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ROSENBERG v. HANO

June 26, 1940

ROSENBERG
v.
HANO et al.*



The opinion of the court was delivered by: KALODNER

Plaintiff, a Philadelphia lawyer, brought this suit under the Securities Exchange Act of 1934, June 6, 1934, c. 404, Sec. 1 et seq., 48 Stat. 881, 15 U.S.C.A. § 78a et seq.

The original complaint was filed July 1, 1938. An amended statement of claim was filed October 11, 1938, and a second amended statement of claim (the final statement) was filed December 19, 1938.

 In the latter statement, the plaintiff alleged that he had purchased from the defendants -- members of the N.Y. Stock Exchange, doing business in Philadelphia, Pennsylvania -- 100 shares of stock of the Schenley Distillers Corporation on November 13, 1936, at a price of $54.75 per share, plus commissions. Plaintiff further alleged that he had purchased this stock in reliance (1) upon exhibition to him by Berger, a customer's man employed by the defendants, of a telegram from one Reitman of New York, publisher of a stock market information service, which read: "Schenley for 15 point advance"; (2) upon an accompanying statement to the plaintiff by Geis, one of the defendants, that "This is confidential information. Get in on this deal for a 15 point advance in a day or so"; (3) upon the further assurance by Berger, the customer's man, that Geis's statement was correct, and that the defendants, Hano and Company "had made a deal to that effect, whereby said stock would advance in price. * * * that Harold E. Reitman, the defendants, and other undisclosed persons were conducting market operations which would cause the price of Schenley stocks to advance from $54.75 per share, at which price they were then quoted upon the N.Y. Stock Exchange, to $69.75, as a result of said operations."

 The complaint further alleged that prior to November 13, 1936 -- the date of the purchase -- that Schenley stock "had been moving very slowly, rarely showing a greater activity than 100 to 200 shares sold per day within a period of two months prior to the purchase" and that subsequent to the plaintiff's purchase "within the same day and within the next two days immediately following there was an immense activity shown in the number of sales and transactions of the stock. * * *"

 The complaint further alleged that Schenley never went up $15 per share, and that instead it went down; that the price was $17.75 per share on the day suit was brought.

 A further allegation of the complaint was that it was not until February, 1938, that the plaintiff learned through Berger, the customer's man, that the November, 1936, transaction was a "manipulation" by a deal between Reitman and the defendants.

 The case came to trial November 2, 1939. At the conclusion of the plaintiff's testimony, the defendants moved for a directed verdict, and the motion was granted by the Court on the ground that the plaintiff had not made out a case. Plaintiff thereupon moved for a new trial.

 The provisions of the Securities Exchange Act of 1934, supra, relevant to this issue are as follows:

 Section 9, 15 U.S.C.A. § 78i. "(a) It shall be unlawful for any person, directly or indirectly, * * *.

 "(2) To effect, alone or with one or more other persons, a series of transactions in any security registered on a national securities exchange creating actual or apparent active trading in such security or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others.

 * * *

 "(4) If a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security, to make, regarding any security registered on a national securities exchange, for the purpose of inducing the purchase or sale of such security, any statement which was at the time and in the light of the circumstances under which it was made, false or misleading with respect to ...


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