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COHEN v. BANKERS TRUST CO.
January 26, 1978
RONALD G. COHEN, Plaintiff,
BANKERS TRUST COMPANY, BT BRADFORD STOCK SERVICES, INC., Defendants
The opinion of the court was delivered by: CONNER
This is a diversity action alleging negligence and breach of fiduciary duty on the part of Bankers Trust Company ("Bankers") and Bradford Stock Services, Inc., operator of Bankers' stock transfer department. Plaintiff alleges that defendants erroneously reissued his stock in a Rule 144 transaction in the street name of his broker, Weis Securities, Inc. ("Weis"). As a result, the stock was commingled with other of Weis' securities held in street name and a portion of it lost to plaintiff when Weis went into bankruptcy. Plaintiff seeks to hold defendants responsible for damages suffered in the amount of $16,804.23.
The parties have submitted an agreed statement of facts and documentation of the transactions involved, establishing essentially as follows:
In March 1973, plaintiff owned 6,571 shares of unregistered common stock of Automatic Data Processing, Inc. ("ADP"), held in the form of two certificates: number MN2254, for 3,721 shares, and number U37131, for 2,850 shares. Each certificate bore a legend stating that "[the] shares represented by this certificate have not been registered under the Securities Act of 1933. The shares have been acquired for investment and may not be sold, transferred, pledged or hypothecated in the absence of an effective registration statement for the shares under the Securities Act of 1933, or an opinion of counsel to the company that registration is not required under said act."
Plaintiff approached his broker in February 1973 to arrange for the sale of the restricted shares pursuant to Securities and Exchange Commission Rule 144. Plaintiff signed a "Form 144" and an "Assignment Separate from Certificate." A guarantee of plaintiff's signature appeared on the assignment. At the time plaintiff signed the assignment, the space for the name of the assignee had not been filled in. The broker later imprinted its own name -- "Weis Securities, Inc." -- without plaintiff's knowledge. The Form 144 listed as "Number of Shares or Other Units To Be Sold," 6,571 shares of ADP common stock.
The Form 144, the assignment separate from certificate (with Weis as assignee) and plaintiff's two certificates for the ADP stock were then mailed by the broker to Bankers on April 16, 1973 under a cover letter which read as follows:
"Enclosed herewith please find the following restricted certificates of Automatic Data Processing, Inc. in the name of the above customer:
NM 2254 for 3,721 shares -5/1/73
U 37131 for 2,850 shares -5/1/53
"These shares are being sold by Mr. Cohen under S.E.C. Rule 144, and we enclose herewith a copy of Form 144, which has been filed with the S.E.C. today.
"We would appreciate your issuing new unlegended certificates in the name of the stockholder in the following denominations; 10 X 500, 15 X 100, and 1 X 71.
"Any balance of shares which remain unsold will be returned to you to be reissued bearing the legend set forth ...
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