Junger v. Hertz, Neumark & Warner
| Citation | 426 F.2d 805 |
| Decision Date | 06 May 1970 |
| Docket Number | Docket 33701.,No. 128,128 |
| Parties | Simon JUNGER, Plaintiff-Appellant, v. HERTZ, NEUMARK & WARNER, Defendant-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Simon Junger, pro se.
Mortimer Goodman, New York City (Grandefeld & Goodman, New York City, on the brief), for defendant-appellee.
Before LUMBARD, Chief Judge, WATERMAN, Circuit Judge, and JAMESON,* District Judge.
Regulation T, promulgated by the Federal Reserve pursuant to this section, has long provided that a broker cannot arrange for a third party to extend credit in a greater amount than the broker could extend to the customer directly. Junger attempted to prove below that one Gelber, a registered representative of defendant, arranged a loan between Junger and one Stark, a money-lender and factor who supplied funds to Junger to purchase securities which themselves became the security for the loans. It is undisputed that the credit extended by Stark was far in excess of that which Hertz, Neumark could have itself extended consonant with the prevailing margin requirements. Judge Bonsal gave judgment for defendant on Junger's failure of proof, and we affirm.
It has long been settled that a person for whom a broker has unlawfully arranged credit has a private right of action against the broker for violation of section 7(c). See Smith v. Bear, 237 F.2d 79 (2d Cir. 1956); Remar v. Clayton Securities Corp., 81 F.Supp. 1014 (D. Mass.1949); Note, Federal Margin Requirements as a Basis for Civil Liability, 66 Colum.L.Rev. 1462, 1467-71 (1966). But an essential element in such a suit is establishing that the broker had sufficient connection with the extension of credit by a third party.1
The heart of Junger's case is his claim that Gelber "arranged" the factoring agreement. Junger testified that Gelber introduced him to Stark, a fellow customer of Gelber's, that Gelber handled the mechanics of the factor arrangement, accepted Junger's payments on the account on behalf of Stark, and took purchase orders from Junger for Stark's account. This would seem a paradigm example of arranging. As the SEC stated in Sutro Bros. & Co., 41 SEC 443, 456-57 (1963):
It is clear that when a broker permits himself to become the intermediary between customer and factor with respect to the customer\'s account or dealings with the factor, as by conveying the customer\'s communications or instructions to the factor or by responding to requests or directives of the factor concerning the customer\'s transactions, the broker becomes so involved in extension or maintenance of credit for the customer by the lender as to be held to be arranging.
Junger of course would have had to establish that Hertz, Neumark was responsible for Gelber's unlawful actions, but liability might be rested on either section 20 of the...
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