PIERRE - The husband and wife owners of several financially troubled grain businesses sued their son for fraud in federal court last month, three weeks before South Dakota regulators suspended the company's grain buying licenses.
Duane and JoAnne Steffensen are owners and directors of H and I Grain of Hetland Inc. They held grain buyer licenses for businesses in Hetland, De Smet and Arlington.
The South Dakota Public Utilities Commission suspended the licenses June 23 because of specific acts indicating insolvency.
Neither the Steffensens nor their representative participated in the commission meeting in person or by telephone.
The Steffensens instead alleged in court papers June 2 that son Jared Steffensen made increasingly larger commodity trades until CHS Hedging stopped him last July.
The Steffensens blame the trading company too.
They said CHS Hedging employees enabled their son's trading addiction by gradually increasing daily trade limits and ultimately removing them altogether.
CHS Hedging brought the original lawsuit Sept. 15, 2016, seeking $1.9 million from Duane and JoAnne Steffensen for breach of contract.
The couple lives in Hetland, a town of about 45 people.
Their son Jared Steffensen signed the customer agreement with Country Hedging, the predecessor to CHS Hedging, Nov. 10, 2011.
Duane and JoAnne Steffensen signed the guaranty of payment Nov. 15, 2011.
Jared allegedly told Duane during discussions prior to the 2011 signings "a limit would be placed on the account so H and I Grain could not engage in excessive high risk trades," according to the Steffensens' court filing.
Country Hedging also required a personal guaranty due "to the financial condition of H and I Grain," their court filing said.
Country Hedging later merged with CHS Hedging. The contract with Jared Steffensen and personal guaranty with the Duane and JoAnne Steffensen transferred to CHS Hedging.
Denver attorney Stephen D. Bell, from the Denver office for the Dorsey and Whitney law firm, filed the federal action against Duane and JoAnne Steffensen.
According to the CHS Hedging complaint:
• On July 7, 2016, H and I Grain had a trading deficiency of $436,593.23 with CHS Hedging. CHS Hedging attempted July 8, 2016, to automatically transfer $437,000 from a bank account of H and I. CHS Hedging received notice July 13 of insufficient funds in the H and I account.
• Meanwhile H and I Grain had additional trading deficiencies on July 11 and July 12 that totaled $1,472,181.30. The net amount owed by H and I Grain to CHS Hedging was $1,907,799.25 as of July 15.
Duane and JoAnne Steffensen told a different side of the story in their counterclaims and third-party lawsuit June 2.
Their response, filed by lawyer Benjamin Kleinjan from the Helsper, McCarty and Rasmussen firm in Brookings, alleges H and I Grain had "massive trading losses" that cost "millions of dollars."
Kleinjan said deals in the final four days before CHS Hedging closed the H and I Grain account covered more than 50 million bushels.
By contrast, in 2011 when Steffensens opened the trading account and signed the personal guaranty, H and I Grain handled about one million bushels of corn, which was its primary commodity, valued at about $3 million.
Kleinjan said Jared Steffensen told a CHS Hedging employee in March 2012 he was becoming addicted to commodity trading. In April 2012 Jared Steffensen opened a subaccount but reportedly didn't tell his parents.
In June 2012, he began placing orders to CHS Hedging electronically through an automated order routing system.
At the time, CHS Hedging limited H and I Grain to 10 contracts per order and 25 contracts per day.
Those increased on Sept. 12, 2012, to 50 per order and 100 per day, according to Kleinjan. He alleged that CHS Hedging employee Phyllis Nystrom requested the increases and her supervisor, Linda Bryden, approved them.
Then the attorney for Duane and JoAnne Steffensen described a series of gradual increases:
The per-day limit increased to 200 on May 29, 2013, with Bryden's approval;
The per-day limit went to 300 on June 3, 2014, at the request of Nystrom and with Bryden's approval;
On March 18, 2015, the per-day limit went to 500 with Bryden's approval again; and
The limits were removed entirely after Feb. 8, 2016, as CHS Hedging converted to a new trading platform.
Kleinjan said in the court papers: "Phyllis Nystrom knew of the size, nature and extent of H and I Grain's rural business, as she had visited the office in rural South Dakota personally."
He added, "Phyllis Nystrom knew that Jared Steffensen was speculating in the H and I Grain account, as the rural operation clearly did not have sufficient grain to cover 500 contracts, or 2.5 million bushels, per day."
Kleinjan said Nystrom received a promotion to a supervisory role and Jenna Roe replaced her as the primary contact for Jared Steffensen. The Steffensens' lawyer said the H and I Grain account generated approximately $800,000 in commission for CHS Hedging in 2015.
The next sections of the narrative in the Steffensens' lawsuit against their son seep desperation. Jared Steffensen engaged in "massive" trading between April 25 and July 2016, according to Kleinjan.
"The limits failed to reject orders, regardless of how large, and Jared Steffensen was able to enter a virtually unlimited number of orders per day," the lawyer wrote.
He said Duane and JoAnne Steffensen first learned of the troubles July 11, the day when CHS Hedging shut down the account.
Kleinjan estimated H and I Grain took trading losses between "six and ten million dollars."
Duane and JoAnne Steffensen demanded a jury trial in their original answer Oct. 28 to CHS Hedging's lawsuit, according to Richard Helsper, another attorney representing the couple.
U.S. District Judge Karen Schreier issued a scheduling order Oct. 28 that urged settlement.
"If the case does not settle, the parties will be fully prepared to advise the court about the status of settlement discussions. The parties will advise the court whether they desire a settlement conference with a United States magistrate judge," Schreier wrote.
Then on Dec. 8 she pointed toward a fall 2017 trial at the earliest.
Her Dec. 8 order also directed parties "to promptly contact a magistrate judge so that the possibility of settlement discussion with the assistance of a magistrate judge can be pursued."
It's unclear at this point how the June 2, 2017, counter-claims and third-party allegations might affect what happens next.