Court Opinion

ID: 3777815
Source: CourtListenerOpinion
Date Created: 2016-07-06 07:27:45.851448+00
Date Added: 2024-06-11T18:11:33.793418
License: Public Domain

Respectfully, I dissent.
Appellant's request for discovery is anchored on the theory that R. C. 1707.42 governs "short sale" speculations. A review of the language of that subsection, and the *Page 100 
Ohio Blue Sky Law, of which it is a part, in my judgment does not support that theory.
R. C. 1707.42 makes one liable who, with an intent to secure financial gain, advises a person to purchase securities and receives a commission or reward without disclosing his agency or interest in the sale. The interested advisor is liable to the purchaser for the amount of his damage thereby, "upon tender ofsuch security."
In the present case, the allegedly interested advisor (appellee) did not advise the appellant to purchase anything in which he would obtain such ownership or possession that he would have it (or the right to it) to tender back. Rather, the appellee advised the appellant to engage in a proceeding known as a "short sale" which has gained popularity in recent years.
The advisor (appellee), in substance, offered to borrow for the appellant a certain quantity of stock which the appellant would neither own nor possess. Appellee would then sell the stock for the appellant at what the appellee and the appellant believed to be an artificially inflated price, only to purchase the stock after the price declined, when appellee would return to the stock lender that quantity of stock which had been borrowed on the appellant's behalf. After paying a commission, appellant would pocket the difference.
As can be seen, R. C. 1707.42 is triggered only "upon tender of such security." But the appellant here neither owned nor possessed anything to tender, which is but one specific indication that this subsection does not apply to "short sale" proceedings.
In addition, the appellant contends that a fraud may have been perpetrated upon him by appellee's nondisclosure when the borrowed stock was sold on the appellant's behalf. Yet at this stage, the appellant was in no sense a purchaser. He was only nominally a seller and the appellee (or its principal) may have been the purchaser. However, there are no provisions in the Ohio Blue Sky Law reaching nondisclosure of material facts by a purchaser (here, the appellee) which might amount to fraud.See, Toledo Trust v. Nye (N. D. Ohio, 1975), 392 F. Supp. 484. *Page 101 
Even at the later stage when the same quantity of stock was purchased on appellant's behalf to "cover short," the appellant was a purchaser in name only, with no ownership or even possession which would make him a purchaser in the sense contemplated by the Ohio Blue Sky Law. The stock belonged in actuality to the lender who had a right to have that quantity returned to him which had been borrowed.
The entire thrust of the Ohio Blue Sky Law is to define the duties and liabilities of sellers for the protection of purchasers engaged in ordinary buy-sell transactions. It can no more be construed to protect a "short sale" speculator than it can be stretched to protect a seller who may be the victim of fraud.
I would affirm the lower court.
In my opinion the appellant who cannot comply with the condition precedent of tendering the security cannot invoke R. C. 1707.42 to determine the agency or interest of his advisor. That is not to say that the appellant has no cause of action, but only that it cannot be pursued under R. C. 1707.42.