The Supreme Court declined yesterday to review a ruling that made a stock broker liable to a defrauded customer even though the broker bought and sold securities at the direction of the customer's independent investment adviser.
The court let stand a decision by the 2d U.S. Circuit Court of Appeals in a case involving Blyth, Eastman Dillon & Co., Inc. (BEDCO); adviser Akiyohi Yamada, who was known as one of the "new breed" of money managers, and investor David E. Rolf, an elderly Shaker Heights, Ohio, Ophthalmologist.
Taking charge of a $1.4 million portfolio, Yamada so managed it that, within 15 months, its value had gone down to a mere $223,000. One of his practices was to sell blue-chips such as Anaconda and buy high fliers such as Hair Extension Centers.
A key issue was whether BEDCO and one of its registered representatives, Michael Stott, bore responsibility for what was held to be a fraud by Yamada on Rolf.
In the appeals court, a 2 to 1 majority concluded that Stott had "participated in and lent assistance" to the fraud. The dissenter, agreeing with the trial judge, said that Stott was "ignorant" of Yamada's manipulations and hadn't intentionally and deliberately aided or abetted "fraud."
In BEDCO's petition for Supreme Court review, which was supported only by Justice Lewis F. Powell Jr., the firm said that Rolf, rather than being a "babe in the woods," was a "sophisticated investor who was well aware of the difference between giltedge... securities and speculative 'high fliers.'"
Rolf, in a May 1969 letter to BEDCO, had told it to follow Yamada's instructions "in every respect concerning my account with you... as he may order and direct."