## Facts

- Evanston Bank opened a commodity futures trading account through ContiCommodity Services, Inc., with broker Ted Thomas handling the account.
- The bank later discovered it had lost over $1.2 million in roughly one year of trading while paying more than $270,000 in commissions.
- The bank alleged it intended to use commodity futures only to hedge against rising interest rates, consistent with FDIC policy permitting hedging but discouraging speculation.
- The bank alleged defendants instead engaged in unauthorized speculative trading and “churned” the account (excessive trading to generate commissions).
- The bank alleged Thomas assured the bank that trading would comply with banking regulations/FDIC policies and that commissions would be at the same rate as other banks.
- The bank alleged it was charged approximately $94 per “round turn,” while comparable customers paid roughly $30–$35, with some banks elsewhere paying $11–$20.
- The complaint asserted federal claims under the Commodity Exchange Act (CEA) and RICO, plus Illinois common-law fraud and Illinois Consumer Fraud Act claims.
- Defendants moved pretrial to dismiss and/or for summary judgment.

## Issues

1. Whether the complaint adequately stated CEA claims for unauthorized trading and churning despite disputes about the bank officers’ authorization of trades.
2. Whether alleged use of the mails and telephone in connection with the trading activity sufficiently pleaded RICO predicate acts (mail and wire fraud) and a RICO claim.
3. Whether alleged misrepresentations about regulatory/FDIC-compliant hedging and commission rates sufficiently stated Illinois common-law fraud and Illinois consumer-fraud claims, and whether those pendent claims should proceed with the federal claims.

## Decision

- The court declined to terminate the case at the pleading stage and allowed the principal claims to proceed.
- The court held the bank alleged sufficient facts to support CEA theories of unauthorized trading and churning, including trading inconsistent with hedging objectives, substantial losses, and unusually high commissions.
- The court held disputes about what the bank’s officers authorized presented factual questions not suitable for resolution on a motion to dismiss.
- The court held the RICO count was sufficiently pleaded because the complaint alleged repeated use of mail and telephone communications (e.g., confirmations/statements) in furtherance of the alleged fraudulent scheme.
- The court held the Illinois fraud and consumer-fraud claims were adequately pleaded based on alleged material misrepresentations about FDIC-consistent trading and comparative commission rates, and permitted them to proceed as pendent claims.

## Legal Principles

- A CEA claim may be stated by alleging unauthorized trading and churning, including excessive transactions inconsistent with a customer’s stated objectives and undertaken to generate commissions.
- At the motion-to-dismiss stage, the court accepts well-pleaded factual allegations as true and does not resolve disputed factual questions about authorization, intent, or trading purpose.
- A RICO claim may be pleaded where the alleged scheme involves repeated use of the mails and wires (such as confirmations and account statements) to execute or conceal the alleged fraud, supporting mail- and wire-fraud predicate acts.
- Illinois common-law fraud and Illinois consumer-fraud claims may proceed when the plaintiff plausibly alleges material misrepresentations (including about regulatory-compliant conduct and pricing), reliance, and resulting injury.

## Conclusion

The court held the bank plausibly alleged that its commodities account was traded speculatively and excessively contrary to a hedging mandate, that mail and telephone communications could constitute RICO predicates when used to further the alleged scheme, and that related Illinois fraud and consumer-fraud claims based on misrepresentations about FDIC-compliant trading and commission rates could proceed alongside the federal claims.


Evanston Bank v. ContiCommodity Servs., Inc., 623 F. Supp. 1014 (N.D. Ill. 1985)