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CHASINS v. SMITH

September 30, 1969

Abram Chasins, Plaintiff
v.
Smith, Barney & Company Inc., Defendants


Bonsal, District Judge.


The opinion of the court was delivered by: BONSAL

BONSAL, District Judge:

This action brought under the Securities Act of 1933, 15 U.S.C. § 77a et seq., and the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., for damages resulting from defendant's alleged violations of the Acts, and pendent common law violations, in handling plaintiff's securities brokerage account, was tried before the court without a jury. Plaintiff is a retired musicologist, author, and lecturer. In 1961, when the transactions in question occurred, he was the musical director of radio station WQXR in New York City, and was the commentator on a musical program which was sponsored by defendant, a stock brokerage firm. Plaintiff testified that he opened his brokerage account with defendant because it sponsored his program.

 Plaintiff charged that defendant was under a common law fiduciary duty to plaintiff in all the transactions involved in this action because it undertook to manage his account on a discretionary basis and that it breached that duty.

 Plaintiff also charged that defendant had a contractual obligation to manage plaintiff's account so that he would own "blue chip" securities, and that this contract was breached by defendant in all of its transactions for plaintiff's account.

 Finally, *fn1" plaintiff charged that defendant bought and sold securities for his account and failed to disclose, among other things, (1) that in some of these transactions defendant dealt with him as principal; (2) the price it obtained on resale of New York City Housing Authority Bonds purchased from plaintiff; (3) that defendant was making a market in some of the stocks which he purchased. These are claimed to be omissions to disclose material facts in violation of Section 17 of the Securities Act of 1933, 15 U.S.C. § 77q, and of Sections 10(b) and 15(c) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78 o (c) respectively, and Rules 10b-5 and 15c-1 - 4, 17 C.F.R. 240.10-b and 240.15c-1 - 4 respectively, promulgated thereunder.

 The parties stipulated to the following facts in the pretrial order:

 
"1. Plaintiff was employed by Radio Station WQXR in June 1961 when he orally retained defendant to act as his stockbroker in the presence of his wife and defendant's authorized agents, John L. Montgomery and Thomas N. Delaney, Jr.
 
2. During, prior and subsequent to acting as plaintiff's stockbroker, defendant sponsored various WQXR programs including those of which plaintiff was commentator.
 
3. In all transactions set forth at Paragraph 17 of the complaint, defendant acted in at least two capacities: (1) as plaintiff's stockbroker; (2) as principal, i.e. the owner of the security being sold to plaintiff. In no such sale to plaintiff by defendant was any commission charged or paid, nor did defendant disclose: (a) the nature of plaintiff's account with defendant, whether it was a 'cash' account or otherwise, as called for by its own form of Confirmation and (b) the information described in Paragraphs 22 and 23 of the Complaint. Defendant did not disclose to plaintiff that it had acted as ' underwriter' as defined by the Securities Act of 1933, in connection with the distribution of securities of The Welch Scientific Co., one of the issuers listed in Paragraph 17. *fn2"
 
4. Defendant in the capacity of stockbroker sold various securities of Abram Chasins to the public on or about the date of its sales of its own securities to Abram Chasins described in subparagraph 3 hereof, after which the proceeds of such public sales were applied to pay obligations of plaintiff to defendant arising in connection with such private transactions with plaintiff.
 
5. On or about November 1, 1961 and December 22, 1961, defendant, in the capacity of stockbroker and also in the capacity of principal, purchased from plaintiff his investment grade New York City Housing Authority Bonds. Defendant did not subsequently liquidate any other position of plaintiff although it continued to act as his stockbroker until June, 1962. In no such purchase as principal from Abram Chasins did defendant disclose the nature of his account with defendant - whether it was a 'cash' account or otherwise as called for by its form of Confirmation - nor did it disclose the information described at Paragraphs 22 and 23 of the Complaint. On each Monday of the week during which it executed a purchase from plaintiff of his New York City Housing Authority Bonds, and for a substantial period of time prior and subsequent thereto, defendant advertised on WQXR the advisability of the purchase, not sale, of municipal bond securities. No action, other than arranging for such matter to be broadcast to the public generally, was taken by defendant to disclose such broadcast matter to plaintiff.
 
6. The only written communications between plaintiff and defendant have been marked as exhibits to plaintiff's deposition or have been or are being supplied to plaintiff in response to his Interrogatory 9. The confirmation slips mailed by defendant to plaintiff covering transactions in his account and defendant's monthly ledgers of such account that have been made available to plaintiff accurately set forth the information purported to be stated therein.
 
7. The only reference in any oral or written communication between plaintiff and defendant to the fact that defendant was dealing with plaintiff in the capacity as principal as well as stockbroker was contained in the confirmation of such transaction sent after each such transaction.
 
8. By letter dated July 14, 1961 (see Paragraph 5(a) (1)T) defendant sent and plaintiff received written recommendations for the purchases and sales executed for plaintiff's account on July 19, 1961 as set forth in Paragraphs 16 and 17 of the Complaint. Said recommendations included an analysis prepared by defendant of certain of the securities in plaintiff's portfolio and all of those which were recommended for purchases.
 
9. By letter dated April 27, 1962 (5(a) (1)U) defendant sent and plaintiff received certain information concerning the securities in plaintiff's portfolio. No transactions for plaintiff's account were effected after this letter and plaintiff withdrew his account and portfolio from defendant in or about June, 1962."

 Common Law Claims

 Plaintiff relied on his own testimony and that of Mr. Delaney, a registered representative employed by defendant. In June 1961, plaintiff, Delaney and Mrs. Chasins met at defendant's branch office on Fifth Avenue with Mr. Montgomery, the office manager, and agreed that defendant would receive plaintiff's securities holdings and would send plaintiff its recommendations. Plaintiff testified that he discussed his securities holdings with Montgomery and told him that he was mainly concerned with conserving his capital, and that what he "naturally" wanted was an appreciation of the stocks which he held, with safety. In his examination before trial he testified that his goal was income.

 Plaintiff testified that he told Montgomery and Delaney that he wanted to place himself entirely at their disposal, because he had an "encyclopedic ignorance" of securities and figures, and he trusted them. He also testified that he asked Montgomery whether it would be advisable to buy stock like AT&T or General Electric, since he had seen General Electric "considerably higher and was now back to 60 again, and did he not think it would be an advisable thing to buy that stock, being that it was so depressed," and that Montgomery advised against General Electric because it was involved in some suits, and against AT&T because he thought there was not much room for growth. Plaintiff testified that in going over his portfolio with Montgomery, he "was explaining a few things that he (Montgomery) did not know, a few stocks which were strangers to him," such as his ...


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