Richard Carter was a rancher in Wyoming where he operated a family-owned cattle ranch. He had the misfortune of using a dishonest broker who cost him a lot of money. Efforts to blame Mr. Carter for the loss were not successful and the broker, and his employer, ended up with a multi-million dollar judgment against them. (Straits Financial LLC v. Ten Sleep Cattle Company and Richard Carter No. 16-3860 and Ten Sleep Cattle Company and Richard Carter v. Straits Financial LLC and Jason Perkins, Nos. 16-3903, 16-3967, and 17-2100, 7th Circuit Court of Appeals, August 13, 2018)
In March 2010, Carter opened a commodities futures and options trading account (referred to in the opinion as the "33 Account", the last two digits of the account number) through the broker, Jason Perkins, who was at the time employed by R.J. O'Brien (RJO). The goal was to protect against losses by locking in the price Ten Sleep, Carter's ranch, would receive for its cattle. The intention was to reduce risk. At the time, Carter signed several documents and agreements with RJO, including an Account Agreement. The Account Agreement contained a personal guarantee that required Carter to assume any debts owed by Ten Sleep to RJO. The Account Agreement also permitted RJO to use any account balances or deposits to offset any losses and expenses. RJO reserved the right to assign the account to another registered futures commission merchant. Since RJO is based in Chicago, the Account Agreement applied Illinois law and provided for Illinois as the dispute resolution forum.
In April 2011, Perkins moved his brokerage to Straits Financial, where he became an employee and manager of a branch office. As part of the move, Carter and other customers of Perkins received a "negative consent letter", notifying them that their accounts would be transferred unless they objected. Carter did not object. So Straits Financial took control of the 33 Account using the RJO Account Agreement that contained Carter's personal guarantee. Carter did not sign any documents or agreements directly with Straits Financial.
In May 2011, Perkins had an idea. He proposed to Carter to open a speculative trading account with Straits Financial that would give him discretion to invest Carter's money without prior authorization. Perkins and Carter would split the profits fifty-fifty. Carter agreed. There were no written authorizations and contracts to document this agreement, except for Carter's signature on Straits Financial's one-page Related Account Authorization form...