Securities Investor Protection Corp. v. First Entertainment Holding Corp.

The board of First Entertainment Holding Corp. (First Entertainment) (defendant) decided to give stock options to one of its directors, Abraham Goldberg (plaintiff), but later changed its mind and canceled a portion of the stock options. Stock options are a type of uncertificated security. Goldberg challenged First Entertainment’s right to cancel the options, and he filed suit. A trial court ordered First Entertainment to place the disputed stock options in the possession of the clerk of the court. Although First Entertainment received the court’s notice and wrote a letter in response, First Entertainment did not give the stock options to the clerk of the court. The trial court issued First Entertainment a contempt citation. First Entertainment appealed. At trial, an expert for Securities Investor Protection Corporation (plaintiff) gave testimony that in order to transfer the stock options to the clerk of the court, First Entertainment would have needed to record the transfer either to Securities Investor Protection Corporation or to the clerk of the court in its corporate books and to provide the clerk with an acknowledgment of the transfer. Additional evidence provided at the trial showed that First Entertainment was aware of how to effect a transfer of an uncertificated security, and that it had the capacity to do so.