## Facts

- Henryk de Kwiatkowski, a sophisticated and extremely wealthy investor, traded massive speculative positions in currency futures through Bear Stearns.
- The account was nondiscretionary: Bear Stearns could execute trades only when authorized by de Kwiatkowski.
- In late 1994, after receiving encouragement and market commentary favoring the U.S. dollar from Bear personnel, de Kwiatkowski greatly increased his dollar positions.
- As the market moved against him in late 1994 and early 1995, he suffered enormous losses, including multiple single-day losses in the tens of millions of dollars.
- De Kwiatkowski at times considered reducing or closing positions; Bear personnel sometimes advised maintaining positions and expressed views about timing and market conditions.
- De Kwiatkowski ultimately liquidated in March 1995 and incurred net losses of approximately $215 million.
- He sued Bear Stearns and his individual broker asserting, among other claims, negligence and breach of fiduciary duty, alleging inadequate risk warnings, failure to provide market information, and negligent advice about liquidation timing.
- A jury found Bear Stearns negligent and awarded $111.5 million, found no breach of fiduciary duty by Bear, and found no liability for the individual broker.
- Bear moved for judgment as a matter of law, arguing that the verdict imposed duties inconsistent with a nondiscretionary account relationship; the district court denied the motion.

## Issues

1. Whether a broker for a sophisticated customer in a nondiscretionary account owes an ongoing duty to provide continuous, unsolicited investment advice and risk warnings about open positions.
2. Whether sporadic advice and a close working relationship can, without a special agreement or clear assumption of a management role, expand a broker’s duties into ongoing monitoring or risk-management obligations supporting a negligence verdict.

## Decision

- The Second Circuit reversed the judgment for de Kwiatkowski.
- The court held that Bear Stearns did not owe an ongoing duty to provide continuous, unsolicited investment advice, risk warnings, or risk management for de Kwiatkowski’s open positions in a nondiscretionary account absent a special agreement or circumstances establishing such an undertaking.
- The court concluded the evidence did not support treating Bear’s communications and occasional advice as an assumption of discretionary or portfolio-management responsibilities.
- The court directed that judgment as a matter of law be entered for Bear Stearns on the negligence claim, vacating the jury’s damages award.

## Legal Principles

- In a nondiscretionary brokerage account, the customer retains control of trading decisions; the broker’s ordinary duties center on executing authorized orders and providing standard transactional services.
- A broker generally has no continuing duty to monitor a nondiscretionary customer’s open positions or to provide ongoing, unsolicited advice or risk warnings after the customer has assumed and maintained the positions.
- Occasional advice, market commentary, or discussions in a nondiscretionary relationship do not, without more, convert the account into a managed or discretionary arrangement imposing broader duties.
- Expanded advisory or monitoring duties may arise only from a special agreement or clear evidence that the broker undertook ongoing management responsibilities.
- A sophisticated investor’s control over decisions in a nondiscretionary account weighs against shifting responsibility for speculative losses to the broker through negligence standards premised on continuous supervision.

## Conclusion

The Second Circuit limited broker negligence liability in nondiscretionary accounts, holding that absent a special agreement or clear assumption of an ongoing management role, a broker does not owe a continuing duty to provide unsolicited advice, warnings, or monitoring for a sophisticated customer’s open speculative positions.


De Kwiatkowski v. Bear, Stearns & Co., 306 F.3d 1293 (2d Cir. 2002)