Court Opinion

ID: 8942850
Source: CourtListenerOpinion
Date Created: 2022-11-27 08:05:53.900949+00
Date Added: 2024-06-11T17:09:46.639782
License: Public Domain

MERRITT, Circuit Judge, concurring.
I concur in the Court’s opinion in this case but would add a caveat. The customer’s primary argument is based on the fact that the customer and the broker agreed to engage in short term, in-and-out trading and that the record reveals such a pattern. The customer then argues that the broker made frequent “buy” recommendations based on Merrill Lynch’s investment recommendation list without explaining that this list did not purport to take into account short term, technical trading considerations. On different facts I would be included to hold this practice to constitute churning. The problem with that argument here is that there is no evidence that Dale, the Merrill Lynch broker, knew any more about short term trading considerations than Saputo, the customer’s agent, who authorized each trade. Dale was not guilty of fraud if he did not know that his advice did not adequately take into account relevant short term considerations. He did not engage in churning if he thought, in good faith, that he could make short term recommendations on the basis of long term research. Both Dale and Saputo apparently thought that the Merrill Lynch list could be used for short term trading. The real problem here is that Merrill Lynch management did not go to the trouble to make sure that its brokers fully understood the considerations behind short term trading. One might speculate about the reasons Merrill Lynch did not adopt, and insist that its *538brokers follow, different professional standards when they engage in short term trading. The record here is silent on this complex subject, however, and the customer does not appear to argue that Merrill Lynch’s management is guilty of fraudulent trading practices when it permits its brokers to engage in short term trading without following the technical considerations that traders normally employ. The case was not tried upon that theory. It was tried on the theory that Dale churned the account, and it seems to me that the Court’s opinion correctly decides the lawsuit based on that theory.