IN RE SECURITIES AND EXCH. COM'N, Bankruptcy No. 72 Civ. 4350.

• Citation: 2 BR 284
• Decision Date: 22 January 1980
• Docket Number: Bankruptcy No. 72 Civ. 4350.
• Parties: In re SECURITIES AND EXCHANGE COMMISSION, Plaintiff. SECURITIES INVESTOR PROTECTION CORPORATION, Applicant, v. HAVENER SECURITIES CORP. et al., Defendants.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

2 B.R. 284 (1980)

In re SECURITIES AND EXCHANGE COMMISSION, Plaintiff.
SECURITIES INVESTOR PROTECTION CORPORATION, Applicant,
v.
HAVENER SECURITIES CORP. et al., Defendants.

Bankruptcy No. 72 Civ. 4350.

United States Bankruptcy Court, S.D. New York.

January 22, 1980.

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COPYRIGHT MATERIAL OMITTED

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Emmet, Marvin & Martin, New York City, for claimant Fahnestock & Co

Marshall, Bratter, Greene, Allison & Tucker, New York City, for trustee.

Securities and Exchange Commission, New York City, pro se.

Securities Investor Protection Corp., Washington, D.C., pro se.

DECISION ON MOTION AND CROSS-MOTION

EDWARD J. RYAN, Bankruptcy Judge.

This liquidation proceeding pursuant to the Securities Investor Protection Act of 1970 ("SIPA"), 15 U.S.C. § 78fff(d), was commenced on October 13, 1972 (the "filing date"). These motions arise out of the disallowance by the trustee of Havener Securities Corp. ("Havener" or the "debtor") of an open contractual commitment claim by a broker-dealer, Fahnestock & Co. ("Fahnestock"), pursuant to Section 6(d) of SIPA. Fahnestock moves for an order directing the trustee to complete its open contractual

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commitment with Fahnestock pursuant to Section 6 of SIPA; the trustee cross-moves pursuant to Rules 56 and 11 of the Federal Rules of Civil Procedure and Rules 756 and 911 of the Rules of Bankruptcy Procedure for an order confirming the trustee's determination, dated August 4, 1975, disallowing the Fahnestock claim, and awarding in favor of the trustee the attorneys' fees incurred in connection with both the investigation of Fahnestock's claim and the present cross-motion, upon the grounds that there is no genuine issue of fact to be tried and that Fahnestock's claim has been pursued in bad faith

On April 5, 1973, Fahnestock filed its claim in its "Statement of Open Contractual Commitment by Brokers and Dealers", alleging that as of the filing date there were contracts outstanding stemming from Havener's alleged agreement on trade date October 6, 1972, to purchase a total of 6,000 shares of the common stock of Power Conversion, Inc. ("PCI"), for an aggregate price of $180,250. On August 4, 1975, the trustee rendered his determination disallowing Fahnestock's claim on the grounds that "the transactions upon which your Fahnestock's claim is based were not open contractual commitments within the meaning of Section 6(d) of the Securities Investor Protection Act of 1970 (`Act'), and for the further reason that in connection with said transactions, the activities of you Fahnestock, JAB Securities Co., Inc. and/or the ultimate customers bar recovery under the Act." Fahnestock served and filed its "Objection to The Determination of Trustee Disallowing Claim of Fahnestock & Co. Under The Securities Investor Protection Act" on September 4, 1975. Discovery and investigation were conducted by both Fahnestock and the trustee prior to the filing of the instant motion and cross-motion. Fahnestock's motion is denied and the trustee's cross-motion is granted.

The mechanics of the trades in PCI stock which are the subject of the instant motions and which are not in dispute are as follows:

On the morning of October 6, 1972, First National City Bank ("FNCB") requested J.A.B. Securities, Inc. ("JAB") to sell 6,300 shares of PCI common stock, an over-the-counter security;

By virtue of six separate orders over the course of approximately two hours, JAB requested Fahnestock to sell 6,000 of these shares;

Fahnestock, in turn, telephoned sell orders aggregating 6,000 shares to Havener with a settlement date of October 16, 1972.

The trustee further alleges the following:

1. JAB was acting as agent for FNCB and Fahnestock was acting as agent for JAB;

2. In requesting JAB to sell the PCI shares, FNCB was acting as agent for William Rodman ("Rodman"), a self-employed securities dealer trading in PCI stock (3,800 shares) and Thomas Zammas ("Zammas") a broker-dealer actively trading PCI stock and a registered representative with C.I. Oren & Co., Inc., a market-maker in PCI (2,500 shares), both admitted participants in a scheme to manipulate the price of PCI stock;

3. No communications with respect to the transaction were received by Fahnestock from FNCB on October 6, 1972;

4. Prior to the filing date on October 9, 1979, Fahnestock was informed by Havener that Havener would not honor the trades in PCI stock for trade date October 6, 1972;

5. Fahnestock refused to confirm the PCI October 6, 1972 trades to JAB, refused to accept delivery of same from JAB, and failed to invoke procedures to close out the trades upon which the claim herein is based;

6. Fahnestock did not know of the interests of FNCB, Rodman or Zammas at the time of the transactions in question; and

7. At all times relevant hereto, Fahnestock was a member of the New York Stock Exchange ("NYSE") and the National Association of Securities Dealers ("NASD"), and JAB was a broker-dealer and also a member of NASD.

Fahnestock, on the other hand:

1. Denies any agency relationship between FNCB and Rodman and Zammas;

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2. Maintains that it did acknowledge the October 6, 1972 PCI trades to JAB, did complete the trades and did honor the PCI trades with FNCB;

3. Maintains that the trades were not repudiated prior to the filing date and that Fahnestock acted properly with respect to close-out procedures as an "interjected broker"; and

4. Maintains that it did know of FNCB's interest in the PCI trades on October 6, 1972.

The...