverability within the accounts." (Id. , ECF No. 59-1 at 251.) However, Ray Ryan, the FC Stone risk manager Joseph had been dealing with, warned Jacob that "this should not be used to establish new risk within the accounts." (Id. )
Plaintiffs claim that they could not immediately transfer their positions to another broker, due to the red tape associated with opening new accounts. Further, given their reduced ability to "freely maneuver and adjust their positions" combined with the recent downward trend in the S&P 500, they feared that they would lose even more money if they did not take swift action. (Defs.’ LR 56.1 Resp. ¶ 23, ECF No. 70.) As a result, plaintiffs decided to liquidate their positions right away, rather than buy protection. This left them with approximately $572,000 of the $1,020,000 they...
To continue reading
Request your trial