Mr. Scher tracked a number of stocks. One was TorahTech, a start-up that specialized in harnessing new technology to disseminate Torah.
The company showed promise, but its marketing efforts hadn’t succeeded yet. Mr. Scher considered the stock overpriced at $6 a share, but worth grabbing if its price dropped significantly. He instructed his portfolio manager, Mr. Gelber, to buy 10,000 shares if the price dropped to $4.
Rumors of a significant second-quarter loss — but a fresh product line aimed at the new Daf Yomi cycle — set the stock on a volatile course. For two weeks it oscillated between $4.50 and $7 a share. When the quarterly report was finally issued, the stock descended to $4 for a few days.
A month later, though, TorahTech’s new Daf Yomi products began selling big. The stock began a steady climb, eventually hitting $8 a share six months later!
Mr. Scher gave instructions to sell the 10,000 shares of TorahTech, anticipating earning 100-percent profit on the sale.
Mr. Gelber checked the account. “You don’t have any shares of TorahTech,” he said.
“What do you mean?”Mr. Scher asked. “I instructed you to buy 10,000 shares when the price dropped to $4!”
“Let me check,” said Mr. Gelber. He reviewed the account and acknowledged, “Somehow, I missed that order.”
“That’s $40,000 lost!” exclaimed Mr. Scher. “I’ve been following that company for months.”
“I’m sorry,” said Mr. Gelber. “I usually enter orders immediately so that the purchase is made automatically.”
“You should compensate me for the loss,” said Mr. Scher. “The failure to execute was sheer negligence on your part.”
“That seems extreme,” replied Mr. Gelber. “It’s not even a loss, just a missed opportunity for profit. I’m willing to take it up with Rabbi Dayan, though. Let’s talk with him.”
They related the details to Rabbi Dayan.
“Mr. Scher does not have to pay for the lost $40,000 in this case,” ruled Rabbi Dayan. “The Tosefta teaches that an investor who gave money to an agent to buy merchandise and sell it for a shared profit, but the agent didn’t buy — has only a complaint against him (C.M. 183:1).
“Similarly, the Yerushalmi writes that mevatel kiso shel chavero — a person who restrained his friend’s money and prevented him from earning profit — has only a complaint. This is, at most, a form of potential grama (see Shach 61:10; 292:15; Pischei Choshen 12:[36]).”
“Are there cases in which a person has to cover lost profits?” asked Mr. Scher.
“The Mishnah (B.M. 104a) teaches that a farmer who undertook to work another’s field and share the crop, but left the field fallow, must pay whatever the field was expected to produce,” answered Rabbi Dayan. “This was a generally stipulated condition that became standard (328:2).
“Furthermore, the Gemara (B.M. 73b) discusses the case of a person who gave money to an agent to buy wine for him during the market season. Some authorities derive from this that if the loss is clear, the agent has to pay (Nesivos 183:1; Chasam Sofer, C.M. #178 ).”
“How is it different from the original case in the Tosefta?” asked Mr. Gelber.
“Nesivos (306:6) explains that the Gemara deals with a contracted worker (kablan) or partner, who pays even for a lost profit opportunity (306:3),” answered Rabbi Dayan. “The Tosefta refers to an agent who was not paid, or a salaried worker (po’el) who was entitled to back out from the job.”
“Why shouldn’t Mr. Gelber have to pay, then?” asked Mr. Scher. “He’s a contracted broker.”
“A number of authorities disagree with the Nesivos and Taz,” replied Rabbi Dayan. “They maintain that the agent is required to cover lost profit only if he stipulated so beforehand (see Pischei Choshen, Pikadon, 12:[38]; Nachalas Zvi 292:7).
“However, as with many issues of workers, we must consider minhag hamedinah, the current practice of brokers (331:2). FINRA* rules and most broker contracts require that cases of stockbroker misconduct, such as failure to execute, be settled through arbitration. The broker would likely be required to pay part of the loss.”
*FINRA is the largest securities regulating firm in the USA.