## Facts

- Richard and Joan Sennott maintained securities accounts at Rodman & Renshaw, a broker-dealer and NYSE member firm.
- Jordan Rothbart, a commodities speculator and securities dealer, had previously been employed by Rodman but was not an employee or registered representative during the period at issue.
- Jordan urged Sennott, who had limited securities-investment experience, to open and trade through accounts at Rodman; Sennott executed substantial trading volume through those accounts.
- In 1964, while Rodman was involved in a secondary offering of Skyline Homes, Inc., Jordan induced Sennott to invest in Skyline and to purchase additional Skyline shares through purported “options” allegedly available because of underwriting-related connections.
- Sennott paid approximately $142,000 for these Skyline “options,” which did not exist; the transaction was not processed as a normal Rodman account transaction.
- Rodman’s managing partner discovered indications of irregularity and attempted to speak with Sennott; Sennott, on advice associated with Jordan and William Rothbart (a Rodman partner and Jordan’s father), refused to cooperate and treated the matter as private.
- After learning he had been defrauded, the Sennotts sued Jordan, William, and Rodman; the district court, after a bench trial, entered judgment for the Sennotts and held Rodman vicariously liable.

## Issues

1. Whether Rodman could be held vicariously liable under agency or apparent-authority principles for Jordan’s fraudulent sale of nonexistent Skyline options.
2. Whether Rodman was liable as a “controlling person” under federal securities law for Jordan’s fraud despite Jordan’s non-employee status.
3. Whether Sennott’s participation in keeping the options transaction off-book and his refusal to cooperate with Rodman’s inquiry defeated or limited any basis to hold the firm liable.

## Decision

- The Seventh Circuit reversed the judgment against Rodman & Renshaw.
- The court held the record did not support actual agency or apparent authority for Jordan to bind Rodman in the off-book Skyline options transaction.
- The court rejected controlling-person liability on the facts presented, concluding Rodman did not have the type of supervisory or disciplinary power over Jordan required for liability.
- Judgments against Jordan and William Rothbart were not disturbed because they did not appeal.

## Legal Principles

- A broker-dealer is not vicariously liable for a non-employee’s fraud absent proof of actual authority or reasonable, firm-attributable manifestations creating apparent authority for the specific transaction.
- Apparent authority is undermined where the investor treats a transaction as a private, confidential deal outside ordinary firm procedures (e.g., no routine account processing or confirmations).
- Controlling-person liability requires a showing of meaningful power to control the primary violator in connection with the misconduct; family relationships or prior associations, without present supervisory leverage, are insufficient.
- An investor’s conduct—such as assisting in keeping a transaction outside normal compliance channels and refusing to cooperate with internal inquiry—may be materially inconsistent with claimed reliance on firm authority.

## Conclusion

The Seventh Circuit held that Rodman could not be held responsible for Jordan Rothbart’s fraudulent, nonexistent-options scheme because Jordan lacked authority to act for the firm, the transaction was structured as an off-book private deal, and the evidence did not establish the control necessary for controlling-person liability.


Sennott v. Rodman & Renshaw, 474 F.2d 32 (7th Cir. 1973)