Opinion ID: 308225
Heading Depth: 2
Heading Rank: 4

Heading: Method of Calculating Plaintiff's Loss

Text: 22 Plaintiff also appeals from the district court's ruling as to the method by which his damages under Regulation T were to be calculated. The court ordered that the losses be computed on a netting-out basis, i. e., by pairing a short sale with the first purchase of the same security effected thereafter. 8 Plaintiff argues, however, that since the defendant did not, in fact, net-out transactions in this manner, his losses should be determined by using the transactional pairings which appear in his monthly statements. Upon examination, plaintiff's reason for preferring this method of calculation becomes immediately apparent. Simplifying the facts to some degree, a typical series of transactions on which the plaintiff lost money conformed to the following pattern. Plaintiff would sell a particular security short, followed by a purchase and further sale of the same security, leaving him with a net short position which would then be eliminated by a cover purchase. Due to its erroneous bookkeeping, the defendant paired the first transaction with the fourth, and the second with the third, instead of following the netting-out principles prescribed by Regulation T. Because the market was continually rising, however, defendant's accounting procedures had the effect of showing a greater paper loss to plaintiff than he actually sustained, since during the period between the second and third transactions he had no net position in the security, and was thus immune to any rise or decline in its price. It is these so-called losses which plaintiff now argues he was entitled to recover. Regardless of the figures shown on the monthly statements, the district court was clearly correct in refusing to allow so inequitable a result. Defendant's failure to net-out transactions was significant only in regard to the role which such errors played in the undermargining of plaintiff's account; it did not operate to estop defendant from showing that a portion of plaintiff's claimed damages was purely imaginary.