Thursday, November 21, 2013

Blau v. Lehman case brief

Blau v. Lehman case brief summary
368 U.S. 403 (1962)

The Court granted certiorari to the United States Court of Appeals for the Second Circuit to determine whether respondent, a brokerage firm, had absolute liability under the Securities Exchange Act of 1934, 15 U.S.C.S. § 78p(b), to disgorge all profits made on dealings in stock issued by a corporation in which petitioner stockholder owned shares.


  • The judgment finding that respondent brokerage and its member were not liable for all profits realized by brokerage through dealings in the stock of petitioner shareholder's corporation under the Securities Exchange Act of 1934, 15 U.S.C.S. 78p(b), was affirmed, where evidence showed profits were made independently of any inside information. 
  • Petitioner shareholder claimed respondents made short-swing profits from transactions in securities of petitioner's corporation. 
  • The trial court found respondent brokerage made profits, but not as a result of insider information obtained from respondent member, who sat on the corporate board. 
  • The trial court found only respondent director liable for his share of transaction profits. Both parties appealed. 
  • The appellate court affirmed. 
  • Petitioner appealed. 
  • The Court found respondent brokerage realized profits independently of insider information and that it was not absolutely liable for all profits made on the stock because the brokerage did not serve as a director under the statute. 
  • Absolute liability was not imposed upon respondent director where the statute imposed liability only for the profit the director himself realized.

The Court affirmed the appellate court's judgment finding respondents were not subject to absolute liability for profits realized from short-swing transactions in petitioner's corporation where the brokerage's profits were made independently of insider information. No liability could be imposed against the brokerage where it was not a corporate director. Respondent director could be held liable only for profits he personally realized.

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