## Facts

- After her husband’s death in 1955, Bertha Hecht held a substantial securities portfolio (over $500,000) and maintained an additional separate account (about $42,000).
- Hecht’s accounts were handled by broker Asa Wilder; when Wilder moved to Harris, Upham & Co. in 1957, her combined account (about $533,000) transferred with him.
- Hecht and Wilder developed a close business and social relationship, and Hecht relied heavily on Wilder’s advice and discretion.
- Hecht received transaction confirmations and monthly statements, retained them, and frequently discussed account activity with Wilder; she also discussed gains and losses with tax professionals.
- Over several years, Wilder shifted the account from conservative investments to speculative securities and commodities and traded heavily; the trial court found excessive trading aimed at generating commissions and found self-dealing in certain transactions.
- By 1964, tax consultants advised Hecht that the account was substantially depleted; the account’s net value had fallen to roughly $251,000.
- Hecht sued Wilder and Harris, Upham under federal securities law (including Rule 10b-5 and controlling-person liability), commodities law, NASD-rule theories, and California common-law fraud and related claims.

## Issues

1. Whether excessive trading and conversion of a conservative account into speculative trading, where the broker effectively controlled the account, constituted actionable fraud and breach of duty under federal securities law and related state-law theories.
2. Whether Hecht’s receipt of confirmations and statements, frequent discussions with the broker, and apparent long-term acquiescence barred or limited recovery under waiver, laches, or estoppel.
3. How to measure damages in a churning/unsuitable-trading case and what causal limits apply to losses claimed.

## Decision

- The Ninth Circuit affirmed the core finding that Wilder engaged in improper trading, including churning and unsuitable speculative activity, giving rise to liability under federal securities law and related duties.
- The court held Harris, Upham liable as a controlling person under § 20(a) of the Exchange Act, rejecting the firm’s claimed good-faith defense based on inadequate supervision and prevention.
- The court agreed that Hecht’s knowledge and acquiescence affected the case, but treated waiver, laches, and estoppel as limiting the scope and time period of recoverable damages rather than fully defeating liability.
- The court modified aspects of the damages analysis and award to better tie recovery to losses caused by the wrongful trading, rather than market risk or losses not attributable to the misconduct.
- The judgment was modified and affirmed.

## Legal Principles

- Churning is a form of securities fraud where a broker who controls (or effectively controls) a customer’s account engages in excessive trading primarily to generate commissions, abusing the customer’s trust.
- Broker “control” may be inferred from the customer’s reliance on the broker’s recommendations and discretion, the relationship between the parties, and the customer’s inability or unwillingness to meaningfully direct trading decisions.
- A brokerage firm may be liable under Exchange Act § 20(a) as a controlling person for a representative’s securities-law violations unless it proves good-faith supervision and lack of inducement.
- Customer receipt of confirmations and periodic statements, and prolonged failure to object, can support waiver/laches/estoppel defenses that limit recoverable damages, but do not automatically extinguish claims based on continuing misuse of trust and discretion.
- Damages in churning/unsuitable-trading cases must be causally connected to the wrongful trading; recovery should not treat ordinary market risk as compensable absent proof that the misconduct caused the loss.

## Conclusion

The Ninth Circuit sustained liability for churning and unsuitable speculative trading and imposed controlling-person liability on the brokerage firm, while holding that the customer’s long-term awareness and acquiescence constrained the recoverable period and required a tighter causal link between misconduct and damages.


Hecht v. Harris, Upham & Co., 430 F.2d 1202 (9th Cir. 1970)