Thursday, June 11, 2009
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Securities Firm Held Not Liable for Ponzi Scheme Run by Agent
By KENNETH OFGANG, Staff Writer
A securities firm was not liable for losses to investors in a Ponzi scheme that its agent was allegedly running on the side, the Court of Appeal for this district has ruled.
Div. One largely affirmed a judgment in favor of New York Life Insurance Co. and its securities arm, NYLife Securities, Inc., in a May 11 ruling. The opinion by retired Los Angeles Superior Court Judge Stanley Weisberg, sitting on assignment, was certified Tuesday for publication.
The panel upheld a summary judgment for New York Life on Paul Oravecz’s claims for negligent hiring, negligent misrepresentation, negligent supervision, negligent interference with prospective economic advantage, and securities fraud. Those claims were all based on the activities of Steve Roth, whom Oravecz claims advised him to invest in Tradex, an offshore foreign currency fund in which Oravecz claims to have lost his entire investment of more than $200,000.
He also claimed to have suffered at least $10 million in damage to established and prospective business relationships because of his involvement with Tradex.
The appeals court did reinstate a claim for breach of fiduciary duty, to which Los Angeles Superior Court Judge Robert L. Hess sustained a demurrer. The court said that Oravecz stated a cause of action by alleging, among other things, that he made the investments on the advice of Roth and New York Life and that Roth was acting as an employee of New York Life at the time.
Outside the Scope
The panel also ruled, however, that New York Life was entitled to summary judgment on the remaining causes of action because Oravecz did not refute evidence that Roth was an independent contractor and that his advice regarding Tradex was given outside the scope of his agency relationship with New York Life. That holding suggests the fiduciary duty claim is amenable to summary judgment in favor of New York Life as well, but Weisberg explained in a footnote that the trial judge will have to address that issue.
Oravecz, who represented himself in both the trial and appellate courts, did not return METNEWS phone calls. New York Life was represented by Robert J. McKennon and Robert E. Hess of Barger & Wolen.
Oravecz sued Roth—who was not a party to the appeal—and New York Life in 2005, claiming that the company knew about Tradex; that it was negligent in hiring Roth because it knew he was a high school dropout with a criminal record and little knowledge of the securities business; that it failed to adequately supervise Roth’s activities; and that as Roth’s employer, it was responsible for his misrepresentations regarding the the Tradex investment.
Hess, however, found that the plaintiff failed to present competent evidence in opposition to the company’s showings that it did not employ Roth, but rather engaged him as an agent on a non-exclusive basis; that the engagement only involved New York Life-approved products, a category that did not include Tradex; that Oravecz had no reason to believe that Tradex was such a product; that it had no duty to supervise Roth with regard to his sale of other companies’ products; that it was unaware of Roth’s activities outside of selling New York Life products; and that the securities fraud claim was barred by a two-year statute of limitations.
‘A Dearth of Evidence’
Weisberg, writing for the Court of Appeal, said the trial judge was correct with respect to summary judgment on the claims not resolved on demurrer. The plaintiff’s opposition, he said, contained “a dearth of evidence on the issue of whether Roth was actually employed by New York Life.”
In contrast, Weisberg said, New York Life presented evidence, including a declaration by Roth, showing that the relationship between the broker-dealer and the company was non-exclusive, that he set his own working hours, that the company had no involvement with his sale of non-New York Life products, that neither he nor the company considered their relationship to be that of employer and employee, and that while Roth allegedly described himself to Oravecz as a New York Life “employee,” neither he nor the company ever told the plaintiff that Tradex was a New York Life product.
The case is Oravecz v. New York Life Insurance Co., 09 S.O.S.3556.
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