Auction Rate Losses >

Sub Prime Losses >

Questionnaire >

Investment Losses >

Stockbroker Duties >

Safeguard Privacy >

Investment Fraud >

Retired Investors >

Investing Articles >

Was Account Rightfully Liquidated?
By Mitchell S. Ostwald

In the aftermath of one of the largest point drops in the history of the Nasdaq, many investors received notification of a margin call. While it is estimated that investors have over $280 billion dollars in margin this month, the manner in which a firm exercises its margin call is subject to great scrutiny.

In the case of Jacobson v. Quick & Reilly, Inc. , 126 FRD 24, the U.S. District Court was asked to review a NYSE arbitration ruling in favor of the claimant (Jacobson). The arbitration panel found that Quick & Reilly had improperly acted upon its margin call.

Richard O. Jacobson maintained a sizable brokerage account at Quick & Reilly's San Diego brokerage office, which was liquidated after a margin call on October 20, 1997 ("Black Monday"). Prior to liquidation, the branch manager of the Quick & Reilly office had a conversation with Mr. Jacobson concerning what action would satisfy the maintenance call and result in the account not being liquidated. The branch manager testified at the arbitration proceeding as to this conversation, and also testified that Mr. Jacobson in fact complied with the Quick & Reilly request, although there was testimony that Jacobson sought to withdraw this compliance. On the afternoon of October 20, 1997, Mr. Jacobson's portfolio was liquidated on the order of Leo C. Quick, Jr. , Chairman of the Board and CEO of Quick & Reilly. Mr. Jacobson's subsequent demands for reinstatement of the account went unheeded, and on November 24, 1997, Mr. Jacobson initiated the arbitration.

The arbitration panel awarded Jacobson $1,850,170.30, plus interest. Quick & Reilly sought to have the arbitration award overturned in Federal Count contending that the panel's damage award indicates that the panel construed the margin agreement to give the client a 10-day grace period not intended by, or contained in, that agreement. Mr. Quick testified before the arbitrators as to his believe that he had the right to liquidate the account during the tumultuous hours of the October 1997 crash. The panel, having been fully briefed on this issue by counsel and having heard the testimony concerning the agreements reached by Mr. Jacobson and the Quick & Reilly branch manager, concluded otherwise.

What makes this ruling quite fascinating from a claimant's counsel point of view is that the damages for wrongful liquidation of an account are calculated by the highest interim price reached by the various securities within a reasonable period of time, and that a 10-day period was a reasonable time frame. The panel, making adjustments reflective of its close scrutiny and comprehension of the issues, adopted this contention in making its award. The U.S. District Court found no basis to overturn the arbitrators' decision.

So, just as no two torts are alike, no two margin calls are alike. Firm requirements and obligations differ greatly, and a firm's power is limited and restrained. Before agreeing that one's account was rightfully liquidated to pay a margin call, it is important to find out what the investor (and the firm) agreed to and whether the margin call was conducted in accordance with the customer's agreement.

For more Investing Articles:

Select Link: Five New Criteria for Prudent Investing Supreme Court: Non-Fiduciary Parties-In-Interest Still Liable Forum Shopper Must Still Apply Calif. Law, A N.Y. Court Rules AOL Fined $3.5M for Inaccurate Financials Inadequate Disclosure Costs Mutual Fund Rules of SEC Work to Protect Investors Federal Ruling May Make Insider Trading Cases Harder to Prosecute Trading is Hazardous To Your Wealth Was Account Rightfully Liquidated? Disclosure of Tax Consequences For Mutual Funds Recent Bankruptcy Decision Regarding Non-Dischargeability Arbitration Award Pressure to Regulate Day Trading Increases Economy May Face Margin Call Securities Damages Difficult to Analyze Push Is on for Full Disclosure Referral Fees For Securities New Rules for Securities Arbitration

back to top >>

© 2006 | Home | Our Professionals | Services | Contact | Developed by Noble Image, Inc.