Office of Proceedings 

U.S. COMMODITY FUTURES TRADING COMMISSION 


Three Lafayette Centre 


1155 21st Street, NW, Washington, DC 20581 


www.cftc.gov 

* 

PETER ALAN BANACH, 

Complainant, 

* 

* 

* 

v. * 

KELSO COMMODITIES LLC, and 

R.J. O'BRIEN ASSOCIATES LLC, 

Respondents. 

CFfC Docket No. 12-R34 

* 

* 

* 

* 

* 

INITIAL DECISION 

Before: 

Philip V. McGuire 

Judgment Officer 

Commodity Futures Trading Commission 

Washington, DC 

Appearances: 

Thomas F. Burke, Esq. 

Chicago, Illinois 

For complainant 

Philip A. Tanzar, Esq. 

Chicago, Illinois 

For respondents 

Introduction 

Complainant Peter Banach and his wife Lois Banach, Scott Kelso, the owner of 

respondent Kelso Commodities, and Libby Heaton, Scott's sister and Kelso 

Commodities' office manager, have lived and worked for all or most oftheir lives in or 

near Macomb, Illinois, a town with a population of about 21,000, southwest of Peoria, 
surrounded by fields ofsoybean. Before starting up Kelso Commodities -- an 

introducing broker located in the Kelso farm house outside oftown, and guaranteed by 

R.J. O'Brien Associates ("RJO") - Kelso's and Heaton's parents had operated a local 

branch office of Packers Trading Company since 1979. Kelso Commodities' clientele 

consists principally oflocal farmers and merchants. Peter Banach, who has lived in 

Macomb since attending and graduating from Western Illinois University, actively and 

avidly traded soybean complex futures through the Kelso family for about twenty-five 

years before the disputed soybean futures trade which gave rise to his complaint. Over 

these years, Banach won and lost, and reliably covered margin calls and account deficits. 

Banach co-owns Change ofPace, a nightclub in a converted grain elevator catering to 

students at Western Illinois University. His wife, a special education teacher, never 

traded commodity futures. 

In the summer of 2006, Banach suffered a serious stroke which damaged his 

brain. Banach was diagnosed with moderate to severe mixed aphasia. Banach walked 

with a limp, spoke with a slur, and generally had trouble comprehending speech, 

expressing his thoughts, comprehending written material and recognizing numbers. 

The direct, indirect and hidden costs incurred by the Banachs presumably have been 

considerable. 

Not long after the stroke, a friend drove Banach to Kelso Commodities to close 

his account. Kelso and Heaton had already learned of Banach's stroke, because their 

sons and the Banach's sons played together on various high school sports teams. 

Over the next six years, Banach regularly attended speech therapy sessions at 

Western Illinois University and the University of Michigan. Lois Banach testified that 

the therapy helped her husband improve, but with relapses and persistent impairment. 

2 

Significantly, she also testified that he became adept at masking his symptoms and 

bluffing his way through certain social situations, particularly those with which he was 

comfortable and familiar. Lois Banach gave her husband $400 to $soo per month for 

incidentals out of his monthly Social Security disability check. Peter Banach resumed 

driving his car around town, and regularly spent time at Change ofPace. However, he 

no longer managed the club, because he no longer could readily count cash, place orders 

with vendors, and supervise the staff. Thus, he essentially performed no more than 

janitorial and maintenance tasks. Although Kelso and Heaton did not patronize the 

Change ofPace, they did notice Banach's car regularly parked in front ofhis club and so 

assumed, incorrectly, that he had resumed managing his business. 

In the spring and summer of 2012, record drought conditions over much ofthe 

continental U.S., including western Illinois, propelled the price ofsoybeans futures. By 

this time, without telling his wife, Banach had set aside from his monthly allowance 

around $4,000 in cash. Unsolicited, on Thursday June 28, Banach drove to the office of 

Kelso Commodities and opened a new account. Over the next three weeks, he would 

pyramid a total oftwenty long November soybean futures. Kelso and Heaton both 

observed that although Banach still moved slower and spoke with a slur, he had 

dramatically improved since he had closed his account, and concluded that he appeared 

fully cognizant ofwhat he was doing. On Friday July 20, Banach rejected Kelso's advice 

to take the trade off the table and reap a 1000%-plus profit. Over that weekend the 

rains returned to the upper farm belt, and on Monday July 23, the November soybean 

dropped the maximum allowable daily limit. 

3 

On Tuesday morning July 24, Banach instructed Kelso to close out the trade. The 

twenty contracts were sold for a loss that left a $38,035 account deficit, which Banach 

would pay with a check made out by his wife. 

Banach seeks $42,035 in damages, and claims: one, that Banach's cognitive skills 

were sufficiently impaired to render him incompetent to enter into the RJO account 

agreement, thus rendering the contract null and void; two, that Kelso and Heaton knew 

or should have known from observing close up Banach's affect and conduct that he 

remained cognitively impaired from the stroke and was no longer suitable for trading 

commodity futures, and therefore Kelso and Heaton should have consulted Banach's 

wife before permitting him to resume trading; three, that R.J. O'Brien failed to 

diligently supervise Kelso Commodities; and four, that R.J. O'Brien failed to deliver 

trade confirmation statements to the Banach's residence. 1 

In response, R.J. O'Brien and Kelso Commodities assert: one, that they and their 

agents acted diligently and in good faith in their dealings with Banach; two, that 

Banach's speech and motor impairments do not conclusively establish cognitive 

impairment, and that his patient and covert foresight, planning and calculation to 

resume trading may have shown poor judgment, but also showed that he had retained 

sufficient cognitive skills to remain competent to trade soybean futures; three, that even 

ifBanach was not competent to understand the risks and consequences ofhis trading 

strategy, Kelso and Heaton cannot reasonably be deemed to have known about any 

cognitive impairment based on the conduct that they observed; four, that R.J. O'Brien 

diligently supervised Kelso Commodities; and five, that R.J. O'Brien --through a third 

1 See Burke opening statement, at pp. 5-10 of hearing transcript; and complainant's post-hearing closing 

argument. 

4 

party mail service provider, following its routine business practices -- mailed the six 

trade confirmation statements to the correct address for the Banachs' residence. 2 

As discussed below, after carefully considering the parties' documentary 

submissions3 and oral testimony,4 I have concluded that Banach has failed to establish 

any violations proximately causing damages. This conclusion reflects my determination 

that although the testimony of all ofthe witnesses was generally sincere, the testimony 

of respondents' witnesses was generally more reliable. 

Factual findings 

The parties and witnesses 

1. Lois Banach is complainant Peter Banach's wife. She has been employed as a 

special education teacher by the West Prairie School District since 1981. She has never 

traded futures. Before her husband's stroke they had maintained separate bank 

accounts. After her husband's stroke, he closed his bank account, and she handled his 

financial affairs pursuant to a power of attorney. In that capacity, she was the 

designated payee for his disability payments, and allotted to him a portion of his 

2 See Tanzar opening statement, at pp. 10-19; and respondents' post-hearing closing argument. 

3The principal documentary submissions considered include: (1) R.J. O'Brien account-opening 

documents completed by Banach with Heaton's assistance (account application, risk disclosure statement 

for futures and options, additional risk disclosure statement, account agreement, introducing broker 

authorization, and substitute form W-9); (2) Heaton's Preliminary Risk Assessment Report; 

(3) confirmation statements, monthly account statements and equity runs for Banach's account; (4) bar 

chart for November 2012 soybean future; (5) RJO's debit notice; (6) various speech therapists progress 

reports, and disability insurance claim, concerning Banach's aphasia; (7) McNeil & Copeland" Aphasia 

Theory, Models, and Classification;" (8) Mendez & Clark, "Neuropsychiatric Aspects ofAphasia and 

Related Disorders;" (9) Ellen Ehrgott's affidavit; (10) Lois Banach's factual description for Peter 

Banach's reparations complaint; (11) Lois Banach's pre-hearing affidavit; (12) Peter Banach's response 

to interrogatories; (13) Peter Banach's pre-hearing affidavit; (14) Sal Vitale's pre-hearing affidavit; 

(15) Banach's pre-hearing memorandum; (16) Banach's post-hearing closing argument; (17) respondents' 

joint answer and supplement to answer; (18) respondents' response to interrogatories; (19) Lisa Baker's 

pre-hearing affidavit; (20) Llbby Heaton's pre-hearing affidavit; (21) Scott Kelso's pre-hearing affidavit; 

(22) respondents' pre-hearing memorandum; and (23) respondents' post-hearing closing argument. 

4 Lois Banach, Peter Banach, Libby Heaton and Scott Kelso testified at the hearing in Chicago. In 

addition, Ellen Ehrgott, Banach's expert witness, Salvatore Vitale, Banach's friend, and Llsa Baker, RJO 

associate director of compliance, testified. 

5 

monthly disability check to cover "incidentals" he might need while she was at work. 

She would write the $38,ooo check to cover the account debit balance in his Kelso 

Commodities account. I found Lois Banach's testimony to be generally forthright.s 

2. Peter "Pete" Banach, 60 years old when he opened his new account with Kelso 

Commodities and RJO, graduated from Western Illinois with a Bachelor of Science 

Degree in Psychology. He began trading soybean complex futures through the Kelsos 

about twenty-five years before the disputed soybean futures trades which gave rise to 

Banach's complaint. He co-owns Change ofPace, a nightclub catering to students at 

Western Illinois University, and is affable, well-known and well-liked about town. 

Before the stroke in 2006 he co-managed the club. After the stroke, Banach received 

therapy and improved to the point that he could drive and shop around town. He also 

spent time at his club each day to help with basic maintenance, but he no longer 

managed the club or handled the club's or his family's finances. At the hearing in 

Chicago, I found Peter Banach to be pleasant and alert. However, he did not appear to 

be completely at ease, spoke in short phrases or monosyllables, and indicated that he 

essentially could recall nothing about the relevant events. 6 

3. R.J. O'Brien Associates LLC ("RJO") is a registered futures commission 

merchant, located in Chicago, Illinois. RJO acts as the guarantor of Kelso 

Commodities, and cleared the trades in Banach's account 1 

4. Kelso Commodities LLC is a small family-owned firm located in the Kelso 

family's farm home outside of Macomb, Illinois. Kelso Commodities, a registered 

s Lois Banach testimony, at pp. 20-21 of hearing transcript; and Lois Banach pre-hearing affidavit. 

6 Lois Banach testimony, at pp. 21-22, 26-28, 44-46, and 50-52; Peter Banach testimony, at pp.152-159; 

Peter Banach pre-hearing affidavit; Ellen Ehrgott testimony, at p. 134; and 112, Kelso affidavit. 

1 Joint answer, p. 1; Lisa Baker pre-hearing affidavit; and NFA records. 

6 

introducing broker since 1992, as noted above, is guaranteed by RJO. Kelso generally 

does not advertise or solicit business. Most of Kelso Commodities' clients are farmers 

who hedge and speculate. Banach is the first customer to sue Kelso Commodities. 

Kelso Commodities has two listed principals: Scott Kelso who is listed as the 

firm's manager; and Sharon Kelso, Scott's mother, who is listed as the firm's owner. 

From 1979 to 2002, Scott Kelso's and Libby Heaton's mother and father operated a 

branch office for Packer's Trading Company. In the late 198o's, Peter Banach would 

begin actively and avidly trading futures through the Kelsds' branch office. According 

to Scott Kelso, over the next twenty-five or so years, Banach typically traded in the 

summer, realized at least as many losses as profits, and reliably added funds to cover 

any margin calls and account deficits. a 

5. William Scott Kelso ("Kelso") has been a commodity broker since 1994, when 

he began as an associated person in his parents' Packers Trading Company Macomb 

branch office. Kelso's father had continued trading after he had a stroke. Kelso has 

been a listed principal and registered associated person with Kelso Commodities since 

2002. Kelso has known Peter Banach for over 25 years. He had heard about Banach's 

stroke before Banach visited Kelso Commodities to close the account not long after the 

stroke, because their sons played together on various teams. Kelso, who was Banach's 

principal contact at the Kelso Commodities office after Banach had opened the account 

and placed the first two trades with Libby Heaton, was not present when Banach visited 

8 Lisa Baker testimony, at pp. 195-196; 11113-6, Baker pre-hearing affidavit; Libby Heaton testimony at 

pp. 229-233, and 241 -242; Scott Kelso testimony, at pp. 279-280, and 284-286; and NFA records. 

7 

the office in July 2012 to open a new account and to place the first two orders. 9 I found 

Kelso's testimony to be sincere and plausible. 

6. Libby Heaton, Scott Kelso's sister, is the office manager for Kelso 

Commodities. Heaton is not registered. Heaton helped Banach fill out the account 

opening documents and handled his first two orders. Her son also played on teams with 

the Banach's son. 10 I similarly found Heaton's testimony to be sincere and plausible. 

7. Lisa Baker has been an Associate Director ofCompliance for RJO since 2002. 

Baker has personally conducted on-site audits of Kelso Commodities, and testified 

about: RJO's supervisory procedures with respect to guaranteed introducing brokers 

and to Kelso Commodities; RJO's review of Banach's account application; RJO's 

monitoring oftrading activity in the Banach account; and RJO's routine procedure for 

delivering confirmation statements to customers. 11 

8. Sal Vitale is a friend of Peter Banach. He testified primarily about driving 

Banach to Kelso Commodities in 2006, soon after his stroke, to close his account.12 

9. Ellen Ehrgott testified as an expert witness for Banach. Ehrgott, who has a 

graduate degree in speech language pathology and has worked in a number of positions 

in schools, nursing homes and private practice, currently is the Clinic Coordinator for 

the Western Illinois University Speech Language Clinic ("Clinic"). The clinic services 

people in the community and university with speech, hearing and language disorders. 

She offered her opinion on Banach's skills based on her personal observations, the latest 

ofwhich was in the summer of 2009, and her review ofprogress reports around the time 

9 Lois Banach testimony, at pp. 84-86; Kelso testimony, at 169-171, 279-284, and 304-305; Kelso pre­


hearing affidavit; and NF A records. 
 10 Heaton testimony, at pp. 226-23a; and Heaton prehearing affidavit. 
 11 Baker testimony, at 186-194; and Baker pre-hearing affidavit. 
 12 Vitale testimony, at 160-168; and Vitale pre-hearing affidavit. 


8 

that Banach opened his account in the summer of 2012, none ofwhich she was involved 

in producing. Ehrgott reviewed the RJO account application and risk disclosure 

statement for Banach's account, but is not familiar with the basics of trading soybean 

futures and not familiar with Banach's pre-stroke experience trading futures. 13 

Peter Banach's stroke 

10. In the summer of 2006, Banach suffered a serious stroke which damaged his 

brain. Banach was diagnosed with moderate to severe receptive and expressive aphasia 

manifested by impairments to auditory, expressive, writing, reading, memory and 

reasoning skills. Banach walked with a limp, spoke with a slur, and had trouble 

comprehending speech, expressing his thoughts, answering open-ended questions, 

comprehending written material, remembering his phone number, recognizing 

numbers, handling more than single digit calculations, and distinguishing the 

magnitude of numbers. Lois Banach testified that he would look at the same newspaper 

article for three to four hours, could not comprehend the value of monetary numbers, 

could not account for money he had spent, and had a difficult time connecting his 

actions and the consequences.14 

11. Not long after the stroke, a card-playing buddy, Sal Vitale, drove Banach to 

Kelso Commodities to close his account, where he had traded soybean complex futures 

for about 25 years. Kelso and Heaton had already learned ofBanach's stroke, because 

their sons and the Banach's sons played together on various sports teams. Kelso 

13 Ehrgott testimony, at pp. 90-150; and Ehrgott pre-hearing affidavit. 
 14 Lois Banach testimony, at 22-26, and 49-50; ,, 2-4, Lois Banach pre-hearing affidavit; Ehrgott 


testimony, at pp. 90-138; and University of Michigan Aphasia Program 2007 progress report. 


9 

testified that Banach was "in tough shape'' and only spoke "a little bit" as they closed the 

account.1s 

12. Over the next six years, Banach attended regular speech therapy sessions 

initially at the University of Michigan, then at Western Illinois University. During this 

time, Heaton and Kelso saw Banach at their son's games, and Kelso also saw Banach 

occasionally in town at Vitale's Italian Restaurant, or at the casino, where Kelso 

traditionally celebrated his birthday, which he shared with Banach. 

Lois Banach credibly testified that therapy helped her husband, but that he often 

suffered relapses. As a result, Lois Banach took over managing the couple's finances. 

Banach no longer could manage the club, because he could not reliably count money, 

place orders from vendors or supervise employees. However, Peter Banach was able to 

resume driving his car around town, and regularly spent time at Change ofPace, where 

he performed maintenance tasks. Although Kelso and Heaton did not patronize the 

Change ofPace, they would notice Banach's car regularly parked in front of his club and 

would assume, incorrectly, that he was back to managing his business. Lois Banach 

fostered her husband's autonomy and dignity by giving him $400 to $soo per month 

out ofhis monthly Social Security disability check. He became adept at masking his 

symptoms and bluffing his way through certain social situations, particularly those with 

which he was comfortable and familiar.16 

13. Complainant produced a series of progress reports, from late 2007 to late 

2012, prepared initially by the University of Michigan Aphasia Program and thereafter 

by the Western Illinois University Department of Communications Sciences and 

•s Vitale pre-hearing affidavit; and Kelso testimony, at pp. 169-170, and 286-290. 


16 Lois Banach testimony, at pp. 29-30, 48-76, and 87-89; and,, 7, Ehrgott pre-hearing affidavit. 


10 

Disorders. These reports described Banach's therapy, and progress and lack of progress. 

Most relevant is the WIU progress report dated April 30, 2012, which covered the period 

while Banach was secretly setting aside funds and planning to resume trading, February 

15, to April 30, 2012. This was a mixed, but generally optimistic, report which described 

Banach as "energetic and enthusiastic," "quite talkative, and participating in natural 

conversations," and "occasionally laughing and joking," and which stated, in pertinent 

part: 

Background Information 

Pete, a 60-year old male with anomia and moderate-to-severe aphasia, 

lives at home with his wife and two sons. He was 5 years past 

cerebrovascular accident (CVA). He received language services at this 

clinic 2 times per week for 50-minute individual sessions. Pete has 

received treatment regularly at WIU from the summer of 2007 to the 

present for a total of 14 semesters. 

Initial Assessment and Objectives for Spring Semester 

Initial Assessment Statement: Pete was eager to work from the first 

session. He participated diligently, even when fatigued near the end ofthe 

sessions. Pete read material with accuracy, speed and persistence with 

success for words he could not initially name. He often left out function 

words and substituted words more readily recalled when they served the 

fundamental meaning. Pete self-cued 30% ofthe time and accurately 

responded to a prompt with 70% consistency to recall specific vocabulary. 

Pete had significantly more difficulty naming and recalling numbers, for 

example: he counted change but did not calculate the difference between 

an item amount and the amount of money exchanged. Pete named 

common one syllable words with 80% accuracy and two syllable words 

with 20% accuracy. Pete named common one syllable items containing 

blends with 25% accuracy. Pete found reference points on maps of 

familiar locations with 50% accuracy, this dropped to 10% when places 

were unfamiliar. Pete initiated simple sentences with 100% consistency, 

but did not use complex sentences. In a sample of Pete's conversational 

speech he used verbs in 24% of his utterances and 50% of his utterances 

were conversational fills. Pete produced a list offamiliar semantically 

related items with 30% accuracy. Pete's good auditory comprehension, 

imitation, and text decoding skills, as well as his positive attitude, suggest 

a good prognosis for furthering his vocabulary and conversational skills. 

11 

Comments/ Additional Information 

Pete was an energetic and enthusiastic participant in therapy. His 

communication with the clinician increased significantly throughout the 

semester, going from saying very little at the beginning to being quite 

talkative and actively participating in natural conversations by the end. He 

went from being quite stoic to occasionally laughing and joking. Pete 

developed confidence and was effective when communicating his need for 

the speaker to slow down, clarify, repeat and give him more time to 

process, read or write. Pete's frustrations, which he dealt with regularly at 

the beginning ofthe semester, seemed to fade and rarely appeared at all at 

the end ofthe semester. He worked diligently through the sessions, rarely 

requesting a break. His stamina was indicative of his motivation. Pete's 

writing skills were one ofhis language strengths, and aided in his progress. 

Summary ofProgress 

Pete made steady progress throughout the semester. He made gains in 

both noun and verb naming and in conventional skills. Initially, Pete 

named common kitchen items, tools and sports related nouns with less 

than 50% accuracy without cuing, and verbs with less than 30% accuracy 

without cuing. With practice and use ofself-cuing techniques be named 

nouns with up to 87°"6 accuracy without cuing and produced a plausible 

verb, given a specific scenario, with up to 70% accuracy. Pete started the 

semester naming numerals 1-10 with 80% accuracy and numerals 11-20 

with 30% accuracy. By semester's end, Pete named numerals 1-10 with 

100% accuracy and, numerals 11-20 with 65% accuracy. 

Pete attended 22 of 24 scheduled sessions for a total of 22 hours oftherapy 

this summer .11 

Account-opening 

14. In the spring and summer of 2012, extraordinary drought conditions over 

fifty-five percent ofthe continental U.S., including western Illinois, the largest such area 

since 1956, propelled the price ofsoybeans futures. Banach's conduct at the time, 

described below, was consistent with knowledge ofthese fundamentals. The soybean 

market would continue to rise from June 29, when Banach placed his first order to buy 

1

7 See Ehrgott testimony at pp. 117-133. 

12 

one November soybean future, through July 2, 10, 13, 16 and 19, to July 20, when he 

placed subsequent market buy orders, for a total of 20 long November soybean 

futures. 18 

15. By late June, without telling his wife, Banach had set aside from his monthly 

allowance around $4,000 in cash. Unsolicited, on June 28, he drove to the office of 

Kelso Commodities to place a soybean futures trade. The initial margin requirement on 

the soybean contract was $4,050, and the maintenance margin was $3,000. 

Libby Heaton credibly testified that although Banach's speech was a "little 

slurred," but he appeared to have significantly improved since she had last seen him, 

and he did not appear to have diminished mental skills or diminished understanding of 

trading soybean futures. Heaton informed Banach that he had to fill out an account 

application for a new account and post a minimum of $4,000. 

Banach took the account application, and returned it later that day partially filled 

out, which Heaton helped him complete, as she routinely did for many of Kelso 

Commodities' customers, consistent with RJO compliance procedures. Banach also 

brought $4,000 in cash. Heaton informed him that she could not accept cash. Banach 

returned the next day, June 29, with a cashier's check for $4,000. In this connection, 

Lois Banach testified that she had not remotely considered the possibility that her 

husband had retained or recovered the cognitive capacity for the necessary planning 

(which included grasping soybean market fundamentals and estimating the amount of 

18 See "Farmers Hop on Soybean Bandwagon," Wall Street Journal (June 28, 2012); "Com and Soybeans Reach 

Records," Wall Street Journal (July 19, 2012) ("Some traders say com and soybean prices could rise further in 

coming days. The key growing period for soybeans is approaching in late July and August, when crops will set their 

pods and then fill them out with beans. 'There's still quite a bit oftalk ofSI 7 or $18 [for soybeans) ifweather 

doesn't change by mid-August,' said Rich Nelson, director ofresearch at advisory firm, Allendale, Inc. in McHenry, 

Ill."); and "Widespread Drought is Likely to Worsen,'' New York Times (July 20, 2012). 

13 

cash required for margin), execution and guile to secretly open, fund and trade a futures 

account.19 

November Soybean Future Trade 

16. Set out below is a summary oftrading activity for the Banach account. 

Banach exclusively used market orders to buy the November soybean future: 

Date Open Trade Settle Open trade equity 

6-29 1 buy 1 @ 14.2825 14.2775 $(25) 

7-2 2 buy 1 @ 14.3925 14.38 $425 

7-3 2 14.7475 $4,100 

7-5 2 15.265 $9,275 

7-6 2 15.0575 $7,200 

7-9 2 15.4775 $u,400 

7-10 4 buy2: 

1@15.385& 

1@ 15.3875 

15.385 $10,463 

7-11 4 15.225 $7,263 

7-12 4 15.29 $8,563 

7-13 5 buy 1 @ 15.4875 15.525 $13,450 

7-16 10 buy 5 @ 15.855 15.905 $24,200 

7-17 10 15.905 $24,200 

7-18 10 16.20 $38,950 

7-19 15 buys: 

3@16.6375 

2@16.64 

16.5225 $s2,175 

7-20 20 buys: 

1@ 16.895 

4@16.8975 

16.8625 $76,812.50 

19 Lois Banach testimony at pp. 30-38, 44, 76-81, and 88; Heaton testimony at pp. 233-276; Kelso testimony at pp. 

170-171, 180, 290-291, and 326-330; Baker testimony at pp. 197-200, 2-5-215, and 217-225; Peter Banach prehearing affidavit; ~~ 9, I 5-19, Diane Banach pre-hearing affidavit; ,~ 2-4, Heaton pre-hearing affidavit; and~ 3, 

Kelso pre-hearing affidavit. 

14 

7-23 20 16.2225 $12,812.50 


7-24 sell 20: 


17@15.6875 


3@15.69 


A total of about $1,390 would be charged in commissions and fees to the Banach 

account. 20 

17. On Friday June 29, after RJO approved the new account, Heaton took 

Banach's market order to buy one November soybean futures contract. The next 

business day, July 2, Banach placed an order with Heaton to buy a second November 

bean future. Both times, he walked in with a folded newspaper, chatted with Heaton, 

who had no trouble understanding him and thought he "seemed fine," and watched 

market-related news programs and quotes on screens before leaving.21 

18. After the Fourth ofJuly holiday, Peter Kelso returned to the office and 

learned that Banach had resumed trading. Banach typically visited the Kelso 

Commodities office each day around 11:00 for about ten minutes, and watched the 

screens and discussed the markets with Kelso. Kelso credibly testified that Banach 

appeared to have improved dramatically since his stroke, that his impairments appeared 

to be physical not cognitive, that he appeared to be happy and comfortable in the Kelso 

Commodities office, and that he often referred to a soybean price chart that he carried 

when discussing his trading strategy, and appeared to have retained his understanding 

ofthe soybean market and the mechanics and risks offutures trading. 

Over the first two weeks in July, Banach gradually increased his long position one 

or two contracts at a time, as bullish market movement created additional equity for 

20 RJO trade confirmation statements and equity runs. See Kelso testimony, at pp. 310-316, and 324-32s; 


and Baker testimony, at 214-218. 
 21 Heaton testimony at pp. 250-256; Kelso testimony, at pp. 176-177; ,~ 5-6, and 9, Heaton pre-hearing 


affidavit; and ,, 5-6, Baker pre-hearing affidavit. 


15 

margin, until he was long five contracts. At the close on Friday July 13, Banach's open 

trade equity was up to $13,450.22 

19. During the third week, the drought conditions persisted, the November 

soybean future continued to surge thus generating more equity for margin, and Banach 

began to trade more aggressively to take advantage ofthe weather-related rally: buying 

additional contracts, five at a time, on Monday July 16, and on Thursday July 19, which 

increased his position to 15 long November bean contracts. 

On Friday July 20, Banach told Kelso he wanted to buy five more contracts. 

Kelso tried to dissuade Banach. He told Banach that he would probably need to add 

additional funds on Monday, and urged Banach to reduce his exposure and capture 

some profits by liquidating at least five contracts. However, Banach rejected Kelso's 

advice. Kelso filled Banach's market order to buy five more contracts. Thus, at the 

close that Friday Banach was now long twenty November bean futures. The November 

bean future settled at 16.8625, which left Banach with an open trade equity of 

$76,812.50.23 

20. Over the weekend, the rain began to fall in the northern regions ofthe farm 

belt. On Monday July 23, the November bean future opened between 16.435 and 

16.9075, dropped the maximum allowable daily limit, and settled at 16.2225. At the 

close, Banach's account was on margin call, but with positive open trade equity of 

22 Kelso testimony, at pp. 177-179, 182-184, 291-292, 300-308, 318-320, and 324; Heaton testimony, at 


pp. 258-260; ~~ 5-6, Kelso pre-hearing affidavit; and ~ 6, Baker pre-hearing affidavit. 
 23 Kelso testimony, at pp. 308-309. 


16 

$12,812.50. Banach did not visit or call Kelso Commodities, and Kelso did not call 

Banach.24 

21. On Tuesday morning July 24, Banach instructed Kelso to close out the trade. 

The twenty contracts were sold - 17 at 15.6875, and three at 15.69 -- for a gross loss of 

$40,650, which left a $38,035 account deficit. After some prodding by Kelso and R.J. 

O'Brien, Banach paid the deficit with a check made out by his wife. 2s 

R.J. O'Brien's supervision and confirmation statements 

22. As the guarantor of Kelso Commodities, R.J. O'Brien performed annual onsite compliance audits and found no material discrepancies with the CFfC rules and 

regulations, and RJO's compliance policies and procedures. Kelso Commodities' 

account-opening process for the Banach account was in accordance with the firm's 

compliance manual. During the short life ofthe Banach account, there were no "red 

flags" and no violations of exchange or RJO margin policies.2 6 

23. RJO produced the confirmation statements for Banach's account by 

generating them from RJO's back office processing system. The address on the 

statements is the correct address for the Banach's residence. RJO statements are 

automatically generated and mailed by a third party mail service provider to each RJO 

customer. RJO and Kelso Commodities cannot suppress or divert the mailing of 

statements, unless a customer elects to receive statements electronically. Here, Banach 

did not request electronic delivery, and moreover did not provide any email address.21 

24 Kelso testimony, at p. 310; and "Rains Push Down Corn, Soybeans," Wall Street Journal (July 25, 


2012). 


25Lois Banach testimony, at pp. 38-44, and 46-47; and Kelso testimony, at 310-316, and 324-325. 
 26 Baker testimony, at pp. 206-207; and~~ 2-6, Baker pre-hearing affidavit. 


27 Baker testimony, at pp. 200-205; and Kelso testimony, at 292-296, and 316-317. Compare Lois Banach 


testimony, at pp. 39 and 42, and respondents' post-hearing closing argument, at pp. 15-16. 


17 

Conclusions 

With the benefit of hindsight, it is clear that had Pete Banach's wife and 

neighbors done certain things differently, his trading losses could have been avoided. 

For example, if Lois Banach had firmly insisted on a strict accounting by her husband 

for his weekly expenditures, she might have prevented or detected his secret 

accumulation ofthe $4,000 that he intended to use to fund a new futures account. But 

given the profound challenges she faced in managing the couples' financial affairs, 

coping with her husband's post-stroke condition, and fostering his dignity and 

autonomy, it seems quite unfair and unreasonable to second-guess her. Similarly, if 

Scott Kelso had been more proactive on Monday July 23, when the market tanked and 

Pete Banach did not show up at his usual time, by calling Pete Banach's home and club, 

he might have successfully convinced Banach to get out with a decent profit before it 

was too late. However, although such an outcome obviously would have been better for 

both sides, Kelso was not under a legal obligation to provide such service to Pete 

Banach, because Pete Banach, however much his speech may have been impaired, was 

an experienced futures speculator who remained competent to trade soybean futures 

and Scott Kelso had no compelling reason to believe otherwise. 

Competency and Suitability 

Banach has failed to establish by a preponderance ofthe evidence that he was not 

competent to enter into the RJO customer agreement or to comprehend the risks and 

consequences oftrading commodity futures. In support of his claim ofincompetence, 

Banach produced the testimony ofhis expert Ellen Ehrgott and his wife Lois Banach. 

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Ehrgott is a speech pathologist. Her testimony is oflimited utility because she 

last had examined Pete Banach three years before he opened his new account at Kelso 

Commodities in summer 2012, was not involved in the preparation ofthe spring 2012 

WIU clinic's spring 2012 progress report, and has no familiarity with Banach's extensive 

futures trading experience or with futures trading in general. Moreover, her expertise 

does not extend to diagnosing underlying cognitive impairments. Significantly, Ehrgott 

underestimated Banach's skill with numbers and money. In the summer of 2012, he 

knew that the weather was driving up the price ofsoybeans. He knew he needed about 

$4,000 for margin on a soybean futures trade, and he saved up that amount. He 

formulated a bull strategy and knew to place a buy order. He knew that the increasing 

equity in his account would provide margin for additional buys. He knew when his 

margin was sufficient to support buy orders for one or two or five contracts. 

Ehrgott testified that Banach performs better when dealing with things with 

which he is familiar, performs better at things that interest and excite him, performs 

better when relaxed and not under stress, and performs better with male clinicians 

whom he considered guy buddies. Here, all four factors were present at the office of 

Kelso Commodities in the summer of 2012: He had known Scott Kelso and Libby 

Heaton, and their parents for many years. He was familiar with their office. He knew 

how to trade soybean complex futures, something he had done with the Kelso family for 

over twenty years, usually in the summer. He had experienced profits and losses. He 

already understood market fundamentals, such as that a drought limits the supply of 

beans and thus drives up the price ofbeans. He already understood the margin 

requirement for the soybean future. He could follow the daily market price. He could 

touch base with Scott Kelso each morning for about ten minutes. Therefore, it was not 

19 

an unfamiliar or unduly complex task for Banach to place a series ofsimple market 

orders to buy a single-digit number of contracts, to stick to the same contract, and to 

monitor the weather and the price ofthat contract. 

No one knows Pete Banach's post-stroke struggles as well as his wife Lois, but she 

too underestimated his ability to handle numbers and money. She testified that she had 

not believed him capable ofthe foresight, planning, execution and guile to secretly open, 

fund and trade a futures account. Yet he did. He did not show the best judgment in 

deceiving his wife and disregarding Kelso's advice to sell off for a profit, but bad 

judgment alone does not distinguish the legally competent from the incompetent. 

Heaton's and Kelso's impressions of Banach were consistent with the spring 2012 

progress report by the WIU speech clinic that described Banach as "energetic and 

enthusiastic," "quite talkative, and participating in natural conversations," and 

"occasionally laughing and joking." Itis possible that Banach was engaging in the 

bluffing and masking strategies described by his wife whenever he was in the presence 

of Heaton and Kelso, but Banach has failed to show that they could or should have 

known that he was masking a cognitive impairment, particularly where it appeared to 

them that his lingering impairments were physical and not cognitive, that he had 

dramatically recovered and was closer to his old self, that he had resumed managing his 

club, that he drove himself around town and to their office each day to watch the screens 

and discuss the market, and that he had retained his knowledge ofthe soybean market 

and futures trading and otherwise still appreciated the mechanics and risks oftrading 

soybean futures. 

20 

Supervision and Back Office 

During the short life ofthe Banach account, there were no "red flags" and no 

violations of exchange or RJO margin policies. The address on the RJO confirmation 

statements is the correct address for the Banach's residence. The RJO statements were 

automatically generated and mailed by a third party mail service provider to each RJO 

customer. RJO and Kelso Commodities could not suppress or divert the mailing of 

statements, unless a customer elected to receive statements electronically. Here, 

Banach did not request electronic delivery, and moreover did not provide any email 

address. In these circumstances, complainant has failed to establish by a 

preponderance ofthe evidence that RJO failed to diligently supervise the handling of 

Banach's account by Kelso Commodities, or that RJO failed to deliver the confirmation 

statements to complainant. 

ORDER 

Peter Banach has failed to establish any violations proximately causing damages. 

Accordingly, the complaint against R.J. O'Brien Associates LLC and Kelso Commodities 

LLC should be and is hereby dismissed. 

Dated June 8, 2016. 

V.J.l/NI ·J---:. P~~cGuire, Judgment Officer 

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