In 1969, elderly Ohio eye doctor David E. Rolf turned over his $1,423,000 securities portfolio to independent investment adviser Akiyohi Yamada, one of the so-called "new breed" of money managers with purported expertise in "special situations."

"You will kindly follow his instructions in every respect concerning my account with you... as he may order and direct," the Shaker Heights opthalmologist said in a letter to his broker, Blyth Eastman Dillon & Co. (BEDCO).

The trust put by Rolf, an aggressive trader in the stock market, in Yamada may be easy to understand.

A Harvard Business School graduate, Yamada rose to a high post at Kuhn Leob & Co., left that investment banking firm to form a partnership with, among others, former New York Stock Exchange (NYSE) president Keith Funston, and was managing about $20 million for customers.

Within seven months, Yamada had liquidated Rolf's portfolio, selling 14 of 21 good-quality securities at a loss, and buying others that later would be called "low quality" by the 2nd U.S. Circuit Court of Appeals. By October 1970, 15 months after Yamada took over the $1.4 million portfolio, it was valued at a mere $223,000. Rolf ended up in near financial ruin.

Last February, the appeals court ruled 2-1 that BEDCO and one of its registered representatives, Michael Stott, are liable to the physician for damages, in a sum to be determined by the U.S. District Court in New York City.

Now, BEDCO and Stott have asked the Supreme Court to review the 2d Circuit ruling. They are supported in friend-of-the-court briefs by the NYSE, the Securities Industries Association, Inc., and two leading brokers, Merrill Lynch, Pierce, Fenner & Smith, Inc., and Shearson Hayden Stone Inc.

For the appeals court majority, Circuit Judge James L. Oakes wrote, "There was no doubt that Yamada perpetrated a gross fraud upon Rolf."

He said that Stott had "participated in and lent assistance" to the fraud upon the physician, now 71, citing Stott's "assurances of confidence in Yamada," his "reckless disregard of whether those assurances were true or false," and "substantial evidence that Yamada was improperly and fraudulently managing Rolf's account."

The appeals court majority reversed federal Judge Lawrence W. Pierce, who had dismissed Rolf's complaint that Stott had "aided and abetted" Yamada's investment in "high fliers," "Junk," or other questionable stocks.

The criticized securities, including Hair Extension Centers and International Funeral Services, replaced such blue chips as Anaconda and Raytheon.By the end of March 1970 when the portfolio's value had sagged by $1 million, half of the $446,000 balance was invested in Delanair, Inc., stock that Oakes termed "low quality."

In the dissenting opinion, Circuit Judge Walter R. Mansfield wrote that the majority had put "an extraordinary and unconscionable burden" on BEDCO as well as Yamada.

"Rolf testified that he 'wanted somebody other than Stott' to handle his account," Mansfield recalled. Rolf "wanted to gamble on some 'high fliers,' and for this he looked to Yamada, not Stott."

Similarly, BEDCO, in its petition for review, said that Rolf was no "'babe in the woods,'" having had 19 years' experience in investing, including 10 years when he was "his own adviser and the supervisor of various trading accounts" he maintained in Cleveland.

In opposing review, Rolf called Stott "a principle actor in the fraud." He spoke to Yamada 10 or 15 times a day on a direct phone line but "lied at his deposition about the extent of his contact," Rolf charged.