People v. Ruskay

• Decision Date: 25 May 1926
• Citation: 243 N.Y. 58,152 N.E. 464
• Parties: PEOPLE v. RUSKAY.
• Court: New York Court of Appeals Court of Appeals

243 N.Y. 58

152 N.E. 464

PEOPLE

v.RUSKAY.

Court of Appeals of New York.

May 25, 1926.

Burrill Ruskay was convicted under Penal Law, § 954, of trading for his own account against the order of a customer, and from a judgment of the Appellate Division, First Judicial Department (212 App. Div. 436, 209 N. Y. S. 175), affirming the judgment of conviction, he appeals.

Reversed, and new trial granted.

Appeal from Supreme Court, Appellate Division, First department.

Martin W. Littleton, Louis B. Eppstein and Percival E. Jackson, all of New York City, for appellant.

Joab H. Banton, Dist. Atty., of New York City (Felix C. Benvenga and William B. Moore, both of New York City, of counsel), for the People.

CARDOZO, J.

Defendant, a stockholder, has been convicted of the crime of trading for his own account against the order of a customer. Penal Law, § 954 (Consol. Laws, c. 40).

S. S. Ruskay & Co., in which firm the defendant was a partner, were members of the Consolidated Stock Exhange in the city of New York. On February 17, 1922, they received from one Brunner, a customer, an order for the purchase of 200 shares of Mexican Petroleum stock. They made a contract at once on the floor of the Exchange for the purchase of the shares from Pearsall & Maloney. At that time and for some months past, they were seriously embarrassed for lack of money. The charge is that, before Brunner's shares had been paid for or delivered, they sold for their own account on February 20, 200 shares of the same stock to be offset against the purchase. Suspension and bank ruptcy followed a few days later. The question is whether the evidence makes out the essentials of the crime.

At the outset there is need to recall the precise wording of the statute. By Penal Law, § 954:

‘A broker, who, being employed by a customer to buy and carry upon margin the stocks, bonds or other evidences of debt of a corporation, company or association, while acting as broker for such customer in respect of such stocks, bonds or other evidences of debt, sells for his own account the same kind or issue of stocks, bonds or other evidences of debt of such corporation, company or association, with intent to trade against the customer's order, or, who, being employed by a customer to sell the stocks, bonds or other evidences of debt of a corporation, company or association, while acting as broker for such customer in respect to the sale of such stocks, bonds or other evidences of debt, purchases for his own account the same kind or issue of stocks, bonds or other evidences of debt of such corporation, company or association, with intent to trade against the customer's order, is guilty of a felony, punishable by a fine of not more than five thousand dollars, or by imprisonment for not more than one year, or by both. Every member of a firm of brokers, who either does, or consents or assents to the doing of any act which by the provisions of this section is made a felony, shall be guilty of a violation thereof.’

[1][2] Violation of this statute is impossible when once the shares that are to be bought have been delivered to the broker upon his payment of the price. The order has then been executed, and is no longer subject to be neutralized by a cross-order to sell. True, indeed, it is that the shares thus acquired may still be criminally misapplied. If the broker sells thereafter without his customer's consent, or hypothecates unduly, he offends against another section of the statute (Penal Law, § 956) and is guilty of a felony (People v. Atwater, 229 N. Y. 303, 128 N. E. 196). If, in so selling or hypothecating, he acts with intent to steal, he offends against section 1290, and is guilty of the crime of larceny. People v. Atwater, supra. The defendant is not charged either with misappropriation under section 956 or with larceny under section 1290. He is charged with matching orders to the end that one shall neutralize the other. What is charged has not been proved unless at the time of the order for the sale there was something yet undone upon the order for the purchase. Nothing to the contrary is urged by counsel for the people. The points of difference do not touch the construction of the statute. They have their origin in varying interpretations of the significance of evidence.

Deliveries between brokers, members of the Exchange, are effected through a clearing house. Under the rules of some exchanges, clearances are made daily. Under the rules of the Consolidated Exchange, they are made twice a week, Tuesday and Friday nights. In 1922, February 17 was Friday. The clearance sheets that night covered the purchases and sales for that day. They covered also the purchases and sales for February 15 and 16, the other days included in the same clearance period. Balances reported by the clearing house, whether of cash or securities, are settled the next day. Thus, in the usual course of business, the shares covered by the Friday clearance are delivered and paid for Saturday morning. Balances cannot be ascertained, when the clearance is made daily, by choosing the transactions for half a day and excluding those of the other half. For the same reason, balances are deceptive, when the clearance is made twice a week, if the transactions of one day are considered, and those of other days within the same period of clearance are put aside and disregarded.

The people proved that on February 17, 1922, the defendant's firm bought from Pearsall & Maloney 225 shares of Mexican Petroleum and sold on the same day to the same firm 188 shares of the same stock. There is no complaint as to these sales. The prosecution does not urge that they were for the benefit of the firm itself. They were legitimate transactions for the account of other customers. The record does not even inform us whether the sales were ‘long’ or ‘short.’ Upon this showing there was at most a balance of 37 shares to be delivered to the defendant the next morning. The other shares (188 in number) were already in their possession or under their control. They were delivered through the clearing house by a setoff of purchases and sales. Springs v. James, 137 App. Div. 110, 121 N. Y. S. 1054; affirmed 202 N. Y. 603, 96 N. E. 1131;Board of Trade of Chicago v. Christie Grain & Stock Co., 198 U. S. 236, 25 S. Ct. 637, 49 L. Ed. 1031;Fiske v. Douchette, 206 Mass. 275, 282, 284, 92 N. E. 455.

The people failed, however, to prove that even a balance of 37 shares was undelivered or unpaid for. Their evidence was limited to the transactions on a single day (February 17) with a single firm of brokers, the firm of Pearsall & Maloney. There was no attempt to prove the transactions of any other day within the same period of clearance. There was no attempt to prove the transactions with other firms. For all that appears, the clearance sheets of February 17 would show that the sales for the period then ending were greater than the purchases. In that event, no further act of delivery would be needed to make the purchases complete, since the shares already on hand would be utilized therefor. We do not need to go into the question whether this conclusion would be affected if the sales were shown to be ‘short.’ There is no suggestion in the record that they were. For all that the people have shown, the defendant's firm had already in their possession on the morning of February 18, 1922, 200 shares of Mexican Petroleum stock, allocated to Brunner's order and held for his account. Nothing done thereafter by wrongful sale or hypothecation could undo what had thus been...