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PARNES v. HEINOLD COMMODITIES

April 20, 1982

ALBERT PARNES, PLAINTIFF,
v.
HEINOLD COMMODITIES, INC., DEFENDANT.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Albert Parnes ("Parnes") and his sister Rosalyn Christensen ("Christensen") sued Heinold Commodities, Inc. ("Heinold") in five counts, all arising out of an alleged scheme by Heinold (through two of its agents) to defraud plaintiffs. Before trial Heinold moved for judgment on the pleadings as to Count V of the Second Amended Complaint ("Complaint"), grounded on the Racketeer Influenced and Corrupt Organization Act ("RICO"*fn1), 18 U.S.C. § 1961-68 (all citations to Title 18 in this opinion will read simply "Section ___"). For the reasons summarized in this Court's pre-trial oral ruling and now expanded in this memorandum opinion and order, Heinold's motion was granted and Count V was dismissed.

Facts*fn2

Heinold is a major commodities brokerage firm.*fn3 In March 1978 two Heinold-employed brokers, Pat Keever ("Keever") and Larry Costello ("Costello"), solicited Parnes to open a commodities trading account with Heinold. Parnes did so. In June 1978, at the advice and insistence of Keever and Costello that investing more money would bring greater profits, Parnes opened another account with his own funds, this one in Christensen's name. Because Christensen had given Parnes authority to trade her account, Keever and Costello limited their direct contact to Parnes.

Throughout the trading period Keever and Costello made numerous fraudulent misstatements to Parnes. Those misrepresentations included statements that:

    (1) Trading for the accounts was part of a
  prudent commodities investment policy suitable
  for plaintiffs' investment objectives.
    (2) Heinold's trading methods were consistent
  with plaintiffs' prudent investment goals and
  were in plaintiffs' best interest.
    (3) Keever and Costello had great expertise in
  commodities trading.
    (4) Keever and Costello would watch closely
  over plaintiffs' accounts. Because of such
  supervision plaintiffs suffered little or no risk
  of loss.
    (5) No unauthorized trading would take place in
  either account. Parnes would be consulted before
  each transaction.

In September 1978 Parnes learned from Costello that Keever had misrepresented to Parnes the extent of the losses in plaintiffs' accounts as well as the current positions held in both accounts. Costello promised to stop the prior course of conduct and sent Parnes a letter to that effect.

Despite Costello's promise Heinold (through Costello) continued to engage in unauthorized and otherwise fraudulent trading in the Christensen account. That was done with knowledge that such use of the Christensen account would conceal the unauthorized trading from Parnes (confirmations of the trades were sent to Christensen because the account was in her name).

As a result of the activities described in this section of this opinion, plaintiffs ...


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