YANKTON, S.D. — Two farmers in the Yankton, S.D., area on May 11, 2021, won a default civil judgment against grain market adviser Tim Kleinsasser, saying he fraudulently set up grain contracts that obligated them to deliver more grain than they produced.

Farmers David and Nick Sternhagen, a father and son, in a complaint filed in the First Judicial Court in Yankton, on Feb. 12, 2021, alleged fraud and deceit, as well as breach of fiduciary duty.

Judge David D. Knoff awarded a judgment on May 11, 2021, after Kleinsasser failed to appear or respond.

Kleinsasser, of Tyndall, S.D., in nearby Bon Homme County, but has listed a physical address at 124 Walnut in Yankton, S.D. Kleinsasser did not immediately answer his phone or return text messages. A person with knowledge of the location said Kleinsasser has not owned or rented space in the building but has met with clients there.

In the complaint, the Sternhagens’ attorney, Steven K. Huff of Yankton, said that despite Kleinsasser’s knowledge of their production, he placed them into contracts that would obligate them to sell “many more bushels than they owned or could have delivered in even in the best of market conditions.”

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A $225K hit

Huff wrote that his clients had to come up with $225,000 to pay buyers to buy out of their 2020 corn and grain contracts. They’ve also suffered unspecified future losses in market position on 2021 corn and soybean contracts, at prices far below current market values. The complaint doesn’t specify a buyer for the grain, or whether other farmers may have been involved.

The Sternhagens asked for a judgment of $225,000, plus costs, and asked that because it is fraud the obligations be specified as “nondischargeable,” if Kleinsasser should file for relief from creditors if he should file for U.S. Bankruptcy.

Knoff did not specify non-dischargeability in his ruling. But he did award $95,800 to David Sternhagen and $134,037 to Nick Sternhagen, but have the court’s permission to update those figures. That’s a total of $229,837, plus interest and final calculations.

The initial complaint in February was against Kleinsasser as an individual, but later was amended to add the company names. Kleinsasser’s contracts with the Sternhagens started in August 2018 and continued into February 2021. According to the South Dakota Secretary of State, TK Commodities Inc. initially was registered in Oct. 25, 2007.

On the company’s website, Kleinsasser described himself as president of the company. The company was “administratively dissolved” as a South Dakota corporation but was reconstituted after the lawsuit.

In his website, Kleinsasser says he has over 30 years in risk management and crop input marketing experience. In his LinkedIn account, Kleinsasser indicates he worked as a “farm marketer” for Cargill Inc. from 1993 to April 2006, and for Terminal Grain Co., with locations at Parker, Monroe and Vermillion, from July 1988 to December 1993.

“I can tell you like many of you I have worked through low grain prices and high grain prices,” Kleinssaser says on the website.

In the lawsuit, Huff said Kleinsasser “held himself out to be an expert in cash grain contracts” and “insisted” he would protect the Sternhagens from “unnecessary risk in marketing or selling of their corn and soybeans to area buyers,” Huff wrote.

But the Sternhagens said he engaged in “unauthorized contract procurement,” which they didn’t discover until Jan. 11, 2021.

“Without authority or explanation, Kleinsasser executed dozens of corn and soybean contracts allegedly on behalf of the Sternhagens,” Huff writes. “Each of the Sternhegens executed dozens of grain contracts with Kleinsasser without knowing or having disclosed certain key terms.”

In the complaint, Huff said the Sternhagens had paid for “golden or top service” that would generate the “best rates of return on trading corn and soybean futures contract(s).”

Among the undisclosed terms:

  • That Kleinsasser used contracts with a “cash plus” price component. These contracts involve “strike terms” that are triggered when markets reach certain price peaks and can obligate the farmer to “deliver their grain at far below market prices or what they were promised” by Kleinsasser.

  • Never notified them of the “strike price” of the contracts.

  • Never notified them when the contract prices were “struck.”

  • Inconsistently notified them “if or when the Sternhagens were responsible for delivering their grain.”

On its website TK Commodities advertises a range of services, with “NO MARGIN CALLS WITH ANY OF OUR SERVICES!”

  • TK Gold — 5 cents a bushel, which involves “experts” who will “advise setting futures and the basis for the final cash price.” “The advise (sic. advice) of setting futures or basis may be done at the same time or at different dates depending on the timing on of the timing of the sale and market conditions,” the website says. TK Commodities says that if you’re a farmer who wants “a “hands-off” marketing approach and just wants to “focus on production and operation of your business while knowing your bushels will be markets to the best of our abilities than (sic. then) TK GOLD SERVICE is a great choice."

  • TK Silver — 3 cents a bushel, means TK experts are “only advising of setting of futures,” with the “customers setting basis with your preferred grain company.” This keeps the farmer “involved and active in the daily changing of cash grain price.”

  • TK Bronze — 2 cents a bushel, involves TK experts “helping you find the best basis for your grain or we can bundle bushels together to give you the advantage of selling large lot’s (sic. lots) of grain.” “You decide when to deliver and price the bushels when you feel the price is attractive,” it says.

Golden service

When the Sternhagens became concerned about the adverse effects of rising crop prices for corn or grain, Kleinsasser assured them he was protecting them by “rolling over” contracts that were not yet due, making sure they were “neither over exposed with hedges or oversold in terms of the total grain they had contracted to sell (to) buyers.”

On Jan. 11, 2021, the Sternhagens realized “a great deal of their exposure on the unauthorized cash plus contracts was substantially exacerbated” because when the grain prices increased, Kleinsasser “failed properly advise them regarding proper times to sell and/or otherwise mitigate their losses before an already bad situation got much worse.” The Sternhagens “realized they were on their own and had no verifiable information at their disposal.”

The South Dakota Public Utilities Commission regulates grain buyers but not commodities brokers. The SDPUC so far has made no mention of TK Commodities of Kleinsasser on its dockets.