De Kwiatkowski v. Bear, Stearns & Co., Inc.

Henryk de Kwiatkowski (Kwiatkowski) (plaintiff) had a nondiscretionary trading account at Bear, Stearns & Co., Inc. (Bear) (defendant), meaning that Bear executed trades for Kwiatkowski only at Kwiatkowski’s direction. Kwiatkowski had substantial currency-trading experience, but Kwiatkowski’s broker at Bear, Albert Sabini (defendant), occasionally gave Kwiatkowski advice and other information. In 1992, Bear’s chief economist told Kwiatkowski that betting on the dollar’s rise was a good investment opportunity. From late 1992 to early 1993, Kwiatkowski made $219 million betting on the dollar’s rise. In October 1994, Sabini told Kwiatkowski to buy the dollar, and Kwiatkowski began trading extensively. As of December 21, 1994, Kwiatkowski had made $228 million. However, when the dollar fell on December 28, Kwiatkowski lost $112 million. Kwiatkowski told Sabini and Bear’s foreign-exchange department head, David Schoenthal, that Kwiatkowski wanted to close his trading position, but Schoenthal and Sabini advised against liquidating during the holidays. Kwiatkowski lost another $98 million on January 9, 1995. After that loss, Bear’s chief economist told Kwiatkowski that the dollar would bounce back. However, Kwiatkowski lost another $70 million 10 days later. In mid-February, Kwiatkowski instructed Bear to begin liquidating Kwiatkowski’s position. Bear did so, but the dollar fell again, and Kwiatkowski suffered further losses. On March 3, Kwiatkowski asked to liquidate his position altogether. Schoenthal and Sabini advised Kwiatkowski to wait because the markets might rebound, but the dollar fell yet again. Kwiatkowski ultimately lost $215 million between October 1994 and March 1995. Kwiatkowski sued Bear and Sabini for negligence, alleging that Bear had not (1) adequately warned about the risks of massive currency speculation, (2) provided realistic market information and forecasts, and (3) adequately advised about liquidation. A jury found Bear liable for negligence and awarded Kwiatkowski $111.5 million. The district court denied Bear’s motion for judgment as a matter of law, and Bear appealed.