Sennott v. Rodman & Renshaw

474 F.2d 32 (7th Cir. 1973)

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Nature of the Case

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Facts

Both Sennott and Jordan were members of the Chicago Board of Trade, although Sennott had little experience in securities investments. They became acquainted, and Jordan urged Sennott to open an account at Rodman through him, saying that his father had made money for other Board of Trade members. Ultimately, Sennott agreed, and between 1964 and 1966, his trading volume in the accounts at Rodman was more than $2 million, 70% of which was through accounts opened by Jordan. Unknown to Sennott during this period, Jordan's employment by Rodman had been terminated because of his questionable integrity, and he had no official connection with the firm after 1958. The Securities and Exchange Commission had held in a 1962 order that between 1955-1957 Jordan, while employed by another broker-dealer, had violated various anti-fraud provisions of the Securities Act. In 1958, his registration as a representative of a member of the National Association of Securities Dealers had been revoked because of deceptive practices. In early 1964, Jordan induced Sennott to invest in a secondary offering by Skyline Homes, Inc., that Rodman was handling. Soon after Jordan encouraged him to buy additional shares of Skyline through stock options made available to William, his father, for his services in underwriting the secondary offering. Sennott ultimately invested $142,000 in these options. They did not exist, and Jordan placed the money in his wife's checking account to use in paying off trading losses. Suspicion did not arise immediately because the options were not due for delivery for seven months. After that, Jordan was able to hold off Sennott's suspicions with various stories. In October 1964, Sennott was told that Rodman's managing partner, Carroll, wanted to talk to him. William Rothbart told Sennott that the options were none of Carroll's business and that Sennott should not cooperate. William and Jordan accompanied Sennott to his meeting with Carroll, where Carroll revealed that Sennott's checks had been deposited in Jordan's wife's account. However, Sennott abided by his agreement with William not to cooperate with Carroll, and Jordan was again able to explain away this suspicious circumstance. William assured Sennott he would receive the options. The truth finally dawned on Sennott in 1966 when he found that another member of the Board of Trade had been the victim of a similar scheme of Jordan's; Sennott also discovered Jordan's past at this time. Jordan was expelled from the Board of Trade. Based on these facts the trial judge found Rodman, as well as Jordan and William, liable. Rodman's liability was based, inter alia, on 20(a) of the Securities Act of 1934 (15 U.S.C. 78t). The court concluded that Rodman had knowingly assisted in the efforts to defraud and that Rodman knew or should have known of the illegal conduct. This appeal resulted.