Opinion ID: 2307607
Heading Depth: 1
Heading Rank: 10

Heading: Oral Statements by RCM Representatives

Text: RCM Customers also allege that oral statements made by RCM representatives were deceptive. They state that during discussions about the RCM Customers' desire for low-risk investments and a safe place to hold securities, RCM representatives stated that: (i) RCM did not engage in proprietary trading; (ii) their business involved only executing, clearing, and financing trades in exchange for commissions and interest payments; and (iii) RCM's securities financing business was a matched-book, which insulated RCM from direct market risk. [24] Appellants argue that, in context, these statements created the perception that RCM was a dependable custodian for their securities and would not rehypothecate excess margin securities. However, none of these statements had any bearing on how RCM intended to use excess margin securities. They state only that RCM's business was that of a broker-dealer and that it took steps to limit its risk. No reasonable, much less sophisticated, investor would understand these statements as an affirmative representation that RCM would not rehypothecate excess margin securities. Moreover, any doubt was removed by the terms of the Customer Agreements, which granted RCM the right to rehypothecate all customer securities whenever a customer had a margin balance and the right to return customer securities in the form of cash. These provisions clearly represented that securities might be tied up in transactions even when not deemed to be collateral. Therefore, the only affirmative statements by RCM concerning the rehypothecation of customer securities were the terms of the Customer Agreement, which were not deceptive. [25]