Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

EDWARDS & HANLY v. WELLS FARGO SECS. CLEARANCE COR

October 4, 1978

EDWARDS & HANLY, Plaintiff,
v.
WELLS FARGO SECURITIES CLEARANCE CORP., Defendant



The opinion of the court was delivered by: GAGLIARDI

Plaintiff Edwards & Hanly commenced this action against the Wells Fargo Securities Clearance Corporation ("WFSCC") alleging violations of § 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), § 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q, and common law fraud. Jurisdiction is predicated upon 15 U.S.C. §§ 78aa, 77v and principles of pendent jurisdiction. This action was tried to the court, and the following constitutes its findings of facts and conclusions of law pursuant to Rule 52(a), Fed.R.Civ.P. The court determines that plaintiff has proved all the elements of a § 10(b) cause of action and is entitled to recover its damages.

Statement of Facts

Edwards & Hanly is a New York limited partnership engaged in the business of investment banking and a registered broker-dealer of securities pursuant to § 15 of the Exchange Act, 15 U.S.C. § 78O. Defendant WFSCC, an Arizona corporation with its principal place of business in New York, is a wholly-owned subsidiary of Wells Fargo & Company, a holding company among whose subsidiaries is Wells Fargo Bank, N.A. ("WFB"). WFSCC was organized in 1970 to serve as WFB's New York clearing agent for securities transactions involving WFB's clients.

 In 1974, Edwards & Hanly acquired the Huntington, New York office of duPont, Walston & Co., including the account of a customer named T. P. Richardson & Co. ("Richardson"). Richardson was a registered broker-dealer, based in Los Angeles, which specialized as an institutional broker in the so-called "third market," I. e., the over-the-counter market in securities listed on the major stock exchanges. (Testimony of Richard Gulemi, Tr. 189 and Stipulation of Facts, PP 2, 5). Richardson employed approximately fifteen traders who would match buy and sell orders of large blocks of listed stocks made by large financial institutions (E. g., banks, mutual funds, insurance companies and universities), without using the facilities of a national securities exchange. (Stipulation of Facts P 5). Richardson made a profit equal to the difference between the price at which it purchased stock from the seller and the price at which it sold the stock to the buyer on the matched trade. (Id. P 6). Although its traders were generally able to match buy and sell orders exactly, Richardson would at times effect an unmatched trade in order to accommodate one of its institutional clients. (Id., P 7). For example, if such a client wished to sell 10,000 shares of a given stock issue, Richardson would purchase the shares even though it may have been able to find buyers for only 9,000 shares. Richardson would thus buy for its own account and risk, I. e., take a "long" position, 1,000 shares of stock to effect the trade. Conversely, Richardson may have found a buyer of 10,000 shares but sellers for only 9,000. To effect this trade, it would commit to deliver all 10,000 shares to the buyer and take a 1,000 share "short" position for its own account. Richardson's announced business policy was not to maintain positions, short or long, to protect its capital from market fluctuations. To eliminate these positions, Richardson would use the services of stock brokerage firms who were members of the New York Stock Exchange, including Edwards & Hanly, through whom Richardson would, as quickly as possible, sell its long positions or buy stock to cover its short positions. (Id.).

 From February, 1974 through April 15, 1975, Richardson maintained a cash brokerage account with Edwards & Hanly on a delivery versus payment, receipt versus payment basis. (Gulemi, Tr. 189). The account both purchased and sold securities, primarily "blue chip" and "glamour" stocks listed on the New York Stock Exchange. The orders were regularly telephoned by Richardson's traders to Dominic Gulemi of Edwards & Hanly's Huntington office. (Id., Tr. 184). Edwards & Hanly's role was solely to execute the orders called in; advice was neither sought nor received from Edwards & Hanly personnel concerning any of the trades in question. The Richardson account was the largest account in plaintiff's Huntington office (O'Hare, Tr. 270), constituting 10-20% Of its business (Gulemi, Tr. 217).

 In 1973, in order to clear its third market trades, Richardson & Co. established a $ 10,000,000 secured internal guidance draft line with WFB in Los Angeles. (Stipulation of Facts, P 12). Under this draft line, WFB advanced funds for Richardson's account to a seller of securities bought by Richardson and the certificates would then be delivered to Richardson's buyer against payment of the purchase price. WFB collected interest from the time that it advanced funds for the Richardson account until it collected the purchase price from the buyer. (Id.) In clearing these trades for Richardson, WFB utilized WFSCC as its agent to handle the receipt and delivery of cash and securities in New York. (Id.; P 14). At the end of each trading day, Richardson sent instructions by messenger to WFB in Los Angeles with respect to that day's matched trades on behalf of its institutional customers. WFB received from Richardson confirmation slips for both the buy and sell sides of the trade. (Bowman, Tr. 413). These instructions were then placed on bank forms by WFB's clerical personnel and forwarded by air to WFSCC in New York so that WFSCC received instructions on both sides of the trade simultaneously (Id.).

 In a matched trade, Richardson would instruct the seller to deliver the stock to WFSCC. (Stipulation of Facts P 17). Upon receipt of the stock from the seller, WFSCC would pay the seller with funds advanced to WFSCC by WFB from Richardson's draft line of credit. The stock served as collateral to WFB and WFSCC for the advance. WFSCC then notified the buyer that the stock was in its possession and, in most instances, the buyer delivered a check to WFSCC and it delivered the stock to the buyer that same day. (Id.)

 WFSCC did not have the authority to clear any trades for Richardson without first receiving instructions from WFB. (Id.; P 16). WFSCC's personnel, however, were permitted to contact Richardson on an informal basis if, because of the time differential between New York and Los Angeles, an early delivery of securities was made to WFSCC for which it had no instructions. (Werba, Tr. 36, 56; Holroyde, Tr. 440-41). Nevertheless, WFSCC was not to act on any informal instructions but was required to await confirmatory instructions from WFB (Id., Tr. 56-57).

 In the summer of 1974, Richardson fell behind in its payments to WFB of interest and service charges and WFB suspended clearing for the account (Holroyde, Tr. 436). Clearing services were resumed after Richardson and WFB entered into an agreement which required, Inter alia, that Richardson maintain a $ 150,000 compensating balance in its commercial account with WFB. (Bowman, Tr. 417 & Plaintiff's Exhibit 9). Richardson's subsequent failure to meet some of the conditions set forth in the agreement prompted WFB to demand, in December 1974, that Richardson meet even more stringent conditions, including the maintenance of a $ 200,000 compensating balance in its account (Bowman, Tr. 418, & Exhibit 10). Richardson met these new requirements and clearing services were continued by WFB (Holroyde, Tr. 437).

 Unbeknownst to WFB, early in 1974, at the direction of its president and majority shareholder Thomas P. Richardson, Richardson began to deviate from its regular practice of matching buy and sell orders and began to speculate for its own account. Richardson embarked on a program of making massive short sales of highly volatile "glamour" stocks. (Plaintiff's Exhibit # 5, Stipulation between United States of America and Thomas P. Richardson PP 25-29). By late 1974, this short-selling comprised a substantial part of Richardson's total business (Kevin Kelley, Tr. 386). In November, 1974, Richardson employees Michael Wawra and Thomas C. Thomas met with the manager of Security Finance Corporation, a stock loan broker, to find stock lenders for Richardson in order to enable it to cover its short positions. (Plaintiff's Exhibit # 5, P 32). Security Finance Corporation soon arranged for several of its clients to lend the securities in their portfolios to Richardson.

 Under the terms of the stock loan agreements, lenders were to receive cash payments of not less than 100% Of the closing price of the stock on its most recent trading day in exchange for the stock loaned. Such a payment is characterized as the "cash collateral" securing the stock loan. The lender is entitled to retain all profits arising from the use of the cash collateral securing the stock loan as well as all cash and stock dividends paid out by the issuer of the stock. (Id. P 36). In order to keep the amount of cash collateral equal to the market value of the stock loaned, both Richardson and the lenders had reciprocal rights to require adjustments in the collateral called "mark-to-the-market" payments. Thus, if the value of the borrowed stock increased, Richardson would have to make a mark-to-the-market payment to the lender; the converse was also true. (Id.) The cash collateral necessary for Richardson to obtain and maintain these loans was obtained by creating false order tickets and confirmations which showed the stock borrowings to be stock purchases made by Richardson. (Id. P 38). These false documents were attached to the written instructions given by Richardson to WFB for the purpose of making it appear that it was a legitimate matched trade order between institutions rather than a loan of stock to Richardson (Id.) Richardson's employees also concealed these short positions by making false entries on the accounts of several of its customers; fictitious purchases of various stocks were recorded to show that the firm owned the stock it was selling to brokers (Id. PP 30, 84, 86, 87 and Plaintiff's Exhibits 1-4). By December 31, 1974, Richardson had borrowed in excess of $ 25 million worth of stock from fourteen different institutions (Id., P 34). All of the stocks borrowed in this manner were used to deliver on short sales previously made by Richardson (Id., P 35).

 As a result of a rising market in the stocks which Richardson borrowed through Security Finance Corporation, Richardson was unable to meet the required mark-to-the-market payments during March and April, 1975. On April 15, 1975, Richardson advised the Securities and Exchange Commission ("SEC") of its insolvency. The SEC filed a complaint that same day alleging violations of the Exchange Act, and on April 16, 1975, a temporary receiver was appointed to take control of Richardson. As of the latter date, its stock loans were undercollateralized by almost $ 3 million and over $ 20 million worth of short sales, principally to broker-dealers like the plaintiff, were not covered by stock loans. (Plaintiff's Exhibit 5, P 39). Upon notice of Richardson's insolvency, these broker-dealers were required to buy-in the securities, i. e., purchase them on the open market, to make delivery to customers who had purchased the securities from them on the New York Stock Exchange. (Id.) The out-of-pocket cash loss sustained by these broker-dealers the difference between the price at which Richardson short-sold the stock and the buy-in price to the broker-dealers was approximately $ 3.4 million. (Id.). Edwards & Hanly sustained a loss of approximately.$ 1.4 million (Plaintiff's Exhibit 15).

 Joseph C. Werba, named president of defendant WFSCC in April, 1974, was friendly with a number of Richardson's employees and would see them socially on his frequent business trips to Los Angeles. Richardson had on occasion given Werba and his family generous gifts, including airline tickets to Los Angeles and a vacation weekend on Cape Cod. (Werba, Tr. 45). Commencing in November, 1974, at Richardson's request, Werba advanced funds to Richardson from WFSCC's bank account with the Morgan Guaranty Trust Company ("Morgan Guaranty") in New York. (Werba, Tr. 27-30 & Plaintiff's Exhibit 12). These advances were made on an "interest free" basis. Richardson never told Werba why it needed these advances (Id., Tr. 64), which it used to meet its mark-to-the-market obligations. Werba did not think that the request was unusual because he knew that third-market brokers often had liquidity problems (Id., Tr. 78) and because he had made a similar cash advance previously to another firm (Tr. 64). Werba knew, however, that he had no authority to make these advances without WFB's consent, and he informed neither WFB nor his superiors at WFSCC of them. (Id., Tr. 27, 65). *fn1" The five separate advances totalled over $ 1 million, and were repaid except for the final advance of $ 500,000 made on March 31, 1975 just as Werba left the country on a family vacation. (Id., Tr. 41). On or about April 1st, without Werba's knowledge, WFSCC's vice president Gary Bruno informed Ronald Hillman, a vice president of WFB and a member of WFSCC's board of directors, that the various advances had been made and that the last advance had not been repaid (Bruno, Tr. 101-04). When Werba returned from vacation on the evening of April 7th, Bruno informed him of Richardson's failure to pay. Werba then flew to California to speak to Richardson. In San Francisco, Werba was contacted by E. Alan Holroyde, senior vice president of WFB, WFSCC board chairman and Hillman's immediate superior, who directed Werba to report to WFB's auditing division to explain his actions. Werba was told that he would be placed on "leave of absence", but that he was permitted to meet with Richardson to attempt to get the advance back. (Werba; Tr. 71, 73). At a meeting in San Francisco with Kevin Kelley, Thomas Richardson and Thomas Thomas of the Richardson firm, Werba was told that Richardson lacked the funds to repay the loan (Kevin Kelley, Tr. 396). Empty-handed, Werba returned to the East Coast on April 12th and did not report to work thereafter. (Werba, Tr. 73).

 One of the crucial factual issues in this case is whether Werba knew of Richardson's short-selling scheme. In early December 1974, while on a business trip to Los Angeles, Werba met two Richardson employees, cashier Michael Wawra and Treasurer Thomas C. Thomas, for dinner. Wawra explained to Werba that Richardson had begun to suffer losses on certain trades but that it did not want WFB to know for fear that WFB would terminate its draft line of credit. (Werba, Tr. 17). Thomas and Wawra persuaded Werba to aid them in concealing these trades from WFB by handling them on a "special" basis. The Richardson employees proposed that rather than follow the usual procedure of routing written instructions through WFB in Los Angeles, they would telephone delivery instructions directly to WFSCC in New York.

 Several days later, Werba, Wawra and Thomas met at the Playboy Club in Century City, California and the subject of "special trades" was raised once again. At his pretrial deposition, Thomas claimed that he told Werba that Richardson wanted to establish the "special trades" procedure because it had huge short positions in several stocks and wished to make short sales without WFB's knowledge. (Thomas deposition, pp. 30-31, 56-57). Thomas was fairly certain that he told Werba of these short positions because although he and Werba were close friends, Thomas felt it necessary to explain why such an extraordinary procedure was necessary (Id. ; p. 60). Thomas continued to say that he did not think his statements had "registered" with Werba, I. e., that Werba did not quite comprehend what Thomas had told him (Id., p. 62), and that he did not remember Werba making any comment concerning the proposed short sales. (Id., p. 62 and 75). Werba, for his part, flatly denies that Thomas, or any other Richardson employee told him that Richardson was short in the market and desired to make "special trades" to conceal its short positions. (Werba, Tr. 21-22, 59). Contrary to the testimony of one of Richardson's traders, Werba also denies that he was told at the San Francisco meeting during the week of April 7, 1975 that Richardson had been selling short (K. Kelley, Tr. 396; Werba Tr. 72). Werba insists that the sole rationale ever given to him for the "special trades" was the need to keep WFB unaware of the losses it had incurred on certain transactions (Werba, Tr. 17). On balance, the court does not find Werba's version of these conversations to be credible. The court concludes that Werba was informed in early December, 1974 of Richardson's short positions and its desire to hide them from WFB. The deal was finalized on or about December 10, 1974 when, over dinner with Thomas Richarson and two others, Werba received $ 2,000 in cash from Thomas Richardson for "helping" him out. (Id., Tr. 23, 60, 77). Soon after, Werba received the money, WFSCC began to handle special trades for Richardson. Werba, of course, told neither WFB's employees nor his superiors at WFSCC what he had done. (Id., Tr. 57, 60, 62). Although Werba originally thought that Richardson intended to make only five or six such trades (Id., Tr. 61), from January through March, 1975, WFSCC cleared approximately 52 special trades.

 Marianna Ianuzzi, a WFSCC employee in her mid-twenties, was in charge of receiving and delivering securities from WFSCC's various Los Angeles accounts, including Richardson. Her duties included speaking to the brokers who, like plaintiff, were carrying out Richardson's trades. (Id., Tr. 32). She was not told what she could or could not say to these brokers with respect to trades. (Id., Tr. 34). Indeed, Werba testified that he had given Ianuzzi "carte blanche" in the handling of the Los Angeles accounts, including Richardson (Id., Tr. 32) and Werba's superiors eventually concluded that he had "removed himself" from his daily supervisory function. (Holroyde, Tr. 457). Werba told her of the "special trades" and told her how to handle them (Werba, Tr. 36), although it doesn't appear that Werba told her that these trades were in fact short sales. She would receive receipt and delivery instructions directly from Richardson. Upon completion of the special trades, she sent informal handwritten confirmation statements to Richardson and retained a copy for WFSCC's files. (Id., Tr. 37).

 Gary Bruno, WFSCC's vice president, worked under Joseph Werba and directly supervised the work of Marianna Ianuzzi. In February or March, 1975, Bruno advised Werba that the volume of special trades had gotten too great and that the practice should be stopped. (Bruno, Tr. 99). Werba called Richardson's office and spoke to Thomas, informing him that after May 1, 1975, WFSCC would discontinue handling such trades. (Bruno, Tr. 39). Thus, WFSCC continued the practice of clearing the special trades until Richardson's demise on April 15, 1975.

 As early as February, 1975, it became increasingly difficult for Richardson to secure enough stock to cover its short positions. Three of its biggest customers, E. F. Hutton, B. C. Christopher and North American Equity, informed Richardson that they were buying in their accounts with Richardson and would no longer do any business with it because of its consistently late delivery of stock that it had sold to them. (Wawra Dep., 55-57; Thomas Dep., 46-47). Thomas Richardson decided to increase the volume of short sales made through Edwards & Hanly because, by contrast, that firm had never pressed Richardson as hard to make timely delivery. (John Kelley Dep., 31). Thus, while Richardson placed almost no sale orders through Edwards & Hanly in February, 1975, it sold large amounts of stock through that account thereafter. Commencing on or about March 3, 1975 and continuing until April 7, 1975, Richardson sold 23,000 shares of Digital Equipment Corporation, 9,500 shares of E. I. duPont & de Nemours & Co., 2,600 shares of Fairchild Camera Co., 17,500 shares of Halliburton Corp. and 18,500 shares of Texas Instrument Corp. in its cash account with Edwards & Hanly. Virtually all of these sales were short sales. (Defendant's Exhibit A).

 Richardson's increasing inability to deliver sold securities promptly created problems for WFSCC and Marianna Ianuzzi. Brokers who were anxious to secure delivery in the face of a rising market began to call her to find when delivery would be made. She, in turn, called Richardson to determine the reason for the delay. At his pre-trial deposition, Richardson's cashier Michael Wawra testified that there came a time when, after giving her may false excuses for late delivery, he finally broke down and told Ianuzzi that certain trades were short sales. Wawra's recollection of the circumstances under which he told her of the practice was hazy. At first, Wawra stated that he remembered one occasion in February or March 1975, during a period when the market was rising and he could not borrow that he had told her that a given trade was short (Wawra Dep., 32-33). Wawra subsequently testified that he originally told her of the shorts in January at a time when he was physically ill. (Wawra, Dep. 73-4). Wawra then said he recalled between two and five such conversations, and, finally, between three and seven such conversations, about specific trades (Id., Dep. 85-7, 93). Wawra admitted, however, that he continued to give excuses to Ianuzzi until the very last day and would lie to her about the lateness of various trades (Id., Dep. 77, 93-4). Joseph Werba claims to remember that in July, 1975, following the dismissal of Ianuzzi and himself by WFSCC, Ianuzzi said that she knew that certain sales were short sales and that she assumed Werba knew as well. *fn2" (Werba, Tr. 46). When pressed, however, Werba admitted that he really could not remember what she had said about short sales. (Id., Tr. 48).

 Wawra and other Richardson employees were similarly successful at keeping Edwards & Hanly at bay. Richardson had always been late in delivering securities to Edwards and Hanly. The standard sale contract between brokers in the industry required delivery within five business days in a delivery versus payment/receipt versus payment account (Defendant's Exhibit A). Through March, 1975, Edwards and Hanly tolerated delays by Richardson of two to three months in some extreme cases, and delays of two to three weeks as a regular practice. (Id.) There was testimony at trial to the effect that, as a matter of trade custom, brokers often tolerated delays of three or four weeks (Monigan, Tr. 575); lengthier delays were expected from third-market brokers than from retail customers because third-market brokers, in turn, often had to wait for delivery from their institutional customers. (Foote, Tr. 326-27). No rule or practice precluded Edwards & Hanly from buying in an account once the date on which delivery was due had passed. (Peake, Tr. 527). Nevertheless, Edwards & Hanly had an obvious disincentive to buy in the account because the account generated substantial brokerage commissions. (Edwards, Tr. 501). Thus, when Richardson went under on April 15, 1975, Edwards & Hanly was required to buy-in over thirty failed trades, almost two thirds of which were at least three weeks past due. (Defendants' Exhibit A). Almost ninety per cent of the short sales which plaintiff had to buy-in were made by Richardson in March, 1975. (Id.)

 The registered representative at Edwards & Hanly in charge of the Richardson account, Dominic Gulemi, *fn3" testified that the account did not begin to encounter any problems with late deliveries until the latter part of 1974. Informed by the firm's margin clerk that Richardson had two very late outstanding deliveries, Gulemi contacted Wawra and delivery of the stock followed soon after. (Gulemi, Tr. 194-96). *fn4" Understandably, Edwards & Hanly's personnel did not become truly concerned with Richardson's late deliveries until the last week of March, 1975 when Edwards & Hanly transferred the clearing functions for its retail accounts to another firm and retained clearing functions over only institutional clients. (Edwards, Tr. 139; Foote, Tr. 342). Managing partner Bert Edwards, concerned with the large credit balance that the firm was required to carry on its books due to Richardson's failure to deliver, *fn5" sought assurances from his subordinates that Richardson would make good on delivery. In late March, however, the account was not "at risk" for a substantial sum; the difference between the price at which Richardson sold undelivered stock and its market price on a given day hovered between $ 100,000 and $ 200,000. Edwards determined that buying in the account was not yet necessary. (Defendant's Exhibit B and Edwards, Tr. 144).

 On April 7, 1975, an Edwards & Hanly margin clerk named Mulholland calculated that Richardson owed the plaintiff over $ 7 million in stock and informed Gulemi of the situation. (Gulemi, Tr. 205). Gulemi immediately contacted Wawra, who falsely attributed the delay to the failure of Richardson's clients to deliver it stock and promised delivery within a week. (Id., p. 206). Gulemi then contacted O'Hare, manager of the Huntington office, and for the first time suggested that a principal of the Edwards & Hanly firm contact Richardson and demand delivery (Id. Tr. 208, 237). O'Hare subsequently spoke to Wawra, but found him to be evasive (O'Hare, Tr. 261). At no time did any Richardson employee tell any Edwards & Hanly employee that any sales made by Richardson were short sales. From April 7th onward, plaintiff's net risk position on the Richardson account increased substantially due to a rapidly increasing market. The total net risk to Edwards & Hanly moved from approximately $ 200,000 on the 7th, to over $ 450,000 on the 9th, to over $ 1 million on the 14th and $ 1.3 million on the 15th. (Defendant's Exhibit B).

 Defendant's expert witness Francis Monigan, then an assistant vice president with the firm of Dean Witter & Co., testified that in his opinion, by February, 1975, the reasonably prudent broker would no longer maintain a good faith belief that Richardson had a long position in the stocks it sold. (Tr. 569). In his opinion, the reasonably prudent broker would have commenced buying-in the account on March 7, when the net risk to Edwards & Hanly was over $ 30,000 and two Richardson sales of Halliburton Co. stock had failed. (Tr. 570-71). Another defendant's expert, Junius Peake, took an even more cautious approach to Richardson's late deliveries and testified that by late November, 1974 a reasonably prudent broker could no longer believe in good faith that Richardson was selling long. (Tr. 515-22). By that date, approximately 10,000 shares of Halliburton, 2,000 shares of DuPont and 5,000 shares of Schlumberger stock were owing to plaintiff (Defendant's Exhibit B). Peake felt that Richardson's repeated lateness of delivery was inconsistent with its role as a third market broker because the buyer on a matched trade generally wants his stock promptly. (Peake, Tr. 518-19).

 In the last few weeks before Richardson's demise, Edwards & Hanly made persistent inquiries of WFSCC personnel in an effort to secure delivery of stock. John Stokes, a back office employee, called Marianna Ianuzzi once a day during the last two weeks in March. Each conversation followed the same pattern: he would ask her if Edwards & Hanly would be receiving any securities that day for Richardson's account; she would say she had not received the stocks, but promised to contact him when she received them (Stokes, Tr. 374-75). Plaintiff's head cashier Arthur Foote inquired after various late items in late March and early April (Foote Tr. 305-08), and again on April 15th (Foote, Tr. 312). On the latter occasion, Ianuzzi informed him that she had several open items but was expecting the delivery of some Schlumberger Corp. stock, which stock eventually cleared. On April 14, 1975, and again on the afternoon of April 15th, Hugh O'Hare, manager of plaintiff's Huntington office, called and spoke to Ianuzzi to ask if she had instructions to deliver specific securities. She indicated that she had instructions but, as yet, no stock to deliver. (O'Hare, Tr. 262-64, 287). Similar conversations ensued between Ianuzzi and Robert Della Vecchia, plaintiff's head cashier in the New York office in March, 1975 with respect to late deliveries generally. (Della Vecchia, Tr. 357-58). In each of these conversations, Ianuzzi stated that she had no stock to deliver, but that she would call plaintiff when she received it. In none of these conversations did she state that she either knew or suspected Richardson was selling short. In early April, Della Vecchia spoke to Anthony Sorrentino, a stock loan officer employed by another firm, who told him that he had heard a rumor that Richardson was in bad financial condition and may have been short stock (Della Vecchia, Tr. 359-61). On or about April 10, Della Vecchia called Ianuzzi to inquire about the delivery of stock. He mentioned the rumor to her but she dismissed it as being "just a rumor" and stated that she felt plaintiff would get its stock. (Id., Tr. 360).

 WFSCC's personnel in New York were subject to the control of certain WFB officers, headquartered in San Francisco, who also served on WFSCC's board of directors. *fn6" A detailed procedural manual served as a guide for WFSCC's employees (Defendant's Exhibit I). It authorized WFSCC, as WFB's agent, to act only upon the direct instructions of WFB's securities industry department as specified on both securities receipt forms and securities delivery forms. WFSCC could accept delivery against payment only if it had a securities receipt form from WFB containing the same information as the delivery bill which accompanied securities delivered in by a broker-dealer. If the information differed or if WFSCC lacked a receipt form, it could not accept delivery against payment without WFB confirmation. Because of the time lag between New York and California, WFSCC was permitted to investigate such discrepancies by contacting WFB's customer, but it was never authorized to rely on customer advice without receiving WFB confirmation. Without such confirmation, WFSCC was obligated to reject the delivery and return the securities to the delivering party. Each morning, WFSCC would wire WFB information regarding all securities received that day. If the delivery of ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.