ALDON J. ANDERSON, District Judge.
Plaintiffs moved for partial summary judgment pursuant to rule 56, Federal Rules of Civil Procedure, on September
8, 1972. The issues were fully briefed and arguments were heard November 15, 1972. Decision of the motion was postponed pending determination of plaintiffs’ subsequent motion to amend their complaint. The motion to amend has now been granted.
Plaintiffs (hereinafter sometimes the “Taylors”) and defendant (hereinafter sometimes “Smith, Barney”) are well acquainted. Smith, Barney acted as broker or dealer in more than 650 stock transactions made for the Taylors’ accounts over a four-and-one-half-year period ending in early 1971. By their motion for partial summary judgment, the Taylors ask the court to focus on at least 60 of those transactions in which it is claimed Smith, Barney failed to disclose that it was making a market in the stocks which were bought and sold. The Taylors argue that this failure to disclose constituted the omission of a “material fact” in contravention of section 10(b) of the Securities Exchange Act of 1934 (hereinafter the “Act”),
rule
10b-5(2)
promulgated thereunder, Utah Code Ann. §§ 61-1-1 and 22(1) (b)
and, as to securities sold, section 17 of the Securities Act of 1933.
The Taylors also seek a ruling that Smith, Barney failed to disclose that it was acting as a dealer in these transactions and thereby violated sections 10(b) and 15(c)(1)
of the Act and rules 10b-3,
10b-5 and 15cl-4.
Materiality is at the epicenter of this dispute.
In rule 10b-5 actions, the materiality of an omitted fact may be tested by determining whether a reasonable investor might have considered it important in the making of his investment decision.
E.g.,
Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-154, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972). Judicial pursuit of the “reasonable investor” has led most often to a consideration of the fact constellation of each case including the relationship of the parties, the experience of the investor, the nature of the transaction and the nature of the omitted fact.
See e. g.,
Mitchell v. Texas Gulf Sulfur Company, 446 F.2d 90, 103 (10th Cir. 1971), cert. denied, 404 U.S. 1004, 92 S.Ct. 564, 30 L.Ed.2d 558 (1971) and 405 U.S. 918, 92 S.Ct. 943, 30 L.Ed.2d 788 (1972); City National Bank v. Vanderboom, 422 F.2d 221, 230-231 (8th Cir.), cert. denied, 399 U.S. 905, 90 S.Ct. 2196, 26 L.Ed.2d 560 (1970); Clement A. Evans & Co. v. McAlpine, 434 F.2d 100, 104 (5th Cir. 1970), cert. denied, 402 U.S. 988, 91 S.Ct. 1660, 29 L.Ed.2d 153 (1971); Myzel v. Fields, 386 F.2d 718, 735-736 (8th Cir. 1967), cert. denied, 390 U.S. 951, 88 S.Ct. 1043, 19 L.Ed.2d 1143 (1968); List v. Fashion Park, Inc., 340 F.2d 457, 464 (2d Cir.), cert. denied, 382 U.S. 811, 86 S.Ct. 23, 15 L.Ed.2d 60 (1965); Kohler v. Kohler Co., 319 F.2d 634, 641-642 (7th Cir. 1963).
,
Thus, for instance, whether a reasonable investor might consider a fact important to his investment decision may depend in part upon his business acumen. The reasonable investor of substantial business acumen presumably would more diligently test the reliability and completeness of representations made concerning a proposed transaction before considering them important than would one of lesser acumen.
E. g.,
City National Bank v. Vanderboom,
supra.
The fact of reliance upon a statement or omission, is of course, persuasive evidence of that statement or omission’s materiality (e.
g.,
Gilbert v. Nixon, 429 F.2d 348, 363 [10th Cir. 1970]) but actual reliance, at least in the present circumstances, is not an element necessary to recovery. Affiliated
Ute Citizens v. United States,
supra
406 U.S. at 153-154, 92 S.Ct. 1456.
,
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ALDON J. ANDERSON, District Judge.
Plaintiffs moved for partial summary judgment pursuant to rule 56, Federal Rules of Civil Procedure, on September
8, 1972. The issues were fully briefed and arguments were heard November 15, 1972. Decision of the motion was postponed pending determination of plaintiffs’ subsequent motion to amend their complaint. The motion to amend has now been granted.
Plaintiffs (hereinafter sometimes the “Taylors”) and defendant (hereinafter sometimes “Smith, Barney”) are well acquainted. Smith, Barney acted as broker or dealer in more than 650 stock transactions made for the Taylors’ accounts over a four-and-one-half-year period ending in early 1971. By their motion for partial summary judgment, the Taylors ask the court to focus on at least 60 of those transactions in which it is claimed Smith, Barney failed to disclose that it was making a market in the stocks which were bought and sold. The Taylors argue that this failure to disclose constituted the omission of a “material fact” in contravention of section 10(b) of the Securities Exchange Act of 1934 (hereinafter the “Act”),
rule
10b-5(2)
promulgated thereunder, Utah Code Ann. §§ 61-1-1 and 22(1) (b)
and, as to securities sold, section 17 of the Securities Act of 1933.
The Taylors also seek a ruling that Smith, Barney failed to disclose that it was acting as a dealer in these transactions and thereby violated sections 10(b) and 15(c)(1)
of the Act and rules 10b-3,
10b-5 and 15cl-4.
Materiality is at the epicenter of this dispute.
In rule 10b-5 actions, the materiality of an omitted fact may be tested by determining whether a reasonable investor might have considered it important in the making of his investment decision.
E.g.,
Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-154, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972). Judicial pursuit of the “reasonable investor” has led most often to a consideration of the fact constellation of each case including the relationship of the parties, the experience of the investor, the nature of the transaction and the nature of the omitted fact.
See e. g.,
Mitchell v. Texas Gulf Sulfur Company, 446 F.2d 90, 103 (10th Cir. 1971), cert. denied, 404 U.S. 1004, 92 S.Ct. 564, 30 L.Ed.2d 558 (1971) and 405 U.S. 918, 92 S.Ct. 943, 30 L.Ed.2d 788 (1972); City National Bank v. Vanderboom, 422 F.2d 221, 230-231 (8th Cir.), cert. denied, 399 U.S. 905, 90 S.Ct. 2196, 26 L.Ed.2d 560 (1970); Clement A. Evans & Co. v. McAlpine, 434 F.2d 100, 104 (5th Cir. 1970), cert. denied, 402 U.S. 988, 91 S.Ct. 1660, 29 L.Ed.2d 153 (1971); Myzel v. Fields, 386 F.2d 718, 735-736 (8th Cir. 1967), cert. denied, 390 U.S. 951, 88 S.Ct. 1043, 19 L.Ed.2d 1143 (1968); List v. Fashion Park, Inc., 340 F.2d 457, 464 (2d Cir.), cert. denied, 382 U.S. 811, 86 S.Ct. 23, 15 L.Ed.2d 60 (1965); Kohler v. Kohler Co., 319 F.2d 634, 641-642 (7th Cir. 1963).
,
Thus, for instance, whether a reasonable investor might consider a fact important to his investment decision may depend in part upon his business acumen. The reasonable investor of substantial business acumen presumably would more diligently test the reliability and completeness of representations made concerning a proposed transaction before considering them important than would one of lesser acumen.
E. g.,
City National Bank v. Vanderboom,
supra.
The fact of reliance upon a statement or omission, is of course, persuasive evidence of that statement or omission’s materiality (e.
g.,
Gilbert v. Nixon, 429 F.2d 348, 363 [10th Cir. 1970]) but actual reliance, at least in the present circumstances, is not an element necessary to recovery. Affiliated
Ute Citizens v. United States,
supra
406 U.S. at 153-154, 92 S.Ct. 1456.
,
As the foregoing discussion suggests, the materiality of Smith, Barney’s market making activities depends largely upon a constellation of facts which is not adequately before the court and which probably must be established at trial. The significance a reasonable investor under the circumstances might attach to Smith, Barney’s nondisclosure of its market making activities may be affected, for instance, by the availability of this information from other sources, previous experience and acquaintance with market makers and with Smith, Barney, the possibility of stock price manipulation by Smith, Barney as a result of its market making activities, reliance upon market making information in similar transactions where disclosure was made, the general nature of market making, the general results of such activities and the safeguards provided to the public in regard to such activities, the specific circumstances of Smith, Barney’s market making in the disputed transactions, and cognate disclosures by Smith, Barney which may have covered elements of the nondisclosure.
See
Chasins v. Smith, Barney & Co., 438 F.2d 1167 (2d Cir. 1971), substituting opinion for [1969-1970 Transfer Binder] CCH Fed.Sec.L.Rep. ¶ 92,712 (2d Cir. 1970) and denying rehearing in banc (Judges Lumbard, Moore and Friendly dissenting from denial of rehearing); Simon v. Merrill Lynch, Pierce, Fenner & Smith, Inc., [Current] CCH Fed.Sec.L.Rep. ¶ 93,604 (N.D.Tex. 1972); Batchelor v. Legg
&
Co., 52 F.R.D. 553 (D.Md.1971). And from the affidavits and depositions before the court, the possibility is not entirely foreclosed that Smith, Barney can short circuit the question of material omissions by a showing at trial of oral disclosure to the Taylors of the pertinent market making activities themselves. Summary judgment sought by plaintiffs on the issues raised by defendant’s market making is inappropriate.
In each of the disputed stock transactions, the Taylors were sent a confirmation slip containing on its reverse side the disclosure: “We are acting as principal for this trade.” Use of the term “principal” instead of “dealer” on these confirmation slips amounts to inadequate disclosure according to the plaintiffs.
By the present motion the court is asked to find as a matter of law that the nuance of meaning separating “principal” from “dealer” is material within the meaning of rule 10b-5(2). For reasons similar to those discussed above, such a determination is inappropriate without full consideration of the facts surrounding the terms and the instant transactions.
Section 15(c)(1) of the Act
proscribes the use of “any manipulative, deceptive, or other fraudulent device or contrivance” by brokers or dealers in transactions such as those between the Taylors and Smith, Barney. Rule 15cl-4
defines the quoted phrase to include nondisclosure of the fact that the broker or dealer is acting “as a dealer for his oWn account.” Plaintiffs seek a determination that defendant’s disclosure of its “principal” status did not comply with the requirements of rule 15cl-4 and therefore violated sections 15(c)(1) and 10(b) of the Act, rule 10b-3
and, presumably, the ubiquitous rule 10b-5. This determination, too, is linked closely to the previous discussion of materiality since it may be assumed that the Securities Exchange Commission intended rule 15cl-4 to impose liability only for the nondisclosure of a material, i. e. important, fact. At some point disclosure by the use of terms akin to “dealer” reveals to the investor all but the immaterial or unimportant nuances of meaning contained in the term “dealer” itself.
It has been argued that the difference in meaning between “principal” and “dealer” is important (Cant v. A. G. Becker & Co., [1971-72 Transfer Binder] CCH Fed.Sec.L.Rep. ¶ 93,347 at 91,872-73 [N.D.111.1971]; Chasins v. Smith, Barney & Co., 306 F.Supp. 177, 178 [S.D.N.Y.1969] memorandum supplementing 305 F.Supp. 489 [S.D.N.Y.1969]) and unimportant (Chasins v. Smith, Barney & Co.,
supra,
438 F.2d at 1175 [dissenting opinion of Judge Friendly, joined by Judges Lumbard and Moore]). Certainly the terms “principal” and “dealer” are sometimes thought of as interchangeable in common securities parlance.
E. g.,
Brief for S.E.C. as Amicus Curiae at 2, Chasins v. Smith, Barney & Co.,
supra,
438 F.2d 1167 (2d Cir. 1971) (“In particular, they might deal with the extent and time of disclosure of market making as, for example, was done in
Rule 15cl~4, 17 C.F.R. 240. 15el-4 requiring broker-dealers to disclose whether they are acting as principal or agent
in a securities transaction.” Emphasis added.); Opper v. Hancock Securities Corporation, 250 F.Supp. 668, 675 (S.D.N.Y.), aff’d, 367 F.2d 157 (2d Cir. 1966) (“. . . [F]or the purposes that concern us here, it made no difference whether defendant operated ‘as principal’ or ‘as broker’ . . . .”). The court is presently not convinced of the importance of the principal-dealer distinction generally or in the particular fact situation of this case. Summary judgment will not be granted.
Plaintiffs’ motion for partial summary judgment is denied. It is so ordered.