III. THE INSTANT ACTION AND THE DISCLOSURE REQUIRED.
The spirit of disclosure as required by Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 of the General
Rules and Regulations promulgated thereunder and Section 17 of
the Securities Act of 1933 is flexible and the antifraud sections
are remedial in nature, prophylactic in scope and should be
liberally construed to encompass devices that are alien to the
climate of fair dealings and full and adequate disclosure.
Tcherepnin v. Knight, 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564
(1967); SEC v. Capital Gains Research Bureau, supra; Herpich v.
Wallace, 430 F.2d 792 (5th Cir. 1970). These antifraud provisions
have been liberally interpreted by the Courts in order to
determine under all factual situations whether a material
misrepresentation was made or omitted in connection with the sale
of a security, and what might constitute such a material fact.
Special circumstances and relationships may effect and influence
the responsibility for disclosure. For example, Dr. Cant's long
and dependent relationship with defendant creates a special
circumstance that results in an obligation exceeding the normal
duties owing to a casual customer or a customer whose reliance is
not as clearly placed with the broker-dealer as in this case. The
coverage of the antifraud sections is not limited to those
devices or contrivances that were known at the time of enactment,
but rather the sections are meant to reach practices employed in
connection with purchase or sale of securities contrary to public
interest or interest of investors. Herpich v. Wallace, supra. The
antifraud sections prohibit all fraudulent schemes in connection
with the purchase or sale of securities whether or not the
artifice employed involves a garden-type variety of fraud or is a
unique or subtle form of deception. Carroll v. First National
Bank of Lincolnwood, 413 F.2d 353 (7th Cir. 1969), cert. denied,
396 U.S. 1003, 90 S.Ct. 552, 24 L.Ed.2d 494 (1969); Ferraioli v.
Cantor, 281 F. Supp. 354 (S.D.N.Y. 1957); Opper v. Hancock
Securities Corp., 250 F. Supp. 668, aff'd, 367 F.2d 157 (2nd Cir.
The issue is whether the defendant failed to communicate a
material fact to Dr. Cant. The test of "materiality" to be
applied in connection with the antifraud sections is whether a
reasonable man would attach importance to the fact not disclosed
in determining his choice of action in the transactions in
question. Affiliated UTE Citizens of Utah v. United States,
406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972); Mills v. Electric
Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970);
Roger v. Ilikon Corp., 361 F.2d 260 (1st Cir. 1966); SEC v. Texas
Gulf Sulpher Co., 401 F.2d 833 (2nd Cir. 1968); Ross v. Licht,
263 F. Supp. 395 (S.D.N.Y. 1967).
In addition to the responsibility for making disclosures of
material facts is the implicit further responsibility of
accomplishing this disclosure in a manner that results in the
facts being clearly and intelligibly communicated and not
obtusely or cryptically communicated. Feit v. Leasco Data
Processing Equipment Corporation, 332 F. Supp. 544 (S.D.N Y
It is clear to this Court that, given the unique and special
relationship between the parties, the defendant A.G. Becker
breached its affirmative duty to disclose all information
concerning the defendant's status as principal and the
significance of such a selling posture in the plaintiff's
purchase of the securities in question. Further, the defendant's
disclosure by means of the confirmation slips was not sufficient
given the plaintiff's long standing reliance upon defendant's
investment advice, and the failure of Mr. Wieczorowski to inform
and educate the plaintiff on the code and the terminology, and
the fact that the plaintiff apparently did not understand
the code or the terminology or that the defendant was acting as a
principal and not a broker.
The defendant A.G. Becker predicates its position on the case
of Batchelor v. Legg & Company, 52 F.R.D. 553 (D.Md. 1971).
However, the Batchelor case does not involve the same type of
special customer relationship and reliance that existed in the
instant action. Cf. Chasins v. Smith, Barney & Company,
438 F.2d 1167 (2nd Cir. 1971). This Court is not holding that a broker is
liable in every instance where the broker is acting as a
principal and this change in status is not expressly, clearly and
painstakingly explained to the investor. Rather, this Court is
holding that where there is, as in the case at bar, a special
relationship of confidence between the investor and broker and
the broker fails to adequately and clearly inform or educate the
investor as to the change in the broker's status, the broker will
be liable because the investor due to this failure to disclose
cannot make a properly informed investment decision. It is thus
the opinion of this Court that defendant A.G. Becker is liable to
the plaintiff Dr. Cant on Count I through Count VI and X through
XV of the complaint.
As to the issue of damages it is the desire of this Court that
the parties file briefs in support of their respective theories.
The parties can supplement the present record with whatever
affidavits, exhibits or depositions they consider relevant and
Accordingly, it is hereby ordered that the defendants are
adjudged liable on Counts I, II, III, IV, V, VI, X, XI, XII,
XIII, XIV, and XV. It is further ordered that the plaintiff has
until April 26, 1974 to file its brief on the issue of damages,
the defendant has until May 17, 1974 to answer and the plaintiff
has until May 31, 1974 to reply; and that this Court will rule on
the issue of damages on June 18, 1974.