Garnatz v. Stifel, Nicolaus & Co., Inc.
United States Court of Appeals for the Eighth Circuit
559 F.2d 1357 (1977)
Garnatz (plaintiff), an unsophisticated investor, was persuaded by Stifel (defendant) and its vice president Wright (defendant) to open a bond margin account, based on assurances the program was risk-free — despite Garnatz explicitly saying he did not want speculative investments. Stifel then bought mostly low- or non-rated, highly speculative bonds for his account, which declined in value. Garnatz sued under Rule 10b-5 and won $45,000 at trial; the defendants appealed, arguing damages should have been calculated under the standard out-of-pocket rule (measuring the difference between price paid and actual value at time of purchase) rather than rescissory damages.
Whether rescissory damages are appropriate in a Rule 10b-5 claim when the defendant's fraud induced the plaintiff to purchase securities he would not otherwise have purchased at all.