The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
J.L. Griswold and his wife Patricia ("Griswolds") sue E.F.
Hutton & Co., Inc. ("Hutton") and two Hutton account
executives, Arthur Lassila ("Lassila") and Robert Stieren
("Stieren"), for civil damages based on the Racketeer
Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-1968,
the Commodity Exchange Act ("CEA"), 7 U.S.C. § 1-26
and violations of fiduciary duty under state law. Hutton
and Lassila have moved under Fed.R.Civ.P. ("Rule") 12(b)(6) to
dismiss the Amended Complaint (the "Complaint") in its entirety
as to them.*fn1 For the reasons stated in this memorandum
opinion and order, their motion is denied.
In November 1983 Lassila, a former classmate of J.L.
Griswold, learned Griswolds had sold their business and had a
large sum of money available for investment
(¶ 14).*fn3 During November and December 1983 Lassila had
several conversations with J.L. Griswold in which he "extolled"
the advantages of Hutton's Managed Commodity Account Program
("MCAP") as an investment vehicle (¶ 15). Griswolds were
convinced by Lassila's presentation of MCAP and decided to
invest in it. On December 7, 1983 Griswolds opened several
accounts with Hutton, depositing some $775,000 for use in
trading commodities (¶ 25). On January 26, 1984 Griswolds
invested a further $250,000 (¶ 26).
Lassila described MCAP to Griswolds as a program for trading
commodity futures by drawing on the abilities of several
Commodity Trading Advisers ("Advisers") at once. MCAP provided
Hutton's customers with a number of Advisers, each of whom
would separately trade an account established in the
customer's name by Hutton. Thus MCAP was supposed to be a
means of diversifying the risk associated with commodities
trading (¶ 15).
Lassila ultimately introduced J.L. Griswold to six Advisers.
Five of those — Cresta Commodity Management, Inc. ("Cresta"),
Orion, Inc. ("Orion"), A.O. Management Corp. ("A.O."),
Institute for Computer Studies of Commodities ("ICSC") and
Colorado Commodities Management Corp. ("Colorado") — were
"outside" Advisers participating in Hutton's program. Stieren,
a Springfield, Illinois Hutton account executive, was the
sixth. All were recommended to Griswolds by Lassila, who
promised he would oversee the activities of the Advisers on a
daily basis to insure adherence to a trading plan and to
control risks (¶ 22-23, 25).
Griswolds signed a client agreement (the "Client Agreement")
with Hutton that included authorization for Stieren to trade
on their behalf (Ex. A-1). Griswolds also signed individual
authorization agreements with Cresta,*fn4 Orion, A.O., ICSC
and Colorado, each authorizing the individual Adviser to trade
a designated dollar amount on account with Hutton (Exs. A-2 to
On January 28, 1984 Lassila sent a handwritten note (Ex. E)
to J.L. Griswold:
I wish to acknowledge the managed commodity
account established in our Springfield office
being managed by Bob Stieren. The account was
funded in December, 1983 with $150,000 and an
additional $250,000 on January 26, 1984. My
understanding through your discussion with Bob is
that the $150,000 is a general trading account
with a maximum approximate stop-loss of $75,000.
Further the $250,000 sized account is for the
special situation which Bob perceives to be
unfolding in the relatively near term. The
stop-loss on this part of the account is an
The nature of Stieren's trading since the
account's inception has involved large positions
and heavy trading resulting in heavy commission
generation approximating 50 to 100% of original
account equity per month. While the nature of
markets could change from trading markets to
trending markets and therefore reducing
transaction activity, it can not be anticipated
when this might occur. It is acknowledged that
commissions in this account are running well
above the usual commissions in managed commodity
accounts. In view of this I will make an effort
to obtain a large discount for this account
retroactive to early December.
Letter and Stop-loss.
/s/ J. Griswold Jim Griswold Jan. 28, 1984
J.L. Griswold signed the acknowledgment.
RECEIPT AND GENERAL RELEASE AND ASSIGNMENT OF CLAIM
1. For and in consideration of the sum of Fifty
Nine Thousand One Hundred Thirty Four  dollars
($59,134), receipt of which is hereby
acknowledged, __________ and __________
("GRISWOLDS") hereby release, discharge and
acquit E.F. Hutton & Compnay [sic] Inc.
("HUTTON") and its representatives, including,
without limitation, its agents, employees,
servants, directors, officers, attorneys, assigns
and successors, and each of them, with the
exception of Mr. Robert D. Stieren of and from
any and all claims, demands, sums of money,
actions, rights, causes of action, obligations
and liabilities of any kind or nature whatsoever
which the GRISWOLDS may have had or claim to have
had, or now have or claim to have, hereafter may
have or assert to have, including, without
limitation, those which arise out of or are in
any manner whatsoever, directly or indirectly,
connected with or related to a certain account
number F73-99919 standing in the GRISWOLDS name
at Hutton's branch office in Springfield,
Illinois and any act, omission, transaction,
dealing conduct or negotiation of any kind
whatsoever between the GRISWOLDS and Hutton or
between anyone acting or purporting to act on
their respective behalves.
3. The GRISWOLDS warrant, represent and agree
that in executing this release, and in accepting
the consideration described herein, they do so
with full knowledge of any and all rights which
they may have with respect to the controversies
herein compromised and that they have received
independent legal advice from their attorney with
regard to the facts relating to said
controversies and with respect to the rights and
asserted rights arising out of said facts. In
this regard, the GRISWOLDS understand,
acknowledge and agree that such payment is not an
admission of liability on the part of Hutton, but
to the contrary, represents a compromise of
claims asserted against Hutton, which are
expressly contested, disputed and denied.
5. This release shall inure to the benefit of
Hutton and shall be binding upon the GRISWOLDS,
their assigns, representatives and successors.
The GRISWOLDS acknowledge that they have read
this receipt, general release and assignment of
claim, and that they fully know, understand and
appreciate its contents and that they execute the
same and make the settlement provided for herein
voluntarily and of their own free will. In
witness whereof, the undersigned have executed
this receipt and general release as of the date
When J.L. Griswold signed the Release he believed, based on
Lassila's statements, he was agreeing only not to seek further
discounts on Stieren's trades (¶ 34).
Stieren's last trade on Griswold's account was on February
15, 1984. During the two-month-plus trading period, Stieren
generated $196,893 in total commissions on the $400,000
entrusted to him (¶ 29 and Ex. B).
Griswolds' investment in MCAP was a disaster. By May 4, 1984
they had sustained losses of $542,232 in trading, while
incurring $298,827 in commissions to Hutton and $19,708 in
fees to the outside Advisers (¶ 31). In total about 84% of some
$1,025,000 Griswolds invested in Hutton's MCAP had evanesced.
Griswolds' Complaint asserts (with considerable redundancy)
various forms of fraud and misrepresentation as predicates for
their RICO, CEA and state-law claims:
1. churning of accounts by Stieren;
2. intentional failure by Hutton and Lassila to
supervise and curtail Stieren's trading;
3. misrepresentation of the profit and risk
potential of MCAP;
4. failure to coordinate the Advisers' trading
to achieve the ...