People ex rel. Benkard v. Goldfogle

Dowling, J.: Relator is a resident of the city of New York and a member of the firm of J. P. Benkard & Co., with an office at 61 Broadway. He has capital invested in transacting the business of the firm, comprising a one-half interest in the -firm’s net assets, and also [714] with capital invested in a seat in the New York Cotton Exchange and a seat in the Chicago Board of Trade, he being engaged in no other business than as a member of the firm and owning no other moneyed capital than in connection with such business. On May 1, 1923, the firm of J. P. Benkard & Co. was engaged in the business of buying and selling stocks', bonds and commodities solely for its customers and not on its own account, principally upon margin and the remainder for cash, its profits being made from charges to its customers. The purchases for customers were financed by the firm’s capital and by such additional moneys as it required, which it borrowed from banks, trust companies and other brokers. The charges made by the firm to its customers included a charge at the rate of commission fixed by the rules of the respective exchanges, which was the same whether the purchase was made on margin or for cash, and for a sale as for a purchase; and also, in the case of margin accounts, a charge denominated an interest charge calculated on the debit balance of the customer, such rate being made on the firm’s capital used, and also on the money borrowed by the firm in carrying the customer’s indebtedness. The learned court at Special Term in this proceeding found the following additional facts: “ XIV. The advances made by the firm to its customers on securities purchased or sold for their account were an incident to its business of buying and selling securities on commission. “ XV. National banks do not and could not engage in purchasing and selling securities or commodities for customers either on margin or for cash. “ XVI. The advances made by the firm for the account of its customers were not such loans as National banks make to customers, nor were they made directly as loans, and they constituted the device by which the firm increased its earnings of commissions. “ XVII. The said firm did not compete with National banks, but on the contrary, with other brokers, supplied National banks with a substantial portion of their business.” The testimony in this proceeding shows that out of a total of $99,250,000 borrowed by the firm for the period from May 1,1922, to May 1, 1923, the sum of $56,175,000 was borrowed from National banks. It also appears that customarily an active stockbroker borrows twenty times the amount of his capital to keep his business moving. It was further testified to, that on margin accounts the amount deposited by customers runs from ten to twenty-five per cent of the purchase price of the stock, and that National banks will'loan, at the most, eighty per cent of -the value of very high grade collateral, such as government bonds, and only seventy [715] per cent on lower grades of collateral, and on all industrial loans. Thus there is always a deficit between the total of the customer’s payment and the National bank loan which the broker is forced to advance in order to be able to complete the transaction and earn his commission. For the reasons assigned in People ex rel. Broderick v. Goldfogle (213 App. Div. 677) I am of the opinion that the present order annulling and vacating the assessment should be affirmed, with ten dollars costs and disbursements. Clarke, P. J., Finch, McAvoy and Martin, JJ., concur. Order affirmed, with ten dollars costs and disbursements.