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May 16, 1988

Herbert W. Leonard
Shearson Lehman/American Express Inc., et al.

The opinion of the court was delivered by: GILES


 Herbert W. Leonard has filed suit complaining that a representative of Shearson Lehman/American Express (Shearson Lehman) in its Harrisburg, Pennsylvania branch, and several officers of that firm located in New York City, made material misrepresentations to him upon which he relied. *fn1" Plaintiff claims that as a result of these misrepresentations he lost $ 125,000.

 These losses were allegedly incurred as a result of plaintiff's participation in an options trading program, entitled "The S & P 100 Index Income Strategy" (the "Strategy"). See Complaint, Ex. A. Plaintiff maintained this securities account with defendants between April, 1984 and September, 1986.

 Plaintiff alleges that defendants made false representations regarding the Strategy in violation of: Sections 12 and 17 of the Securities Act of 1933, 15 U.S.C. §§ 77 l, 77q; the Commodity Exchange Act, 7 U.S.C. § 1, et seq.; the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq.; Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder; and the Pennsylvania Securites Act of 1972, Pa. Stat. Ann., tit. 70, § 1-401 (Purdon 1985). Plaintiff also alleges the common law actions of breach of contract, fraud, breach of fiduciary duty, and negligence.

 On November 26, 1986, defendants moved to sever and compel arbitration of plaintiff's state law claims, stay plaintiff's Section 10(b) and Rule 10b-5 claims, and dismiss plaintiff's Securities Act of 1933 claims, Commodity Exchange Act claim, and RICO claim. This court granted defendants' motion on December 19, 1986. On January 2, 1987, plaintiff moved for reconsideration of this court's order. On October 5, 1987, the stay was lifted on the Section 10(b) and Rule 10b-5 claims.

 Upon reconsideration of the other claims, I hold that the Securities Act of 1933 claims and the RICO claim were properly dismissed with prejudice. The state-law claims were also properly sent to arbitration. The Commodity Exchange Act may not have been properly dismissed due to a possible fact dispute and the order dismissing that claim will be vacated accordingly.


 Count I of the complaint alleges violations of both Sections 12 and 17 of the Securities Act of 1933. As a matter of law, plaintiff cannot advance either of these claims against defendants.

 A. Section 12

 Section 12 provides:

Any person who . . . (2) offers or sells a security . . . by the use of any means or instruments of transportation or communication in interstate commerce . . . which includes an untrue statement of material fact or omits to state a material fact necessary in order to make the statements . . . not misleading, shall be liable to the person purchasing such security from him . . . .

 15 U.S.C. § 77 l (2) (emphasis added).

 The third circuit has held that Section 12 is designed solely as a vehicle for a purchaser against his immediate seller. Collins v. Signetics Corp., 605 F.2d 110, 113 (3d Cir. 1979). Absent allegations of strict privity between the plaintiff and defendants, or allegations that defendants had control over the seller, plaintiff has no cause of action under Section 12. See also Kramer v. Scientific Control Corp., 452 F. Supp. 812, 814 (E.D. Pa. 1978).

 Plaintiff first contends that a broker is a seller under Section 12(2). I disagree. Plaintiff cites no case law to support his position. In addition, the argument lacks common sense. A broker fields the offers of sellers or purchases stock or options from a seller on behalf of a client. A broker also offers advice to or, if authorized, makes decisions on behalf of a client. To argue that defendants, in their role as brokers, "sold" or "offered" securities to the plaintiff within the meaning of Section 12(2) ignores this basic definition of a broker and is an implausible interpretation of the statute.

 Defendants correctly argue that Section 12(2) simply is not intended to remedy a principal-agent dispute such as the one at hand. The statute is intended to redress prospectus or registration statement fraud in a buyer/seller relationship in an initial offering transaction. Defendants aptly observe that plaintiff's "dispute is with the functioning of the options writing strategy, a claim which cannot be brought within, or remedied by, Section 12(2) of the Securities Act." Defendants' Memorandum in Opposition to Motion to Amend or Alter Judgment at 7-8.

 Plaintiff next argues that defendants were the seller by reason of their contractual relation between the issuer of the options and the purchaser. Plaintiff states that defendants were "clearing members" or "de facto underwriters" and that this status makes them liable under Section 12(2). An examination of the program literature attached to plaintiff's complaint shows that plaintiff wrote and sold options in return for a premium. See Complaint, Ex. A. Plaintiff alleges that Shearson then "closed or otherwise disposed of the puts, calls and straddles which it purchased for and managed in Shearson's account for Leonard." Amended Complaint, para. 20 (emphasis added). Shearson was not a seller or a purchaser. As plaintiff's broker, it made purchases and sales for plaintiff's account. As discussed above, a broker is not liable under Section 12(2).

 Finally, plaintiff argues that defendants are liable under Section 12(2) for their substantial aid and participation in the sale to Leonard. As discussed above, the third circuit has held that absent privity between the seller and buyer, or some special relationship, such as control over the seller, plaintiff cannot maintain an action under Section 12(2). Collins, 605 F.2d at 113. Plaintiff has not alleged that ...

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