Opinion
No. 79 B 1970
October 31, 1979
Discharge of Debts — False Representations — Recklessness — Commodities Market
Money obtained by false pretenses when the bankrupt engaged in a series of transactions as an account representative for the creditor, a commodities brokerage firm, which transactions exposed the creditor to large financial risk, without consulting any person or attempting to determine the rules and regulations which might govern the transactions was a nondischargeable debt under Section 17a(2) of the Bankruptcy Act. See Sec. 17a(2) at ¶ 2146 and Sec. 523(2) at ¶ 9228.
[Digest of Opinion]
The bankrupt accepted employment with the creditor, a commodities brokerage firm, prior to receiving his license to become an account representative. While awaiting licensure, the bankrupt learned how to function as an account representative and was trained by the manager of the creditor. Almost the day after the bankrupt received his license, the manager took a vacation, leaving the bankrupt in charge of the office. That first day, the bankrupt placed orders for large numbers of soy bean contracts on margin. When the first large contract was being processed, the margin clerk of the creditor asked the bankrupt whether sufficient funds had been advanced to meet the margin requirement. The bankrupt assured her that no margin requirement problems would be caused as the bankrupt intended to sell out by the end of the day, leaving no overnight margin requirements. When approval was given for the transaction, the bankrupt engaged in several further transactions, failing to clear himself by the end of the day and leaving the company with an exchange-imposed margin requirement overnight of $18,000.00. No money was deposited in the bankrupt's account to cover that sum. The amount of risk to which the bankrupt was exposed amounted to in excess of $100,000.00. The following day, the bankrupt again attempted to make transactions, leaving himself with further exposure, and when he was finally liquidated by the brokerage, a debt remained of $15,880.00.The bankrupt, although he had never engaged in transactions of the size and scope involved in this series, had been exposed to market fluctuations and was fully aware of the fact that the market might go down as well as up. The court concluded that the bankrupt simply failed to comprehend the nature of the transactions in which he was about to engage. "The clear recklessness in exposing himself and his company to large financial risk without consulting any person or attempting to determine the rules and regulations which might govern the transaction constitutes a willful disregard of the rights of the Plaintiff tantamount to the intention required under § 17a(2) of the Bankruptcy Act." It was also determined that the bankrupt falsely represented his ability to provide adequate margin protection for the company. The debtor's sole-stated purpose was "to try to make enough money to enjoy a nice anniversary with his wife." Therefore, the debt was nondischargeable in bankruptcy under Section 17a(2).