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CANT v. A.G. BECKER & CO.

March 28, 1974

JOHN F. CANT, PLAINTIFF,
v.
A.G. BECKER & CO., INC., DEFENDANT.



The opinion of the court was delivered by: Bauer, District Judge.

MEMORANDUM OPINION AND ORDER

This cause comes on the stipulation of the parties that this matter is submitted to the Court for decision pursuant to Rule 39(b) of the Federal Rules of Civil Procedure. The parties have further stipulated that this Court's decision is to be based on the pleadings, depositions and exhibits thereto, interrogatories and answers, stipulations and exhibits thereto, and affidavits filed by the parties in support of their respective positions.

The plaintiff in the instant action seeks to redress alleged violations of the Securities Act of 1933, the Securities Exchange Act of 1934, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder.

The plaintiff in the complaint makes the following allegations inter alia:

  1. Plaintiff maintained several accounts with
     defendant beginning in approximately 1944 until
     approximately late 1969, at which time plaintiff
     removed his accounts from defendant. All of
     plaintiff's securities transactions from 1944
     until approximately late 1969 were transacted
     through defendant. All purchases of securities by
     plaintiff were made based upon recommendations
     initiated by defendant who frequently and
     regularly telephoned plaintiff for the specific
     purpose of suggesting the purchase by plaintiff of
     certain securities. Plaintiff seldom, if ever, in
     the twenty-five years during which plaintiff
     conducted his securities transactions through
     defendant, purchased any securities except those
     specifically recommended to plaintiff by
     defendant. Defendant knew that plaintiff relied
     upon defendant's recommendations and that as a
     matter of course plaintiff always accepted
     defendant's recommendations.
  2. On approximately November 19, 1968, defendant
     initiated a telephone call to plaintiff for the
     purpose of specifically recommending to plaintiff
     the purchase of shares of Red Rope Industries Inc.
     ("Red Rope"), a security traded in the over-the
     counter securities market. In reliance upon the
     recommendation made by defendant, plaintiff
     authorized the purchase on his behalf of 1,000
     shares of Red Rope. Defendant then sold and
     delivered from its own inventory, as principal and
     on its own behalf, said shares of Red Rope to
     plaintiff. A confirmation statement sent by
     defendant through the United States Mails and
     received by plaintiff indicated an aggregate
     purchase price of $7,250.00, which amount was paid
     to defendant. Since the date of purchase the value
     of the 1,000 shares of Red Rope, which are
     presently still owned by plaintiff, has declined
     and a recent per share bid price quoted in the
     National Daily Quotation Bureau Service was
     approximately $2.00 or an aggregate value of
     approximately $2,000.00.*fn1
  3. On approximately December 16, 1968, defendant
     initiated a telephone call to plaintiff for the
     purpose of specifically recommending to plaintiff
     that he purchase shares of Red Rope, a security
     traded in the over-the-counter securities market.
     In reliance upon the recommendation made by
     defendant, plaintiff authorized the purchase on
     his behalf of 1,500 shares of Red Rope. Defendant
     then sold and delivered from its own inventory, as
     principal and on its own behalf, said shares of
     Red Rope to plaintiff. A confirmation statement
     sent by defendant through the United States Mails
     and received by plaintiff indicated an aggregate
     purchase price of $10,687.50, which amount was in
     fact paid to defendant. Since the

     date of purchase, the value of the 1,500 shares of
     Red Rope, which are presently still owned by
     plaintiff, has declined and a recent per share bid
     price quoted in the National Daily Quotation
     Bureau Service was approximately $2.00 or an
     aggregate value of approximately $3,000.*fn2
  4. On approximately March 19, 1969, defendant
     initiated a telephone call to plaintiff for the
     purpose of specifically recommending to plaintiff
     that he purchase shares of Red Rope, a security
     traded in the over-the-counter securities market.
     In reliance upon the recommendation made by
     defendant, plaintiff authorized the purchase on
     his behalf of 500 shares of Red Rope. Defendant
     then sold and delivered from its own inventory, as
     principal and on its own behalf said shares of Red
     Rope to plaintiff. A confirmation statement sent
     by defendant through the United States Mails and
     received by plaintiff indicated an aggregate
     purchase price of $3,500.00, which amount was in
     fact paid to defendant. Since the date of
     purchase, the value of the 500 shares of Red Rope,
     which are presently still owned by plaintiff, has
     declined and the present per share bid price is
     quoted in the National Daily Quotation Bureau
     Service at approximately $2.00 or an aggregate
     value of approximately $1,000.00.*fn3
  5. On approximately July 19, 1969, defendant
     initiated a telephone call to plaintiff for the
     purpose of specifically recommending to plaintiff
     the purchase of shares of Rancher's Exploration
     and Development Corp. ("Ranchers"), a security
     traded in the over-the-counter securities market.
     In reliance upon the recommendation made by
     defendant, plaintiff authorized the purchase on
     his behalf of 600 shares of Ranchers. Defendant
     then sold and delivered from its own inventory, as
     principal, and on its own behalf said shares of
     Ranchers to Plaintiff. A confirmation statement
     sent by defendant through the United States Mails
     and received by plaintiff indicated an aggregate
     purchase price of $26,700.00, which amount was
     paid to defendant. On March 24, 1970, a 2 for 1
     stock split occurred which resulted in plaintiff's
     600 shares of Ranchers becoming 1,200 shares of
     Ranchers. On April 23, 1970, plaintiff sold the
     shares of Ranchers attributable to this purchase.
     The net sales price received by plaintiff was
     $23,676.00.*fn4
  7. On approximately June 18, 1969 defendant initiated
     a telephone call to plaintiff for the purpose of
     specifically recommending to plaintiff the
     purchase of shares of Ranchers, a security traded
     in the over-the-counter securities market. In
     reliance upon the recommendation made by
     defendant, plaintiff authorized the purchase on
     his behalf of 500 shares of Ranchers. Defendant
     then sold and delivered from its own inventory, as
     principal, and on its own behalf, said shares of
     Ranchers to plaintiff. A confirmation statement
     sent by defendant through the United States Mails
     and received by plaintiff indicated an aggregate
     purchase price of $16,187.50, which amount was
     paid to defendant. On March 24, 1970 a 2 for 1
     stock split occurred which resulted in plaintiff's
     500 shares of Ranchers becoming 1,000 shares of
     Ranchers. Since the date of purchase as set forth
     above, the value of the 1,000 after split shares
     of Ranchers, which are presently still owned by
     plaintiff, has declined and a recent quotation was
     approximately $15.25 per share or an aggregate
     value of approximately $15,250.00.*fn6
  8. In all the above described transactions no
     disclosures were made at the time of the
     communication initiated by defendant that
     defendant was recommending for purchase by
     plaintiff a security which was owned by defendant
     and which was in fact sold and delivered to
     plaintiff out of defendant's own inventory with
     defendant acting as a principal in the transaction
     and not acting as agent. Failure by defendant to
     make full and complete disclosure to plaintiff
     that defendant was acting as principal in the
     aforedescribed recommended transactions and that
     an adverse interest existed in the transaction
     constituted a fraud and deceit upon plaintiff as
     those terms are used in Section 10(b) of the
     Securities Exchange Act of 1934 and Rule 10b-5 of
     the General Rules and Regulations promulgated
     thereunder.*fn7 Defendant

     used means and instrumentalities of interstate
     commerce, and the United States Mails, to so
     induce plaintiff to act as aforesaid and to so
     purchase Red Rope, to provide and pay the purchase
     price, all through such misrepresentations,
     concealments and omissions and all in violation of
     Section 10(b) of the Securities Exchange Act of
     1934 and Rule 10b-5 of the General Rules and
     Regulations promulgated thereunder.
  9. In order to effect the sale of the aforedescribed
     securities, the aforesaid defendant utilizing
     instrumentalities of interstate commerce and the
     mails, employed devices, schemes or artifices to
     defraud; made untrue statements of material facts
     or omitted to state material facts necessary to
     make the statements made, in the light of the
     circumstances under which they were made, not
     misleading; and engaged in transactions, practices
     or courses of business which operated as a fraud
     and deceit upon the aforesaid plaintiff, all in
     violation of Section 17(a) of the Securities Act
     of 1933.*fn8

In addition to the factual allegations of the complaint which are apparently undisputed, the following facts which were established by pre-trial discovery, are important to the proper disposition of the instant action.

Becker admits that it sold to Cant from its own account as principal, the following amounts of common stock as of the individual trade dates:

  (1) Red Rope, 1,000 shares purchased on November 19,
      1968 for an aggregate ...

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