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April 21, 2014 / 21 Nisan, 5774
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Mr. Scher had a portfolio manager for his investments, but preferred to track certain stocks himself. One was TorahTech, a start-up that specialized in harnessing new technology to disseminate Torah.

The company was intriguing and showed promise, but hadn’t succeeded yet in its marketing efforts. Mr. Scher considered the company overpriced at the current cost of $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 2nd quarter loss, combined with 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 instructed Mr. Gelber to sell the 10,000 shares of TorahTech. He anticipated earning 100% profit on the sale.

Mr. Gelber checked the account. “You don’t have any shares of TorahTech,” he said to Mr. Scher.

“What do you mean?!” Mr. Scher asked. “I instructed you half a year ago to buy 10,000 shares when the price dropped to $4.”

“Let me check one moment,” said Mr. Gelber. He reviewed the account orders and acknowledged, “Somehow I missed that order.”

“That’s $40,000 lost!” exclaimed Mr. Scher. “I’ve been following that company for months.”

“I understand,” said Mr. Gelber. “At this point, though, there’s nothing to do, unless it drops again or you anticipate further growth and want to buy now.”

“I don’t want to buy now,” replied Mr. Scher. “The company is reaching a plateau. I’m really upset that you missed the order.”

“I’m sorry,” said Mr. Gelber. “I usually enter orders into the computer immediately, so that the purchase is made automatically.”

“I feel you should compensate me for the loss,” said Mr. Scher. “It was sheer negligence on your part.”

“That seems extreme,” replied Mr. Gelber. “Anyway, it’s not really a loss, just a missed opportunity for profit. I’m willing to take it up with Rabbi Dayan, though. Let’s go talk with him.”

“Mr. Scher does not have to pay for the $40,000 in this case,” ruled Rabbi Dayan. “The Tosefta teaches that if an investor gives money to an agent to buy merchandise and sell it for a shared profit but the agent didn’t buy, the investor has only a complaint against him [C.M. 183:1].

“Similarly, the Yerushalmi writes that mevatel kiso shel chaveiro – 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 any 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. According to one opinion, if the agent neglected to buy then and the price rose, he must still provide the wine at the cheap price. Some authorities derive from this that if he certainly could have and 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.

“The Nesivos [306:6] explains that the Gemara refers to a contracted worker [kablan] or partner,” answered Rabbi Dayan. “We treat the negligence to buy as backing out of a davar ha’aved, so that a kablan has to pay even for lost profit opportunity [306:3]. The Tosefta refers to an agent who was not paid, or to a salaried worker [po'el] who was entitled to back out.”

“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 the lost profit only if he stipulated so beforehand [Pischei Choshen, Pikadon, 12:38; Nachalas Zvi 292:7].

“However, as with many issues of workers, we have to consider minhag hamedina, 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.”

Rabbi Meir Orlian is a faculty member of the Business Halacha Institute, headed by HaRav Chaim Kohn, a noted dayan. To receive BHI’s free newsletter, Business Weekly, send an e-mail to subscribe@businesshalacha.com. For questions regarding business halacha issues, or to bring a BHI lecturer to your business or shul, call the confidential hotline at 877-845-8455 or e-mail ask@businesshalacha.com.

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About the Author: Rabbi Meir Orlian is a faculty member of the Business Halacha Institute, headed by HaRav Chaim Kohn, a noted dayan. To receive BHI’s free newsletter, Business Weekly, send an e-mail to subscribe@businesshalacha.com. For questions regarding business halacha issues, or to bring a BHI lecturer to your business or shul, call the confidential hotline at 877-845-8455 or e-mail ask@businesshalacha.com.


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