PART II SUMMARY OF LAWS AND DECISIONS HERE have always been laws upon the statute THE books by which the legislature has endeavored either to control the conduct of stockbrokers or to throw around the pursuit of their calling such safeguards for the public as would ensure fair dealing. Some of these laws are of long standing. Quite a few of them were enacted undoubtedly in response to an agitation which arose recently. While some of more recent date are mere declarations, as it were, of the common law, as it has heretofore existed, a few of them by supposedly creating new crimes, place upon the stockbroker additional burdens and responsibilities which are expected to secure a customer, and the public, perhaps, against loss in its dealings, not so much with the stockbrokers themselves, as in the general pursuit of investment or even speculation in corporate shares. Whatever view one may have as to the necessity of this legislation, the merest inquiry will disclose that loss through misconduct of stockbrokers occurs in a very small percentage of cases. In five years, during which time there were on an average eleven hundred members on the New York Stock Exchange, the small number of nineteen failures occurred; and in the majority of these cases the creditors, including the customers, were either paid in full, or received compromises to their own satisfaction, and so rehabilitated the broker that he was fairly entitled to reinstatement. The laws referred to are numerous and some of them lengthy and couched in such legal phraseology that it is deemed best that the more important of them should be summarized so that they may be read by the broker and his customer. For the purpose of making clear, if possible, what these laws have been held by the courts to mean, references have been made to decisions where same were obtainable. No scheme or order could be devised for the presentation of these laws; they do not appear here in the order of their importance; they have been grouped where any relation existed between them, and the authorities have been cited wherever possible. Unauthorized Pledging (Hypothecation) or Other Disposition of Customers' Securities. Laws 1913, ch. 500. Penal Law, Sec. 956. In effect May 8, 1913.1 A broker who, 1. Having in his possession, for safekeeping or otherwise, securities belonging to a customer, without having any lien thereon or any special property therein, pledges or disposes thereof without the customer's consent; or, For full text see infra p. 211. 2. Having in his possession securities on which he has a lien for indebtedness, pledges them for more than the amount due to him thereon, or otherwise disposes of them without his customer's consent, and without having in his possession or under his control the equivalent of such securities, whereby the customer loses such securities or the value thereof, in whole or in part, is guilty of a felony, punishable by a fine of not more than $5,000 or imprisonment for not more than two years, or by both. Every member of a firm of brokers, who either does or consents or assents to the doing of such an act, is guilty as above.1 The first clause of this section deals with the unauthorized pledge or other disposition of a customer's stocks held by the broker on which he has no lien. The second makes a felony what the law previously regarded as a conversion only, 2i.e., the pledging of margined stock for more than the amount of the broker's advances. Even before the enactment of the statute, if the conversion had been made with intent to steal, it would have constituted larceny. The pledgor is still, of course, entitled to his civil remedy.3 A broker who has purchased stock on margin for a customer may pledge the stock for his advances.1 All 1See The Exchange and its Constitution, supra p. 37. 'Hardy v. Jaudon, 1 Rob. 261 Strickland v. Magoun, 119 App. Div. 113* In re Tracy, 191 Fed. 810 'See infra. p. 46. 'Rothschild v. Allen, 90 App. Div. 233, affirmed 180 N. Y. 561. |