The opinion of the court was delivered by: LASKER
In this action, which arises out of the collapse of the silver market in the spring of 1980, defendants move pursuant to Rule 56(b) of the Federal Rules of Civil Procedure for summary judgment. The motion is denied.
The plaintiff, Mahmoud Fustok ("Fustok") is a wealthy Saudi Arabian businessman and investor.
Defendant ContiCommodity Services, Inc. ("Conti"), is a commodities broker registered with the Commodities Futures Trading Commission and is a member of various exchanges including the Commodity Exchange, Inc. ("Comex"). The individual defendants, Norton Waltuch, Tom Waldeck, and Ivan Auer, were officers of Conti during the period at issue in this action.
In 1976 Fustok became acquainted with Antoine Asfour, Jean Jacques Bally, and Pierre Alain Hirschi, who were then employed with the Geneva branch of the Chase Manhattan Bank. In 1978 Asfour, Bally and Hirschi, having left the bank's employ, established an investment advisory company in Switzerland, Advicorp Advisory and Financial Corporation, S.A. ("Advicorp"). Fustok provided capital for Advicorp, and in June 1978 executed a mandate authorizing Advicorp to direct the investment of funds held in an account Fustok opened at Banque Populaire Suisse ("BPS"),
which held a 20% stock interest in Advicorp. BPS also designated one of Advicorp's directors.
In August 1979, by which time Fustok had transferred about $23 million to his BPS account, Fustok instructed Advicorp to purchase silver for his BPS account, and transferred additional funds to his account for that purpose. The amount Fustok authorized Advicorp to purchase is a matter of dispute, but it is agreed that Fustok authorized purchases of at least $30 to $40 million worth of silver.
The purchases were initially made through accounts which BPS opened in its own name with Conti and other futures commission merchants. Through these so-called "omnibus" accounts, commodities and commodity futures contracts were traded for the account of various BPS customers including Fustok. BPS authorized Advicorp to trade the omnibus account which was opened at Conti.
In November 1979, Fustok signed papers, at Advicorp's request, establishing an account with Conti in his own name (hereinafter, the "055 account").
It is the trading in this account which is the subject of the complaint. The facts as to the trading of the 055 account between November 1979 and March 1980, and in particular as to Fustok's knowledge of and responsibility for the trading that took place, are sharply disputed by the parties. It is not questioned, however, that in late March 1980 an enormous and rapid decline in silver prices prompted margin calls of tens of millions of dollars on Fustok's account. On March 26, 1980, when Conti requested the margin funds from Fustok's representatives, the 055 account held open futures contracts and silver depositary receipts representing more than five million ounces of silver. Fustok denied responsibility for the account, contending that any trading in the 055 account had been completely unauthorized. Thereafter, intense negotiations between Fustok and Conti took place with respect to the account, Fustok attempting to prevent Conti from liquidating the account and Conti attempting to obtain Fustok's agreement to assume responsibility for the transactions that had taken place in the account.
When the account was eventually closed in October 1980, a positive balance of approximately $2 million remained, out of the approximately $70 million of Fustok's funds that Fustok alleges were used without his authorization in trading the account. The $2 million positive balance was remitted to Fustok. The complaint seeks recovery of the approximately $68 million difference, alleging unauthorized trading, conversion, and violations of the Commodity Exchange Act, 7 U.S.C. §§ 1 et seq. and CFTC regulations.
Substantial discovery has been completed, and the defendants contend that Fustok's admissions together with documentary evidence establish that as a matter of law Fustok is estopped from denying that the transactions in the 055 account were authorized by him. Defendants assert that the following facts are conclusively established by the record:
Fustok signed documents opening the 055 account with Conti; these documents included a "risk disclosure statement" which Fustok signed describing the risks of speculating in commodities futures, as well as a customer agreement reciting that all transactions would be reflected in confirmation slips mailed to an address designated by Fustok and that such confirmations would be binding if not objected to within ten days.
Confirmation slips and monthly account statements were in fact mailed to the London address designated in the agreement.
Fustok made Advicorp his agent for overseeing the investment of funds in his BPS account, as evidenced in particular by the mandate executed by Fustok in 1978.
Fustok delegated to Advicorp the responsibility of receiving mail sent to Fustok's London office, as well as for obtaining bank statements from BPS pertaining to Fustok's BPS account.
Asfour reported to Fustok periodically on the status of his BPS account.
Neither Fustok nor Advicorp protested any of the transactions in the 055 account until silver prices began to drop in March 1980.