Appeal from Order of the Court of Common Pleas, Civil Division, of Allegheny County, No. G.D. 79-1067.
Melanie DiPietro, Pittsburgh, for appellants.
Barry M. Simpson, Assistant District Attorney, Pittsburgh, for appellees.
Brosky, Wieand and Lederer,*fn* JJ.
[ 344 Pa. Super. Page 596]
The issue in this appeal is whether a broker-dealer can be held vicariously liable for the acts of an agent or liable for negligent supervision of an agent who has fraudulently obtained and converted moneys from would-be investors. The trial court, following trial without jury, found that the principal was not liable for fraudulent machinations of the agent which were unknown to the broker-dealer. We affirm.
In 1972, while associated with Investors Security, Carl Fugh met Alice Salzillo. She, in turn, introduced him to Mabel Cover, Richard Woodhall, Kenneth Horrell, and R. Joseph Knechtel. At various times, these persons and also Ann Staudt paid money to Fugh in exchange for his promise to invest their moneys for them. Beginning in 1974, Fugh began to solicit investments in commercial paper or floating notes with an annual yield of tax free interest represented to be twelve to fifteen percent. In return for moneys paid, Fugh delivered handwritten receipts. The receipts were issued by Fugh alone and did not contain the name of any investment firm which Fugh might have purported to represent. He told the investors that he could invest money only in block amounts of $100,000; and, therefore, few questioned his practice of depositing their funds into his personal account. They assumed that Fugh would draw checks from his account to purchase investments for them when the amount warranted investment. The investors, who are the present appellants, knew that Fugh was originally associated
[ 344 Pa. Super. Page 597]
with Investors Security.*fn1 In mid-1975, however, Investors Security ceased doing business, and Fugh became a registered representative of Cushing Capital Corporation, a New York broker of stocks, bonds, and mutual funds. As a registered representative, Fugh was authorized by Cushing Capital to sell certain mutual funds and stocks listed on the New York Stock Exchange. Cushing Capital did not deal in commercial paper, and Fugh was not authorized to handle investments therein on Cushing's behalf. Although Fugh told the appellant-investors that he had changed his affiliation, he also represented to them that he was continuing in his private capacity as a finder of capital. Cushing Capital, the evidence showed, was not aware of Fugh's accepting moneys for investment from appellants or of the fact that Fugh was depositing appellants' moneys in his private account. The moneys were not delivered to Cushing Capital and the investors did not ever receive acknowledgements from Cushing Capital that moneys had been received or that investments were to be made. The evidence also showed that none of the appellant-investors ever made inquiry to either Investors Security or Cushing Capital regarding the moneys which they had delivered to Fugh for investment. In 1978, after Fugh had discontinued his association with Cushing Capital, it was discovered that he had not used appellants' moneys to purchase investments but had converted the moneys to his own use. In January 1979, Fugh entered pleas of guilty to theft by failure to make required disposition and to violating the Pennsylvania Securities Act. As a result of Fugh's dishonest scheme, he caused losses to appellant-investors as follows:
Richard Woodhall 3,269.89