U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

www.cftc.gov

Office of Proceedings

___________________________

)

YRAG TRADERS LLC, )

Complainant, )

)

v. ) CFTC Docket No. 12-R033

) Served electronically and 

JAMES SCOTT CORDIER, ) via Express Mail

MICHAEL FREDERICK GROSS, and )

LIBERTY TRADING GROUP, )

Respondents. )

___________________________ )

ORDER GRANTING SUMMARY DISPOSITION

[Corrected version]

Before: Philip V. McGuire,

Washington, DC,

Commodity Futures Trading Commission

Appearances: Gary Kimmelman,

Philadelphia, Pennsylvania,

Representative for complainant, pro se

Henry Becker, Esq., 

Oak Park, Illinois,

Counsel for respondents

Introduction 

As explained below, after carefully reviewing complainant’s and respondents’ 

submissions, I have granted summary disposition: one, awarding to Yrag Traders 

$49,723 in damages proximately caused by respondents’ unauthorized trading in 

violation of Commission rule 166.2, and Section 4d of the Commodity Exchange Act; 
2

and two, denying damages based on Yrag Traders’ various allegations that second-guess 

the wisdom of respondents’ trades.1

 

Factual Findings2

The parties:

1. Respondent Liberty Trading Group (“LTG”), located in Tampa, Florida, is 

currently a registered commodity trading advisor. At the relevant time -- from the 

account open in early July 2010, to the account close in early October 2011 -- LTG was a 

registered introducing broker with approximately 350 customers and six employees,

including respondents James Cordier and Michael Gross who were registered associated 

persons with LTG. Cordier and Gross worked as a team: Cordier managed customer 

accounts, including the Yrag Traders account which is the subject of this dispute; and 

Gross, who is no longer registered, allocated trades amongst LTG customer accounts, 

monitored accounts, and handled most communications with complainant Yrag 

Traders’ proprietor, Professor Gary Kimmelman. 

 1 The $49,723 damage award is based on the sum of $48,421 (the closing account liquidation value on 

Friday April 15, 2011, before Yrag Traders’ owner, Professor Gary Kimmelman, instructed respondents to 

freeze trading, on Saturday April 16, 2011), plus $1,302 (the total amount debited to Yrag Traders’ account 

in connection with the liquidation of the account on September 15, 2011). See discussion of damages 

calculation below, starting at page 25. 2 The factual findings are principally based on: (1) Yrag Traders’ initial reparations complaint, addendum 

to complaint, answers to respondents’ interrogatories, and Kimmelman’s statements and trade 

summaries supplementing Yrag Traders’ initial pleadings; (2) respondents’ joint answer to the complaint, 

supplemental affirmative defenses, and answers to respondents’ interrogatories; (3) multiple affidavits by 

Kimmelman and joint affidavits by respondents James Cordier and Michael Gross, requested by a series 

of sua sponte discovery orders, which principally concern the parties’ course of dealing during the 

relevant time; (4) various documents – including, e.g., account-opening documents, monthly account 

statements, equity runs, weekly and monthly “Option Seller” newsletters, occasional “Dear Liberty 

Trading Client” letters from Cordier, and e-mail exchanges between Kimmelman and his lawyer, and 

Peregrine Financial Group (PFG), respondents Liberty Trading Group, Gross and Cordier and their 

lawyer, Henry Becker, which were produced by both sides; and (5) NFA records concerning the 

registration history of respondents and PFG. In order to simplify matters, I have followed respondents’ 

allegation numbering system in references to Yrag Traders’ complaint, and I have used the more 

conventional term “attachment” when referring to the location of a document filed with the complaint. 

Amounts are rounded to the nearest dollar.
3

Respondents' attorney in this proceeding is Henry Becker, Esq., of Oak Park, 

Illinois. In addition, as described in more detail below, after LTG received a heated, 

sabre rattling e-mail from Professor Kimmelman in mid-July 2011, Becker would take 

over from Gross and Cordier all account-related communications with Kimmelman until 

the account was closed in early October 2011. Simultaneously, Becker would conduct 

settlement negotiations with Kimmelman which would stretch past the account close 

into November 2011, when Becker began dealing with Kimmelman’s newly hired lawyer, 

until the end of January 2012, when the negotiations reached impasse. 

Peregrine Financial Group d/b/a PFG Best ("PFG"), a now bankrupt futures 

commission merchant headquartered in Cedar Falls, Iowa, acted as the guarantor for 

LTG and cleared Yrag Trader's account introduced by LTG.3 

2. Complainant Yrag Traders, appearing pro se, is represented by Gary 

Kimmelman, a resident of Philadelphia, Pennsylvania.4 Professor Kimmelman, a 

member of the adjunct faculty for the mathematics department of the Community 

College of Philadelphia, is the sole principal of Yrag Traders, which he started around 

 3 A review of the e-mail exchanges between Professor Kimmelman and his lawyer, and respondents and 

their lawyer, reveals that one of the factors that may have hindered the difficult and ultimately 

unsuccessful settlement discussions was the fact than no one, including Kimmelman’s lawyer during the 

last stage of the negotiations, appears to have adequately explained to Kimmelman why PFG’s 

responsibilities and liability as LTG’s guarantor mandated its inclusion in any release. In this connection, 

Commission rule 1.10(j) sets forth the requirements for a guarantee agreement that may be used to satisfy 

the minimum financial requirements of an introducing broker ("IB") in CFTC rule 1.17(a)(2)(ii), 17 C.F.R. 

§§ 1.10(j), and 1.17(a)(2)(ii). The standard guarantee agreement provides that in consideration for the 

introduction of customer accounts, and in satisfaction of the adjusted net capital requirements with which 

the IB otherwise would have to comply, the futures commission merchant (“FCM”) guarantees the 

performance of the IB and otherwise agrees to be liable for all liabilities of the IB. When the Commission 

adopted rules permitting the use of a guarantee agreement as an alternative minimum capital mechanism 

for certain IBs to protect the customers of the IB, it stated that the "alternative adjusted net capital 

requirement embodied in the guarantee agreement is consistent with two of the factors upon which an 

adjusted net capital requirement for IBs should be based: (1) insuring that IBs are not judgment proof; 

and (2) providing coverage for potential liabilities of IBs arising from business operations and customer 

relations." 48 FR. 35248, 35264 (August 3, 1983). The Commission reaffirmed this policy in Paragon 

Futures by stating that where a FCM enters into a guarantee agreement with an IB, it shall be, at a 

minimum, jointly and severally liable for all violations by the IB of the Commodity Exchange Act or CFTC 

rules. In re Paragon Futures Association, Comm. Fut. L. Rep. ¶25,266, at 38,851 (CFTC 1992).

4 “Yrag” is Gary spelled backwards.
4

the same time that he opened the Yrag Traders account.5 On the PFG account 

application filled out by Kimmelman in early July 2010, Kimmelman indicated that he 

had previously traded stocks and stock options, but had no previous experience with 

commodity futures or options. Kimmelman handled all communications for Yrag 

Traders during the life of the Yrag Traders account.

Trading the account:

3. The relevant time period here runs from the opening of Yrag Traders’ account 

in early July 2010 -- through Kimmelman’s instruction to freeze new trades, in midApril 2011; PFG’s and LTG’s loss-limiting liquidations of a portion of the open 

positions, in early August 2011; and LTG’s liquidations of all remaining open positions,

in mid-September 2011, after Kimmelman had accepted LTG’s settlement offer -- to the 

closing of the account, in early October 2011, after Kimmelman had repudiated a

settlement agreement reached in mid-September 2011. 

During the relevant time, Kimmelman, and Cordier and Gross, and other LTG 

employees and agents, typically would communicate more frequently by e-mail than by 

phone. From August 2010 to January 2011, the tone of the communications was 

typically congenial, even when Kimmelman complained about PFG’s paperwork, 

requested commission adjustments, and asked about losses. 

However, as discussed in more detail below, by late March 2011, after large losses 

in February 2011, Kimmelman’s e-mails would become increasingly accusatory and

demanding -- at times vitriolic, over-reaching and convoluted – and the relationship 

 5 In an e-mail exchange with Becker during their negotiations, Professor Kimmelman alluded to an 

unidentified “investor” in Yrag Traders, who, he suggested, would be representing Kimmelman gratis. 

However, the evidentiary record has not been not further developed on this particular factual issue.
5

between Kimmelman and LTG would steadily degenerate. By mid-July 2011 the 

relationship had become sufficiently dysfunctional and toxic that LTG would appoint its 

lawyer, Becker, to handle all communications with Kimmelman. After the Yrag Traders 

account was closed in early October 2011, Kimmelman would hire his own lawyer, in 

mid-November 2011, to take over the mutually vexing settlement discussions, which 

would reach ultimate impasse on the last day of January 2012. 

4. On July 9, 2010, Kimmelman executed the account-opening documents for 

Yrag Traders' account with PFG, including a standard PFG customer agreement.6 

Although both sides had intended that the account be a managed account, and in fact 

would treat it as such up to April 16, 2011, the required signature of Kimmelman on a 

written power of attorney granting discretionary trading authority to LTG had somehow 

"fallen through the cracks" at PFG and/or LTG. This oversight would not be revealed 

during the relevant time. However, nothing in the record supports the conclusion that 

respondents were aware of the oversight during the relevant time.7

5. On July 15, 2010, LTG confirmed that PFG had approved the account for 

trading, and gave Kimmelman instructions on how to access daily account reports 

online.8

6. On July 22, 2010, Kimmelman deposited $200,000 in the account. 

 6 ¶10 of the PFG customer agreement signed by Kimmelman provided, in pertinent part, that: in the event 

that PFG determined, regardless of current market quotations, that any collateral deposited to protect a 

customer account was inadequate to secure the account, or in any other circumstances or developments 

that PFG deemed appropriate for its protection, PFG, in its sole discretion, could liquidate the customer's 

positions by offsetting any or all futures options held or carried for the customer, and that either of these 

actions could be taken without demand for margin or additional margin, and without prior notice of sale 

or purchase or other notice to Customer. ¶11 of the customer agreement provided in pertinent part that: 

the customer recognized that PFG was financially liable to the clearing members through which PFG 

cleared transactions for deficit balances occurring in Customer's Accounts; and that the customer 

therefore agreed that Customer should at all limes be liable for the payment of any deficit balance 

occurring in Customer's Account including any deficiency balance remaining in the account in the event of 

the liquidation thereof in whole or in part by PFG. 7 Respondents state that, at this point, they do not know whether LTG and PFG failed to obtain a signed 

power of attorney, or the power of attorney was signed but subsequently lost. 8 See Gross e-mail to Kimmelman: July 15, 2010, 3:42 pm. 
6

7. Yrag Traders' out-of-pocket losses would total $74,571, based on the 

difference between the single $200,000 deposit on July 22, 2010, and the total 

$125,429 refunded: $100,000 on August 1, and $25,429 on October 3, 2011.

Yrag Traders’ account would be charged a total of $18,749 in commissions and 

$1,785 in fees. Per standard industry practice, commissions were charged when an 

option position was opened, not when it was closed. 

8. LTG would place the first trades for Yrag Traders’ account on August 2, 2010. 

The last date that LTG would place a new trade in Yrag Traders’ account would be 

March 16, 2011. All transactions after March 16, 2011 would be liquidations or 

expirations. 

9. Throughout the life of the account, Kimmelman could monitor the status of 

the account by logging in at a website provided by PFG. Typically, after about 10:00 pm 

each business day, PFG would e-mail Kimmelman a notice that it had updated his 

account and that his daily e-statement was ready for review. The daily PFG statement 

confirmed trades and expirations, and reported, among other things, the status of open 

positions (including the expiration date, and the liquidation value at the close), the net 

market value of all open options, the account margin status, the cash balance, and the 

account value at market. 

10. LTG routinely e-mailed to its customers Cordier’s weekly and monthly 

newsletters. Also, occasionally after losses -- e.g., on October 14, and November 10, 

2010, and February 28, and March 2, 2011 -- Cordier sent out “Dear Liberty Trading 

Client” letters explaining the losses and his anticipated follow-up strategy. 

11. Starting around August 13, 2010, Kimmelman and Gross, from time-to-time, 

exchanged e-mails to discuss matters like commission adjustments and the results and 

the rationale for certain trades. These e-mails confirm that Kimmelman was checking 
7

the daily PFG reports during the relevant time. As previously noted, from August 2010 

through January 2011, the tone of these exchanges was collegial. For example, on 

October 19, 2010, Kimmelman e-mailed Gross: “I expected those losses and am not 

concerned.” 

12. All but one of the trades placed by LTG throughout the life of the account 

would involve short options with expirations more than four months out. Respondents’ 

descriptions of LTG’s trading strategy are set out in the following documents:

one, ¶1 of Cordier and Gross joint affidavit (filed September 20, 

2013);

 

two, Cordier’s Dear Liberty Trading Client updates, dated October 

14, and November 10, 2010, and February 28, and March 2, 2011;

three, LTG’s monthly and weekly Option Seller newsletters;

four, pages 1-2 of the CTA Disclosure Document for LTG’s 

“Diversified Option Seller Trading Program,” dated December 15, 2010; 

five, an undated brochure titled The Seven Best Kept Secrets of 

Building a Winning Option Selling Portfolio: Confessions of a 

Professional Option Seller; and 

six, an interview with Cordier in the November 16, 2009 edition of 

the Tampa Bay Times, headlined Liberty Trading Group boss Cordier is a 

commodities crackerjack. 

Professor Kimmelman has based his characterization of LTG’s “prescribed trading plan” 

-- and his assertions about the purported reckless deviations from that plan –

exclusively on the Seven Best Kept Secrets brochure and the commodities crackerjack

newspaper article.9 In sharp contrast, in rebutting Kimmelman’s second-guessing, 

respondents have focused on the Dear Liberty Trading Client updates and the Option 

 9 See, e.g.: one, allegations 3, 4, 9, 11, 12, 13, 27, 28, 30, 31, 32, and 33 in the statement of facts in Yrag 

Traders’ complaint; two, paragraphs 1-3 of Yrag Traders’ first Supplement to Allegations (filed July 25, 

2013); and three, paragraph 1 of Yrag Traders’ second Supplement to Allegations (filed September 20, 

2013).
8

Seller newsletters which, unlike the brochure and newspaper article relied on by 

Kimmelman, directly addressed LTG’s trading strategy during the relevant time. In 

their joint September 20, 2013 affidavit, Cordier and Gross also referenced their book 

The Complete Guide to Options Trading (1st ed. McGraw Hill). 

13. August 22, 2011 – more than a year after the first trade and four months after 

the freeze-trading instruction -- is the date of the first e-mail from Kimmelman to Gross 

where he would clearly and explicitly complain to LTG that numerous trades had 

recklessly deviated from a purported plan to trade exclusively short-term options: i.e., 

options with expiration dates out 90 days or less. Before that date, Kimmelman had 

been monitoring the daily account statements, and had not hesitated to assertively 

question or complain to LTG, but about different matters, such as: PFG’s fees, in late 

summer 2010; and LTG’s losing trades, in mid-winter 2010. However, before August 

22, 2011, Professor Kimmelman had not explicitly questioned LTG’s regular selection of 

options with expiration dates more than three months out. 

14. Set out below is the end-of-month account liquidation value for the Yrag 

Traders account for August 2010 through March 2011:

August $195,693

September 184,001

October 182,314

November 182,971

December 184,804

January 190,830

February 151,339

March 153,525
9

The end of January 2011 would represent the high-water mark for Yrag Traders’ 

account, with a reported account balance of $254,863.10 However, since the account’s 

reported option market value was a negative $64,033, the account value at market (i.e., 

market liquidation value) was $190,830. 

15. Kimmelman would not begin to express any serious concerns about losses 

until January 31, 2011, when he e-mailed Cordier: 

Its [sic] been six months, when can I start/expect, to see substantial profits 

to draw on? I see many trades with thousands ($) in fees and expenses, 

and the account moving in a negative directions, with increases in liability 

(DR), and decrease in Market value.

Later that day, Gross replied:

Thank you for your email.

I am not sure how to answer your question. Your account started off at a 

time right before we had a severe drawdown. We have spent the better 

part of the past 90 days recovering that loss. While the recent movement 

in oil is giving your current positions a bit of pressure, we feel this is 

temporary in nature and have no plans to close any at this time.

We have worked to get your total equity pushed up over $250,000 which 

means nothing now - but means everything to how your portfolio is 

positioned to gain in the next 90 days.

I can make you no guarantees as to when or how much profit you will see. 

However, we feel that with the market value back close to even and the 

equity on the books now built to healthy levels, the account is in position 

to start reaping some benefits this quarter.

I hope this is helpful to you.

Unfortunately, the three weeks later, the energy markets reversed against Yrag Traders’ 

short heating oil and light crude calls, and on February 23 and 24, LTG bought back 

several heating oil and light crude calls for significant losses. 

 10 Early in the protracted settlement discussions, Kimmelman would demand that LTG restore the Yrag 

Traders account to $256,000. This particular demand to settle for a profit would be echoed in 

Kimmelman’s duplicative claim for recovery of $34,176 for “expired premiums” on top of his out-ofpocket losses, and in Kimmelman’s claim for a default judgment for over $108,000 in connection with a 

discovery dispute. 
10

16. In connection with these losses, on March 2, Gross responded to a query from 

Kimmelman:

Thank you for your email.11

In regard to your question, it is likely we can be repositioned within 1 to 3 

weeks. However, it will be longer than that before we can expect to realize 

profits to make up the pullback.

There are no guarantees and there is obviously risk in the new positions as 

well. However, if all goes well, it is not unreasonable to target a recovery 

within 60-90 days.

We will be sending you an additional update later today for all clients.

Later that day in a “Dear Liberty Trading Client” letter, Cordier offered the following 

explanation: 

This letter is to update you on my earlier correspondence dated February 

28th.

At that time, we were closing out short call positions in the energy markets 

in response to the surge higher in crude prices. Our action plan was to 

reduce exposure and then attempt to hold a portion of our remaining call 

position in crude oil.

Since that time, the situation in the Middle East has continued to 

deteriorate. While it still appears that the market is pricing supply 

disruptions where there are none (yet), I no longer feel the risk of holding 

these positions justifies the potential gain. While I still feel that holding 

some of these calls would eventually prove profitable, there is a slight but 

growing chance that oil markets could experience a parabolic move to the 

upside in the coming weeks.

For this reason, we closed our remaining energy call positions today. 

While this will result in an additional drawdown to the account, the 

margin it frees will allow us to reposition into other sectors than can 

benefit from current market conditions.

In addition, your portfolio will no longer be directly exposed to continued 

turbulence in the Middle East. We will go about recapturing premiums in 

the portfolio over the next 7-10 days. Thank you again for your

patience.

 11 Neither side has produced a copy of Kimmelman’s March 2nd e-mail referenced here by Gross.
11

Kimmelman did not reply until Friday, March 18, 2011, with what would be the first of 

his harsh e-mails. 

Kimmelman’s instructions to freeze trading and demands for compensation: 

17. In his lengthy March 18th e-mail, Kimmelman complained about the 

“unacceptable” February losses and asked for compensation. Kimmelman stated in 

pertinent part:

I thought you the experts, and put my trust in your judgments that have 

been more narcisstic/commission-based, and less fiduciary/client based.

The question is What Happen Next? How does Liberty compensate its 

clients for such massive losses?

I calculate that I paid you for my losses over $20,000 and lost over 

$65,000 . . . .

[Capitalization, spelling and syntax in original.]12 In this e-mail, Kimmelman also 

referenced consultations with a lawyer.

On Tuesday March 22, Gross attempted to address the multiple concerns raised 

by Kimmelman, and offered to rebate a portion of the commissions charged and to 

discount future commissions:

I do, however, feel we need to discuss some aspects of the management of 

your account in moving forward, i.e., risk management, markets traded, 

etc., in order to clarify your expectations. 

On April 8, Gross offered a $5,000 commission rebate and 50% commission discount. 

On April 14, Kimmelman told Gross that he would be willing to continue trading, 

but only if he could communicate directly with Cordier. On April 15, Gross replied: 

I am sorry if you misunderstood. That was not my intention. I assist 

James Cordier with trading research and decisions, I allocate trades to 

accounts, and I talk to most of our clients. We work together on most 

things. However, I am not a partner.

 12 In reality, at this point, Yrag Traders’ account was down less than $50,000, and had been charged less 

than $19,000 in commissions. 
12

Our firm has over 350 clients. If James spoke to everyone that had a 

question, he would never have time to trade or focus on his research.

This apparently would not satisfy Professor Kimmelman. 

At the close on Friday April 15, 2011, the liquidation value of the account was 

$151,579. 

18. On Saturday April 16, 2011, Kimmelman sent an e-mail instructing

respondents: “do not liquidate any options that will expire the next three months.” 

[Underlining added for emphasis.] On Monday April 18, 2011, respondents confirmed 

receipt of the instructions. Although they did not say so in their reply, given the tone 

and substance of Kimmelman’s recent e-mails, Cordier and Gross treated this 

instruction as an instruction to freeze all trading activity, at least until some sort of 

resolution of Kimmelman’s discontent. The parties’ subsequent e-mail exchanges would 

confirm that Cordier’s and Gross’ interpretation of Kimmelman’s April 16th instruction 

had been correct.

19. Not surprisingly, Kimmelman was much displeased on May 2, 2011, when 

PFG placed several new trades in Yrag Traders’ account. Nonetheless, the next day, May 

3, 2011, PFG cancelled and removed these trades and reversed all related charges from 

the account, and Gross promptly explained to Kimmelman that a PFG key punch error 

had erroneously placed the trades in Yrag Traders’ account. 

20. As discussed in more detail below, after LTG confirmed Kimmelman’s donot-liquidate instruction on April 18, 2011: one, on July 14, 2011 Kimmelman would 

extend the do-not-liquidate order to all options with later expiration dates; two, LTG 

would allow to expire all open option puts and calls with expiration dates up to and 

including September 15, 2011; three, Kimmelman would withdraw $100,000 on August 

1, 2011; four, no buys or sells would be made for the account, until August 9, 10 and 11, 
13

2011, when PFG liquidated certain short gold and crude positions to limit losses; and 

five, on September 15, 2011, all remaining open positions would be liquidated, after 

Kimmelman had accepted LTG’s settlement offer and signaled that he was amenable to 

closing out the account as part of the settlement agreement which was designed to 

return Yrag Traders to the status quo ante. As also described below: on May 11, Gross 

would suggest that Kimmelman liquidate certain positions; on July 12 and 14, and 

August 1, 2011, Becker would try to nudge Kimmelman to authorize liquidation of the 

account to facilitate a settlement; and Kimmelman would reject or disregard these 

suggestions, which in turn would prove quite costly.

Here is the end-of-month account liquidating value for the Yrag Traders account 

for April through August 2011:

April $143,965

May 158,577

June 166,761

July 166,627

August 24,722

 

21. On May 11, 2011, Gross suggested that Kimmelman liquidate the October and 

November crude puts:

As you have instructed me not to take profits on any options, please let me 

know if you would like yours to exit with the rest of our clients.

Kimmelman ignored this advice. 

Had Kimmelman not rejected Gross’ recommendation on May 11, he could have 

avoided a net loss of $2,110. Kimmelman ultimately cost himself about $3,300 by 

rejecting Gross’ recommendation to liquidate the November crude puts: on August 11, 
14

2011, Yrag Traders’ account would be debited $2,400 for the premium paid when LTG 

liquidated three November puts at .80; and on September 15, 2011, Yrag Traders’ 

account would be debited $900 for the premium paid when LTG liquidated the 

remaining six November puts at .15. Conversely, Kimmelman ultimately saved himself 

a smaller amount, about $1,190, by rejecting Gross’ recommendation to liquidate the 

October crude puts, because on May 11: the three October crude 6100 puts would settle 

at .21, for a liquidation value of a negative $630; and the two October crude 6300 puts 

would settle at .28, for a liquidation value of a negative $560. The October crude puts 

would eventually expire on September 15. 

22. Meanwhile, since early April, Gross and Kimmelman had been discussing a 

commission adjustment or refund in light of Kimmelman’s displeasure with the 

February losses. In this connection, on June 20, 2013, Gross followed up on a phone 

conversation earlier that day between Kimmelman and Cordier and Gross, and 

expressed a preference to continue the relationship, and offered a 50% rebate of total 

commissions paid and a 50% fee reduction in future commissions if and until the 

account “gets back to even.” Kimmelman’s reply effectively squashed the notion of 

maintaining a functional relationship based on reasonable expectations:

Getting Even – does this mean, from where the equity was, or just the 

initial investment.

I was hoping that the $256,000 was the amount of getting even. 

As previously noted, $256,000 represented the high-water mark for the account at the 

end of January 2011. Nonetheless, the discussions continued. However, the two sides’ 

e-mails indicated that after this date they had effectively abandoned the notion of 

maintaining their relationship. 
15

By late June Kimmelman and Gross reached a verbal understanding where 

Kimmelman agreed to release LTG, Cordier and Gross in exchange for full 

reimbursement of all commissions: $18,749. On Wednesday, July 6, Gross forwarded 

to Kimmelman a settlement agreement that included a release of LTG’s guarantor PFG. 

Later that day, Kimmelman replied in an e-mail in which he refused to release PFG, 

repudiated the offer, intimated future legal action, and demanded to be paid 

“inexcessive [sic] of $109,000.” 

On Thursday July 7, Cordier replied that it would not further increase its 

“generous offer [made] in a sincere attempt to settle this issue in a realistic manner.” 

Cordier stated that the offer would remain open through the close of business the next 

day, and that any correspondence after that date would be referred to their attorneys. 

Later that day, Kimmelman replied with an acrimonious, all caps, diatribe, in which he 

complained about the losing trades in February and the erroneous trades in May, and in 

which he threatened to drag LTG through lengthy, expensive litigation. 

In the face of Kimmelman’s threats, LTG designated its lawyer, Henry Becker, to 

handle all communications with Kimmelman. Settlement discussions between 

Kimmelman and Becker would extend to the closing of the account on October 3, 2011, 

and thus would overlap and mix -- problematically -- with the communications that 

related to the disposition of open positions in the account.

23. The next week, on July 12, 2011, Becker asked Kimmelman for further 

instructions concerning his open positions. Kimmelman replied that he would be 

forwarding a calculation of commissions or damages, apparently in connection with 

furthering the settlement discussions, but offered no instructions. Later that day, 

Becker responded: “I await your analysis. In the meantime, please let me know how you 
16

would like to handle the current positions in your account.” [Underlining added for 

emphasis.] However, Kimmelman again did not promptly provide any instructions.

On July 14, Becker followed up: “Please let me know by Noon Central time today 

what you would like to do with the open positions in your account.” [Underlining added 

for emphasis.] Kimmelman replied by complaining that Cordier and Gross had violated 

a fiduciary duty in connection with one of the February trades, and finally provided 

instructions: “All expiring contract[s] will be left alone.” [Underlining added for 

emphasis.] Becker confirmed that Kimmelman had effectively extended his initial donot-liquidate instruction to the open August, September, October, November and 

December options in the account: 

In light of your comments we will keep the positions open for the time 

being subject to the final agreement between the parties.

I look forward to your accounting [of commissions] as you indicate in your 

other e-mail.

[Underlining added for emphasis.] At the close on July 14, 2011, the Yrag Traders 

account had a liquidation value of $165,436. Thus, at this point, the account was down 

$34,564 from its open a year earlier. Six days later, on July 20, 2011, Kimmelman told 

Becker: “Still working on the trade evaluations. Hope to have the calculations done 

shortly.” However, Professor Kimmelman would never provide these promised 

calculations before the close of the account in early October 2011.

24. Kimmelman’s next communication would be nine days later, late in the 

evening after the close on Friday July 29, 2011. Kimmelman e-mailed PFG: “Please 

forward immediately all funds available to be withdrawn.” 

Early Monday morning, August 1, 2011, PFG directed Kimmelman to contact 

LTG, which he did not do. Later that day, in the afternoon, Becker e-mailed 

Kimmelman:
17

I understand that you requested a withdrawal from your account held at 

PFG. That's fine, but I just want to alert you to the fact that a certain 

amount of cash has to remain in the account in order to cover any 

potential margin increases while your option positions are still open. 

Failure to maintain a cash reserve would result in margin calls or forced 

liquidation and a possible debit balance if the options move the wrong 

way.

Pursuant to the above, a check for $100,000 will be sent to you via UPS 

overnight mail out of an approximate $124,000 cash position.

Of course if you wish to liquidate the positions in your account, the entire 

account value after liquidation would be available to you in cash. Please 

let me know if this is what you desire.

Additionally, I believe you were going to get some figures to me, I don't 

know whether you sent these over, but I haven't received anything. 

[Underlining added for emphasis.] Later that day, PFG refunded $100,000. 

On August 3, Kimmelman followed up with a “show me the money” demand for a 

refund of the entire cash balance, but conspicuously did not provide any new 

corresponding instructions for the open positions. 

25. A few days later, the market moved against the gold and crude oil positions in 

the account. As a result, on August 9, 10 and 11, 2011, PFG and LTG unilaterally decided 

to limit losses and to avoid a debit balance in the account by liquidating, in whole or in 

part, these gold and crude positions, which resulted in an aggregate debit charge of 

$50,280. During these three days, PFG and LTG did not issue any margin notices 

before the liquidations, and Kimmelman did not express any interest in returning to the 

account recently refunded funds to bolster margin. 

On August 9, PFG and LTG: bought back ten December gold 2000 calls, at 28, 

debiting the account $28,000 for the premium paid; bought back three December 

crude 60 puts, at 1.30, debiting the account $3,900 for the premium paid; and bought 

back one December crude 63 put, at 1.72, debiting the account $1,720 for the premium 

paid. Had PFG and LTG not liquidated these positions, the resulting losses would have
18

more than wiped out all the equity in the Yrag Traders account: the December gold 

2000 call hit a high price of 70.4 on August 22 (a potential loss of over $70,000); the 

December crude 60 put hit a high of 2.39 on August 9, and traded well above the 1.30 

buy-back price on August 10 (1.79) and August 19 (1.62); and the December crude 63 

put hit a high of 2.49 on August 9, and traded above the 1.72 buy-back price on August 

10 (2.27) and August 19 (2.03). At the close on August 9, the account had a $34,704 

margin deficit. 

The morning of August 10, Kimmelman e-mailed Becker to complain about the 

losses: “Just reviewed the [August 9] Gold buy-backs. I’m in disbelief.” Later that 

morning, Cordier sent out a “Dear Liberty Trading Clients” letter:

As you may know, on August 5th, Standard and Poors rating agency 

downgraded the US credit rating from AAA to AA+.

This, in conjunction with fears of a global recession and continuing credit 

turmoil in Europe, caused a shock to global stock markets which spilled 

over into certain commodities.

While our positions in the affected markets were proportional, we have 

aggressively moved to cut risk on these positions over the past two trading 

days.

It is our opinion that the majority of the risk has now been eliminated. 

However, we will continue to monitor existing positions should market 

movement warrant any further covering.

In the meantime, this may have resulted in a drawdown to your account. 

We will be working diligently over the next few weeks in replacing 

premium to your account.

If you have general concerns, please rest assured that we are monitoring 

market movements and your account up to the minute and are fully 

abreast of the latest news.

We look forward to updating you on premium replacement as the month 

progresses. 

Also on August 10, LTG: bought back two October gold 2100 calls, at 11, debiting the 

account $2,200 for the premium paid; and bought back five December gold 2200 calls, 
19

at 20, debiting the account $10,000 for the premium paid. Had LTG not liquidated 

these positions, additional devastating losses would have resulted: the October gold 

2100 call hit a high price of 15.3 on August 22 (a potential loss of over $30,000); and the 

December gold 2200 call hit a high price of 32.5 on August 22 (a potential loss of over 

$16,000). At the close on August 10, the account had a $6,945 margin deficit.

On August 11, Kimmelman e-mailed Becker to complain about the losses on the 

August 10th gold liquidations. Later that day, Becker replied that he found 

Kimmelman’s complaints about the timing of the liquidations hard to understand, since 

he appeared to be complaining that LTG’s liquidations had been simultaneously too 

soon and too late. Kimmelman replied with a convoluted diatribe. Also on August 11, 

LTG bought back one November crude 60 put, at .80, debiting the account $2,400 for 

the premium paid. Had LTG not liquidated this position, greater losses would have 

resulted, because the November crude 60 put rise to a high of 1.09 on August 19 (a 

potential loss of over $3,000). At the close on August 11, 2011, the account had a 

liquidation value of $22,257, and the account had a $7,629 margin excess.

On August 12, Becker e-mailed Kimmelman and recapped their July 12th to 

August 1st e-mail exchanges, and asserted that since Kimmelman had extended the donot-liquidate instruction on July 14, and had disregarded Becker’s suggestion on August 

1st that he liquidate all positions and close out the account: “Surely you must accept 

some responsibility for your decisions and actions?”

26. On August 16, Kimmelman complained about various matters including the 

fact that PFG had not returned the entire $125,000 cash balance. Later that day, as part 

of his response to the various issues raised by Kimmelman, Becker reminded 

Kimmelman that he had “explained the cash withdrawal issues” in the August 1st e-mail. 

Also, Becker made an offer to settle the dispute for $42,939, which represented the sum 
20

of the total commissions over the life of the account, plus approximately half of the postAugust 1st losses. Kimmelman did not respond to this offer.

27. On Tuesday September 13, 2011, Becker offered to return Kimmelman to the 

status quo ante: 

[I]n order to resolve this matter, I am authorized to offer you a return of 

the total loss in your account. If you accept this offer, Liberty will liquidate 

the current positions in your account to bring it up to $100,000. This, 

plus your previous withdrawal of $100,000 will equal your deposit total. 

This is as good as it will get.

This offer will be open until the close of business on Friday, September 16.

[Underlining added for emphasis.] About an hour later, Kimmelman responded in an 

affirmative fashion that signaled that he had accepted Becker’s latest offer and that he 

thus was ready to close out the account:

The situation is now closed. Thank you for your time and effort to resolve 

this unfortunate matter.

Time to move on. 

Later that same day, Becker made it clear to Kimmelman that he interpreted 

Kimmelman’s “situation is now closed -- time to move on” reply as an acceptance of the 

latest offer: “I’ll get the settlement documents to you shortly.” As can be seen, Becker 

did not reaffirm that, based on Kimmelman’ acceptance of the latest offer, Liberty 

would promptly liquidate the current positions in Yragtraders’ account to bring it up to 

$100,000.

As a practical matter, the offer to return Yrag Traders to the status quo ante

would have required fixing the amount of Yrag Traders’ compensable losses by promptly 

liquidating all remaining open positions. In addition, given the acrimonious, 

dysfunctional nature of the relationship between Kimmelman and respondents, a 

complete and total termination of the relationship, including closing out the account,
21

reasonably appeared to be the only feasible means “to close the situation” and “to move 

on,” as those terms are commonly understood. Furthermore, the liquidation of all open 

positions also served to eliminate the risk of additional losses caused by the sort of 

market reversal experienced by Yrag Traders’ account in early August 2011. 

However, notwithstanding Kimmelman’s apparent acceptance of respondents’ 

settlement offer, LTG did not contact Kimmelman, directly or through Becker, either to 

confirm that he clearly understood that all open positions had to be closed out to 

effectuate the agreement or otherwise to obtain his specific authorization to liquidate 

the open positions. Rather, LTG – no doubt more than ready to move on – simply relied 

on Becker’s message that Kimmelman had accepted their latest offer and thus had 

impliedly green-lighted liquidation of the account. As a result, LTG placed orders to 

liquidate all the remaining open options in Yrag Traders’ account, which resulted in a 

debit charge totaling $1,302. 

28. The next day, September 16, Kimmelman asked Becker why LTG had 

liquidated certain October options which had been due to expire on September 15: 

Just received a confirmation from PFG that trades were closed yesterday.

Many of the options were to expire yesterday (9/15), why did they buy 

back instead of waiting???

However, a close examination of the September monthly account statement shows that 

Kimmelman had misread the September 15th confirmation statement: one, the only 

open options in the Yrag Traders account with September 15th expiration dates had been 

October sugar puts and October crude puts, which in fact had been allowed to expire on 

September 15; and two, the only other open options with September expiration dates 

were October gold puts, with a September 27th expiration date, which were liquidated on 

the 15th for a minimal loss. 
22

An hour later, Becker, missing or ignoring Professor Kimmelman’s error, 

addressed Kimmelman’s concern more broadly by explaining simply that respondents 

would be compensating Yrag Traders for all losses pursuant to the agreement reached 

on September 13: 

I don’t know. I told them to close out the positions. No matter what the 

balance is, the funds will be added [to the amount to be paid by 

[respondents] to get you back to even. 

As soon as I get that number I’ll prepare the settlement documents. 

Figure early next week for me to get that to you.

In the days after September 15, Kimmelman did not complain about the other 

September 15th liquidations. However, Kimmelman began making new demands, such 

as an additional contribution by Gross, and deletion of the release of PFG and deletion 

of an enforceable confidentiality clause. By the September 30th deadline set by Becker, 

Kimmelman had not signed the settlement documents. 

On October 3, 2011, PFG refunded the $25,429 account balance.

Discussion and Conclusions 

Standard for Summary Disposition 

Summary disposition is appropriate when three conditions are met: one, there is 

no genuine issue as to any material fact; two, there is no need for further factual 

development; and three, the moving party is entitled to a decision as a matter of law. 

See Levi-Zeligman v. Merrill Lynch Futures, Inc., Comm. Fut. L. Rep. ¶ 26,236, at 

42,031 (CFTC 1994). CFTC rule 12.310(d) provides that a presiding official who 

“believes that there is no genuine issue of material fact to be determined and that one of 

the parties is entitled to a decision as matter of law . . . may direct the parties to submit 
23

papers in support of and in opposition to summary disposition . . . substantially as 

provided in [CFTC rules 12.310(a), (b) and (c).]”13

As explained below, after carefully reviewing both sides’ submissions, I have 

concluded that there is no genuine issue as to any fact material to the alleged 

unauthorized trading or to the alleged reckless trading deviations, and thus that, as a 

matter of law: one, that Yrag Traders is entitled to an award of $49,723, based on the 

out-of-pocket losses proximately caused by respondents’ violations of CFTC rule 166.2

and Section 4d of the Commodity Exchange Act; and two, that respondents are entitled 

to dismissal of Yrag Traders’ allegations that second-guess the wisdom of the trades that 

purportedly recklessly deviated from their “prescribed trading plan.”

Unauthorized Trading

Both sides have essentially concurred that they treated Yrag Traders’ PFG 

account as a managed account, at least up to April 16, 2011, and as a result, although 

they may have periodically consulted Professor Kimmelman, respondents placed all, or 

almost all, of the trades without first obtaining Kimmelman’s specific authorization. In 

this connection, during the course of sua sponte discovery, respondents forthrightly 

acknowledged that, although both sides had treated the account as a managed account, 

 13 By Notice dated September 25, 2013, pursuant to CFTC rules 12.304(j) and 12.310(d), I notified the 

parties that I had determined that additional discovery and written testimony, or any oral testimony, 

would be unlikely to significantly clarify the relevant factual circumstances, and thus that the evidentiary 

record was sufficiently developed for reliable resolution of the two principal issues in question: one, 

whether respondents’ acknowledged failure either to obtain a written discretionary trading authorization, 

or to obtain specific authority for the various trades executed for Yrag Traders’ account constituted per se

unauthorized trading in violation of rule 166.2; and two, whether respondents, in connection with the 

bulk of the trades in the account had recklessly deviated from a purported “prescribed [short option] 

trading plan” and thus exposed Yrag Traders to “exponentially greater risk.” Accordingly, I directed 

complainant Yrag Traders to file arguments in favor of summary disposition awarding damages 

proximately caused by respondents’ unauthorized trading, and arguments in opposition to summary 

disposition denying damages based on Yrag Traders’ allegations that second-guess the wisdom of 

respondents’ trades; and I directed respondents Cordier, Gross and LTG to file arguments in opposition to 

summary disposition awarding damages proximately caused by respondents’ unauthorized trading, and 

arguments in favor of summary disposition denying damages based on Yrag Traders’ allegations that 

second-guess the wisdom of respondents’ trades.
24

a written power of attorney granting Liberty Trading Group discretionary trading 

authority had “fallen through the cracks” at LTG and/or PFG, and thus respondents 

could not show that they had obtained a signed power of attorney from Kimmelman, as 

required for managed accounts by CFTC rule 166.2. 

CFTC rule 166.2 provides, in pertinent part:

No . . . introducing broker, or [its associated person] may directly or 

indirectly effect a transaction in a commodity interest for the account of 

any customer unless before the transaction the customer, or person 

designated by the customer to control the account:

(a) [S]pecifically authorized . . . the introducing broker or [its associated 

person] to effect the transaction (a transaction is "specifically authorized" 

if the customer, or person designated by the customer to control the 

account specifies – (1) The precise commodity interest to be purchased or 

sold; and (2) the exact amount of commodity interest to be bought or 

sold); or 

(b) Authorized in writing the . . . introducing broker [or its associated 

person] to effect transactions in commodity interests for the account 

without the customer's specific authorization.

17 C.F.R §166.2 (2013). In its most recent significant opinion concerning unauthorized 

trading, Adams v. Black Diamond Futures, Comm. Fut. L. Rep. ¶30,493 (CFTC 2007), 

the Commission explained that an acknowledged failure either to obtain a written 

discretionary trading authorization required by rule 166.2, or to obtain a customer’s 

specific authority for the trades executed for the customer’s account, constituted per se

unauthorized trading, and offered the following summary of Commission case law on 

unauthorized trading:

A liability analysis under Commission Rule 166.2 focuses on two issues: 

(1) whether there was a written power of attorney in effect at the time of 

the transaction at issue and, if not, (2) whether the transaction was 

specifically authorized by the customer in advance of its execution. See 

Wolken v. Refco, Inc., Comm. Fut. L. Rep. ¶24,509 at 36,188 (CFTC July 

18, 1989). Under Rule 166.2, a customer's oral grant of general discretion 

to an account executive is irrelevant to the analysis of liability, because the 

rule renders such oral agreements void. Id. The customer's posttransaction conduct is equally irrelevant to an analysis of liability, because 
25

a transaction cannot be specifically authorized unless the customer selects 

the type of transaction (purchase or sale), the commodity interest, and the 

exact amount of the commodity interest, in advance of the transaction.... 

Similarly, in In re Paragon Futures Association, Comm. Fut. L. Rep. 

¶25,266 at 38,850 (CFTC Apr. 1, 1992), the Commission noted that “oral 

authorization which is not specific does not satisfy the requirements of 

Commission Rule 166.2.” 

Adams, id. 

The Commission further stated in Adams that the proper measure of damages for

unauthorized trading, where the violations of CFTC rule 166.2 had stretched over the 

entire life of the account, was complainant’s total out-of-pocket (i.e., total net) losses: 

Under Section 14 of the Act, Adams is entitled to recovery of “actual 

damages proximately caused” by a violation of the Act or Commission 

Regulations [citation omitted]. Consequently, Hundley shall reimburse 

Adams for the entire amount of her out-of-pocket losses incurred in 

connection with her account . . . . 

Id. Before the Commission issued its Adams opinion, the Commission’s general rule 

had been to not net-out winning and losing trades when measuring damages for 

unauthorized trading. That is, generally the customer had been allowed to recover the 

total amount lost on the losing unauthorized trades, while retaining the total profits 

gained on unauthorized winning trades, based on the equitable notion that the 

respondent should not be able to enjoy any profits on unauthorized winning trades, but 

should be held liable for any unauthorized losing trades. See Shashaani v. Merrill 

Lynch, Pierce, Fenner & Smith, Comm. Fut. L. Rep. ¶ 22,629 (CFTC 1985) Shashaani I ; 

and Shashaani v. Merrill Lynch, Pierce, Fenner & Smith, Comm. Fut. L. Rep. ¶ 23,271 

(CFTC 1986) Shashaani II. In Shashaani II , the Commission noted: 

Absent evidence to the contrary, each futures contract established and 

liquidated in an account without authority represents an unauthorized 

transaction for purposes of calculating damages. . . . 

When a futures commission merchant places unauthorized trades in a 

customer's account, it exposes the customer's account to market risk that 

the customer may be unwilling to undertake. In doing so, the futures 
26

commission merchant fails to treat and deal with the customer's money 

“as belonging to such customer” and violates Section 4d of the Act. Even 

when the unauthorized position results in a profit, the customer's funds 

have been at risk. In this situation, the customer's right to the profit is 

clearly superior to the right of the futures commission merchant not 

simply because the futures commission merchant has breached its 

professional duty and should not be unjustly enriched, but because the 

customer's funds have margined the position and been at risk. 

However, in Adams, the Commission, without acknowledgement or explanation, 

departed from the Shashaani no-netting rule, when it awarded damages for 

unauthorized trading based on the customer’s aggregate net losses. 

In a subsequent decision, Los Angeles Trading v. Peregrine Financial Group, 

Comm. Fut. L. Rep. ¶ 30,805 (CFTC 2008), the Commission offered further explanation 

for its Adams decision. In LA Trading, the Commission noted that Section 14(a)(1)(A) 

of the Commodity Exchange Act (“Act”) authorizes the Commission to award “actual 

damages proximately caused by [a violation of the Act or CFTC rule],” and thus, the 

Commission explained, in Adams it had: “held that this [statutory] language refers 

primarily to out-of-pocket losses and does not extend to compensation for lost profits 

except in limited circumstances where lost profits are directly caused by a respondent's 

law violation and the magnitude of the losses is determinable with reasonable 

particularity.” The Commission further noted: “In practice, the Commission generally 

has limited recovery for lost profits in reparations cases to cases involving the 

unauthorized liquidation of a complainant's market position.” LA Trading, id. 

Despite the fact that the Shashaani general “no-netting” measure of damages for 

extensive unauthorized trading is not the same as a “lost (post-liquidation, potential) 

profits” measure of damages for an unauthorized liquidation, despite the fact that the 

Commission has yet to acknowledge its departure from the Shashaani “no-netting” rule, 

and despite the fact that Adams did not involve a claim for lost profits, Adams does 
27

represent the Commission’s latest word on determining damages proximately caused by 

unauthorized trading over an extensive portion of the life of an account.14 Moreover, in 

the case at hand, applying the Commission’s preferred Adams “netting” rule promotes 

judicial efficiency, and does not result in a manifest injustice because straight netting 

restores Yrag Traders to the status quo before the two sets of unauthorized trades: one, 

the unauthorized trades before the trading freeze on April 16, 2011; and two, the 

unauthorized liquidations on September 15, 2011. Accordingly, I have followed the 

Adams “netting” rule for determining the damages proximately caused by respondents’ 

unauthorized trading in violation of CFTC rule 166.2 and Section 4d of the Commodity 

Exchange Act.15 

Here, the violations of CFTC rule 166.2, and Section 4d of the Act, stretched from 

the opening of the account to at least Saturday April 16, 2011, when Professor 

Kimmelman instructed respondents to freeze all trading activity. Up to that date, 

respondents had failed to obtain Kimmelman’s specific authorization in advance of the 

execution of any trade, as mandated by CFTC rule 166.2 in the absence of a signed 

written power of attorney. After that date, respondents were similarly obligated to 

follow Kimmelman’s do-not-liquidate instructions. See, e.g., Do v. Lind Waldock & 

Company, Comm. Fut. L. Rep. ¶25,910 (CFTC 1993) (Do I); and Do v. Lind Waldock & 

Company, Comm. Fut. L. Rep. ¶26,516 (CFTC 1995) (Do II). 

As for the period after April 16, 2011, Kimmelman’s “do-not-liquidate”

instructions on that and later dates broke the causal nexus between the previous rule 

 14 In Adams, as in Professor Kimmelman’s case, the pro se complainant had not discovered the rule 166.2 

violation until well after the account had been closed, and had limited her damage claim for violations of 

rule 166.2 to the aggregate net losses.

15 Generally, unauthorized trading violates Section 4d of the Act, 7 U.S.C §6d. Section 4d (a)(2) provides 

in pertinent part: “It shall be unlawful for any person to be a futures commission merchant unless — (2)

such person shall . . . treat and deal with all money, securities, and property received by such person to 

margin, guarantee, or secure the trades or contracts of any customer of such person, or accruing to such 

customer as the result of such trades or contracts, as belonging to such customer.” 
28

166.2 violations and the subsequent losses.16 On July 14, 2011 Kimmelman extended

the do-not-liquidate order to all options with later expiration dates than those specified 

in the original April 16th instruction. Then on other dates before August 9, 2011, 

Kimmelman rejected suggestions that he liquidate the account. As a result, on August 9, 

10 and 11, 2011, PFG -- consistent with its authority under the customer agreement 

signed by Kimmelman -- exercised sound business judgment and prevented

catastrophic losses that would have resulted in a large debit balance by liquidating

certain gold and crude positions.17 Since these August 2011 losses flowed directly from 

Kimmelman’s do-not-liquidate instructions, Kimmelman must bear full responsibility 

for these losses. Thus, the proper measure of damages for respondents’ rule 166.2 and 

Section 4d violations before Saturday April 16, 2011 should be based on the difference 

between the $200,000 deposit, and the $151,579 liquidation value of the account at the 

market close on Friday April 15, 2011: $48,421.

Respondents also must bear responsibility for the losses connected to the 

liquidations on September 15, 2011. On one hand, it was not unreasonable for 

respondents to interpret Kimmelman’s September 15th “situation is now closed -- time to 

move on” reply to their September 13th order as affirmatively signaling that Kimmelman 

had accepted the September 13th offer, in which Becker had specifically stated that the 

liquidation of all open positions was a necessary component of the agreement to return 

Kimmelman to the status quo ante. On the other hand, Kimmelman’s “situation is now 

 16 PFG’s keypunch error in May 2011 may have been an aggravating hiccup, but it was quickly corrected 

with all charges reversed the next day, and thus ended up creating no losses.

17 Here, given the particular factual circumstances -- one, the absence of any evidence that PFG had 

computed the margin deficit in bad faith, or that respondents had mislead Kimmelman about PFG’s 

margin policy; two, the rapidly increasing margin deficit; three, Kimmelman’s repeated, insistent 

demands for the return of the entire cash balance, in total disregard of recent advice that some cash had to 

be retained to provide adequate margins; and four, Kimmelman’s pattern of recalcitrant refusals to 

respond in a timely fashion to respondents’ requests to discuss the disposition of open positions -- it 

would have been imprudent and unreasonable for respondents to have first issued margin calls and then 

waited for a reply from Kimmelman while losses rapidly mounted. 
29

closed -- time to move on” reply was sufficiently vague to require clarification regarding 

the disposition of the open positions. Respondents did not do this, and thus failed to 

obtain Kimmelman’s specific authorization to liquidate the open option positions, and 

thus respondents violated Commission rule 166.2. The proper measure of damages for 

the rule 166.2 and Section 4d violation on September 15, 2011 is the total amount 

debited to Yrag Traders’ account in connection with the liquidation of the account on 

that date: $1,302. 

Accordingly, the amount of damages proximately caused by respondents’ 

violations of Commission rule 166.2 and Section 4d of the Act is the sum of $48,421 

(damages for the unauthorized trading before April 16, 2011) and $1,302 (damages for 

unauthorized liquidation of the account on September 15, 2011): $49,723.

Disputed Trading Strategy

The core of Professor Kimmelman’s claim that respondents deviated from a 

“prescribed trading plan,” and thus exposed Yrag Traders to “exponentially greater 

risk,” is that all but one of the trades initiated from August 2, 2010, to March 16, 2011, 

involved options with expiration dates more than three months out: 

The main factor that initiated the substantial losses was their nonadherence to the shorter expirations that substantially increases the daily 

erosion factor and a substantially quicker capture of premium.

When a buy back does occur from a losing trade of longer duration, the 

lack of premium decaying leads to a substantial higher buy back cost, 

encompassing not only the premium collected on that trade, but several 

other trades as well. 

. . . .

What I was referring to by using the term “exponentially higher risk” was 

the “Exponential rate of Change” of the erosion of time decay.

The longer the time to expiration, the lower rate of erosion of premium 

(daily) decay, hence a substantial higher buy back cost, and substantially 

high losses. 
30

[Syntax in original; first and fourth pages of Kimmelman’s statement (filed September 

20, 2013).]

In response, respondents have asserted that none of these disputed trades 

significantly deviated from their diversified option selling strategy: 

Respondents can state that the Yrag Traders account was traded 

consistent with the other managed accounts during this time period. . . .

Mr. Kimmelman's account used a few basic option strategies. A 

basic naked sell (puts or calls), and a strategy called credit spreads. . . . 

[Credit spreads] are still a net short strategy - in other words, they still 

look to take advantage of time decay. Even in a credit spread, the object is 

to have all of the options expire worthless - in which case the account 

holder keeps the net premium derived from the spread.

. . . .

There were two basic types of credit spreads used in the Yrag

account. A strategy called a bull-put or bear-call spread and a strategy 

called a ratio spread. A bull put or bear call spread uses one long option to 

protect one short option. A ratio spread uses one option to protect 2 or 

more options. . . .

It appears that Mr. Kimmelman also believes that any trade not 

allowed to expire worthless was against the "trading plan". When an 

option decayed down to where it was worth less than $50 or $100, there 

was little to gain by holding on for the extra $50 or $100 but everything to 

lose. At this point, the risk reward ratio became skewed and often we 

would close the positions to eliminate that risk. . . .

. . . .

Additionally, Mr. Kimmelman appears to be under the perception 

that the trading was to be restricted to only options expiring within a 

certain time frame. Nothing could be further from the truth. At no time 

was this presented to Mr. Kimmelman as part of the "trading plan". We 

considered the totality of the market including risk/reward parameters 

when deciding how far out to purchase options. There was no hard and 

fast rule that trading would be limited to options expiring within a certain 

time period.

. . . .

For the life of the account a diversified mix of commodities was in 

place. During some of this period, commodities in our opinion had a 
31

slightly bullish landscape in which all accounts were positioned with a 

price positive model by emphasizing short puts. Also, during the duration 

of this account there were bearish implications to price discovery and thus 

trading for all accounts was emphasizing short calls. Also, there were 

durations of time when price discovery had a neutral landscape and 

accounts were positioned to benefit from stable prices by selling both puts 

and calls simultaneously. . . .

[Cordier and Gross joint affidavit (filed September 20, 2013).] 18 A review of 

respondents’ most pertinent documents -- particularly the periodic newsletters and the 

occasional “Dear Client” updates – confirms that their option selling strategy was never 

intended to be strictly limited to options with close-in expiration dates. Moreover, 

Kimmelman’s claim that such a strict limitation lay at the heart of Cordier’s option 

selling strategy was belied: one, by the fact that after Kimmelman had become upset 

about the losses in February 2011 he specifically instructed respondents not to liquidate 

any open options in the account, most of which happened to violate this purported strict 

limitation; and two, by the fact that Kimmelman would not explicitly question the 

routine selection of options with further out expiration months until four months after 

he had given his initial instruction to freeze trading. 

 Generally, since any attempt to second-guess a trade involves a determination 

that does not readily lend itself to a clear-cut answer, the fact that a trade proves to be 

unsuccessful, standing alone, cannot reasonably constitute a basis for an award in 

reparations. Otherwise, any customer losing money on a managed account or 

recommended trade would be entitled to automatically recover his losses with proof of 

nothing beyond the loss itself. The exception to this general rule exists where the trade 

is made without any reasonable basis. In this connection, the Commission has noted: 

one, that a complainant must provide convincing evidence beyond a poor outcome that 

 18 See also respondents’ responses to Yrag Traders’ allegations 3, 4, 9, 11, 12, 13, 27, 28, 30, 31, 32, and 33, 

in joint answer; and respondents’ responses to Yrag Traders’ interrogatories 2, 4, 7, 14, 17, 19, 20, 21, 22, 

and 23.
32

a disputed trade was unreasonable or without foundation, and two, that respondents’ 

rationale for a disputed trade need not be the ultimate or most preferable of available 

alternatives. See Syndicate Systems, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, 

Inc., Comm. Fut. L. Rep. ¶23,289 (CFTC 1986). 

Here, Kimmelman has produced no compelling evidence that any of the disputed 

trades materially deviated from, or exposed complainant to “exponentially” greater risk 

than, the risk normally associated with, Liberty Trading Group’s “Diversified Option 

Seller Trading Program,” and otherwise has produced no compelling evidence that the 

disputed trades lacked a reasonable basis or were without foundation. Accordingly, no 

genuine issue of material fact exists with regard to the relative wisdom of respondents’ 

trades, and thus respondents are entitled to summary disposition dismissing those 

allegations that second-guess the wisdom of the option trades initiated from August 2, 

2010 to March 16, 2011. 

ORDER

Yrag Traders has established by a preponderance of the evidence that Liberty 

Trading Group LLC, James Cordier and Michael Gross violated Commission rule 166.2,

and Section 4d 0f the Commodity Exchange Act, and that these violations proximately 

caused $49,723 in damages. Accordingly, Liberty Trading Group LLC, James Cordier 

and Michael Gross are ordered to pay to Yrag Traders reparations of $49,723, plus 

interest on that amount at 0.13%, compounded annually from July 22, 2010, to the date 

of payment, plus $250 in costs for the filing fee. Liability shall be joint and several. 

Yrag Traders has failed to establish, by a preponderance of the evidence, any 

other violations by respondents proximately causing damages. Accordingly, all other 

claims are hereby dismissed. 
Dated December 12, 2013. 

Pl~t~~~ Judgment Officer 

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