Cruse v. Equitable Securities of New York Inc.

Steven Fishman (defendant) was a registered representative of Equitable Securities of New York, Inc. (Equitable) (defendant). William Cruse (plaintiff) was an 82-year-old businessman who had traded only blue-chip stocks and never traded options. Fishman met Cruse at a social event and told him that trading index options could yield a substantial return, the stock Cruse had to put up as collateral would never be liquidated, no trade would be made without consulting Cruse, Fishman would monitor trading to prevent losses, the options strategy Fishman would pursue was conservative, and Fishman would explain the confirmations and monthly statements Cruse would receive. Cruse transferred collateral into the Equitable account, and Fishman immediately sold call options on the stock without Fishman’s authorization. Over the next six months, Cruse lost over $260,000. Fishman knew that Cruse did not understand his monthly account statements but never advised Cruse how much he was losing. When Cruse received margin-maintenance notices, Fishman said the notices had been sent in error. Fishman also told Cruse that earlier losses had become profits that should be reinvested. After receiving 17 trade confirmations for unauthorized trades, Cruse met with Equitable and was told that the firm had been concerned about Cruse’s account, but Fishman had indicated that Cruse had vast wealth and his Equitable account was his risk portfolio. Cruse sued Equitable and Fishman for unauthorized trading in violation of § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder—the antifraud provisions of the securities laws. Equitable and Fishman moved to dismiss the unauthorized-trading claim for failure to state a claim upon which relief could be granted.