JACOB DANESHRAD, JOSEPH DANESHRAD, and HASSAN BLURFRUSHAN v. TREAN GROUP, LLC, NANCY STUBENRAUCH, and MARK FRANTZ

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 22-1421
JACOB DANESHRAD, JOSEPH DANESHRAD, and HASSAN
BLURFRUSHAN,
Plaintiffs-Appellants,
v.
TREAN GROUP, LLC, NANCY STUBENRAUCH, and MARK
FRANTZ,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 20 C 3887 — Jorge L. Alonso, Judge.
____________________
ARGUED DECEMBER 2, 2022 — DECIDED JANUARY 11, 2023
____________________
Before EASTERBROOK, KIRSCH, and LEE, Circuit Judges.
EASTERBROOK, Circuit Judge. Several affiliated traders set
up four accounts with Trean Group, an introducing broker at
the Chicago Mercantile Exchange. An introducing broker
manages the customer side of the futures-trading business.
The trading side is the province of a futures commission mer-
chant, which for these traders was FCStone (a part of what is

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2 No. 22-1421
now called StoneX Group, Inc.). On the traders’ behalf, Trean
and Stone bought and sold futures contracts on the Standard
& Poor’s 500 Index. The traders wanted to engage in naked
trading—that is, to speculate rather than hedge—and Stone
set a high margin accordingly. (In the futures business, mar-
gin is money on deposit for the security of the broker and mer-
chant, should the market price move against the trader and
the trader fail to cover the loss; this differs from the meaning
of margin in securities trading.) Stone, as the futures commis-
sion merchant, was a principal in all trades and together with
the clearing house bore the immediate economic risk; Trean,
as the introducing broker, guaranteed Stone’s positions and
shared in its commissions. The traders were liable to Stone
and Trean, but not to the counterparties on the futures con-
tracts.
The traders started in fall 2018 with a ki_y slightly exceed-
ing $1 million, which enabled them to buy a substantial num-
ber of futures contracts. They went long. That is, they stood to
gain if the S&P 500 Index rose and to lose if it fell, with the
effect magnified by the leverage built into futures contracts.
But the market did not cooperate. As the S&P 500 Index fell,
Stone demanded more margin. The traders were reluctant to
comply, seeking to adjust their holdings instead as a means to
reduce Stone’s exposure. The traders also proved reluctant to
discuss their positions with Trean, even though Trean was on
the hook for any loss that Stone incurred. Between December
3 and December 22, 2018, the S&P 500 Index declined 13%,
and Trean learned that the traders had not met Stone’s margin
call during the window allowed by the Exchange. Because the
traders were not cooperating with Stone, and Trean was not
happy with the degree of cooperation it was receiving, it told
the traders on December 31 that it would close their accounts.

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No. 22-1421 3
It added that they were free to deal directly with Stone. Trean
thus cut its own risk without necessarily closing the traders’
positions.
Stone responded to this development by telling the traders
on January 2, 2019, that their accounts had been put on “liq-
uidation only” status. This meant that the traders must wind
up their positions by purchasing offse_ing short futures con-
tracts. (The traders’ S&P 500 Index contracts would not expire
until spring 2019, but a trader can close a futures contract by
buying an exactly offse_ing one.) Stone had a contractual
right to demand that the traders liquidate for any reason that
Stone deemed sufficient. At the traders’ request, however,
Stone promptly modified its directive to allow them to keep
their contracts and hedge to reduce risk, but Stone prohibited
any trades that would increase the holdings’ net risk. Stone
also increased the traders’ margin to 150% of their open posi-
tions. The traders responded by immediate liquidation. Of the
$1,020,000 with which they began, they had lost $548,000.
In this suit, the traders want Trean to compensate them for
this loss. They contend that their contract with Trean did not
allow it to cease dealing with them for the reason it did (or
perhaps that the reason Trean gave was not the real one).
They acknowledge that Trean did not require Stone to close
their positions but contend that Trean’s decision led Stone to
impose conditions that they found unacceptable, even for the
time that the traders would have needed to find another in-
troducing broker. Observing that the S&P 500 Index began to
rise again in January 2019, and by February 2019 had recov-
ered most of the losses from December, the traders contend
that Trean should be liable for the amount that they could

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4 No. 22-1421
have recouped had they maintained their long positions dur-
ing January and February.
But the district court granted summary judgment to
Trean. 585 F. Supp. 3d 1100 (N.D. Ill. 2022). Without deciding
whether Trean violated a duty it owed the traders, the court
held that they lack any evidence that Trean caused their loss
or could be responsible for the lack of gain as the market re-
bounded. It is undisputed, the court observed, that the traders
themselves made the decision to liquidate. The traders could
have held their long positions until the se_lement (expiration)
dates in spring 2019 and so obtained any gain that came their
way from a rising market.
Like the district court, we need not decide whether Trean
was entitled to end its dealings with the traders. They must
lose, as the district court held, because they did not show how
a reasonable jury could find that Trean injured them.
The district court asked whether Trean’s decision was a
“proximate cause” of the traders’ loss. We prefer a rubric
more closely associated with the law of securities and futures
trading. The traders’ claim arises under state law, but the sub-
ject of the contract is federally regulated futures contracts
traded on a federally regulated exchange, which makes it apt
to use a lens ordinarily applied to investment dealings. That
approach looks for “loss causation.” See Dura Pharmaceuticals,
Inc. v. Broudo, 544 U.S. 336 (2005). There may be a lot of over-
lap between loss causation and proximate causation, but the
concept of loss causation has been tailored to investments,
while proximate causation is a generic term that runs
throughout private law and has many different shades of
meaning. We observed in LeibowiA v. Great American Group,
Inc., 559 F.3d 644 (7th Cir. 2009), that Illinois, whose law

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No. 22-1421 5
applies to the traders’ claim, uses the federal approach to loss
causation when looking for causation in the financial world.
The idea of loss causation is easiest to understand when
contrasted with its counterpart, transaction causation. A false
statement about the value of a security may cause a transac-
tion—that is, the purchase or sale of a security—without caus-
ing a loss. One example from Dura Pharmaceuticals is the pur-
chase of securities at an inflated price, followed by a prompt
sale at the same price. 544 U.S. at 342. The fraud may have
caused the investor to buy the shares, but the fraud also meant
that the shares could be sold at the inflated price, so the inves-
tor did not lose anything. We put it this way in Nelson v.
Hodowal, 512 F.3d 347, 351 (7th Cir. 2008): “a non-disclosure
that may affect a person’s choice about which securities to
hold, but does not relate to the value of those securities, yields
transaction causation but not loss causation. And without loss
causation there is no liability.” That’s as true where the as-
serted legal wrong is ending a brokerage relation as when the
asserted legal wrong is failure to disclose some fact.
The traders’ problem is that Trean’s decision did not affect
the value of their futures contracts. Likewise the traders do
not contend that they suffered a greater loss than they would
have done had they moved their accounts to a different intro-
ducing broker and retained Stone as the futures commission
merchant. Nor did Trean impose on them a spate of excess
commissions that diminished the securities’ net value (as in
churning litigation). Plaintiffs’ loss comes, not from Trean’s
decision, but from the fact that the S&P 500 Index declined in
December 2018, producing unrealized losses in their futures
contracts. When the traders closed those contracts, they real-
ized a loss that had already happened. Realizing a loss at one

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6 No. 22-1421
time rather than another may have tax consequences but does
not cause the loss itself.
The traders could have held these futures contracts
through their se_lement dates in spring 2019 and gained from
the market’s rise in early 2019. But to reap that gain they had
to take the associated risk that the market would continue to
fall—and to post margin that would protect Stone against that
risk. By liquidating in early January the traders eliminated for
both themselves and Stone any further risk from market de-
cline (at least, any risk posed by these particular futures con-
tracts) and equally eliminated the possibility of gain. What
they seek in this litigation is a power to cash out, and so avoid
the risk of market decline, while demanding that Trean com-
pensate them for the eventual rise. They ask for an outcome
in which, as of the liquidation date, they could gain but not
lose from market movements, while Trean could lose but not
gain. That is doubtless an investor’s ideal outcome, but not
one provided by any plausible theory of damages. To reap the
rewards from a higher market, an investor must take the risk
of a lower market. By electing to sell and prevent any further
loss, the traders also cut off any access to gain.
AFFIRMED

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