CACI No. 4105. Duties of Stockbroker - Speculative Securities

Judicial Council of California Civil Jury Instructions (2020 edition)

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4105.Duties of Stockbroker - Speculative Securities
Stockbrokers who trade in speculative securities and advise clients have
a fiduciary duty to those clients:
1. To make sure that the client understands the investment risks in
light of the client’s financial situation;
2. To inform the client that speculative investments are not suitable
if the stockbroker believes that the client is unable to bear the
financial risks involved; and
3. Not to solicit the client’s purchase of speculative securities that
the stockbroker considers to be beyond the client’s risk threshold.
If these duties are met and the client still insists on purchasing
speculative securities, the stockbroker may advise the client about
various speculative securities and purchase speculative securities that the
client selects.
New June 2006; Revised May 2020
Directions for Use
This instruction should be read after CACI No. 4101, Failure to Use Reasonable
Care - Essential Factual Elements.
Sources and Authority
• “[T]he stockbroker has a fiduciary duty (1) to ascertain that the investor
understands the investment risks in the light of his or her actual financial
situation; (2) to inform the customer that no speculative investments are suitable
if the customer persists in wanting to engage in such speculative transactions
without the stockbroker’s being persuaded that the customer is able to bear the
financial risks involved; and (3) to refrain completely from soliciting the
customer’s purchase of any speculative securities which the stockbroker
considers to be beyond the customer’s risk threshold. As long as these duties are
met, if the customer nevertheless insists on purchasing speculative securities, the
stockbroker is not barred from advising the customer about various speculative
securities and purchasing for the customer those securities which the customer
selects.” (Duffy v. Cavalier (1989) 215 Cal.App.3d 1517, 1532 [264 Cal.Rptr.
740], internal citations and footnote omitted.)
• “[T]he relationship between any stockbroker and his or her customer is fiduciary
in nature, imposing on the former the duty to act in the highest good faith
toward the customer.” (Duffy, supra, 215 Cal.App.3d at p. 1534, internal
citations omitted.)
• “A stockbroker’s fiduciary duty requires more than merely carrying out the stated
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objectives of the customer; at least where there is evidence, as there certainly
was here, that the stockbroker’s recommendations were invariably followed, the
stockbroker must ‘determine the customer’s actual financial situation and needs.’
If it would be improper and unsuitable to carry out the speculative objectives
expressed by the customer, there is a further obligation on the part of the
stockbroker ‘to make this known to [the customer], and [to] refrain from acting
except upon [the customer’s] express orders.’ Under such circumstances,
although the stockbroker can advise the customer about the speculative options
available, he or she should not solicit the customer’s purchase of any such
speculative securities that would be beyond the customer’s ‘risk threshold.’ ”
(Duffy, supra, 215 Cal.App.3d at p. 1538, internal citations omitted.)
Secondary Sources
45 California Forms of Pleading and Practice, Ch. 515, Securities and Franchise
Regulation, § 515.15[3] (Matthew Bender)
CACI No. 4105 BREACH OF FIDUCIARY DUTY
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