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Lee v. First Union National Bank

402 N.J. Super. 346, 954 A.2d 499 (App. Div. 2008)

Reversed by the Supreme Court on June 3, 2009.

CONSUMER FRAUD ACT; SECURITIES — Although the sale of securities is expressly excluded from the reach of the Consumer Fraud Act, practices related to the sale of securities, such as the unlawful taking and conversion of cash tendered for their purchase, are still covered by the Act.

An investor, who was a bank customer, met with a registered securities broker representing the bank. At the broker’s suggestion, she purchased shares in a mutual fund and opened a brokerage account through the bank’s brokerage service. The broker never deposited the money into either the investor’s brokerage account or a checking account. By the time the mutual fund purchase was settled, the investor’s checking account balance had fallen to below the cost of the mutual fund shares. Since there was no money in the brokerage account, the bank took money from the investor’s checking account and liquidated some of the investor’s mutual fund shares to cover the remaining amount due for the purchase. The investor then contacted the broker but the cash was never returned to her. As a result, the investor sued the broker, the bank, and the bank’s brokerage service, and involved a claim under the Consumer Fraud Act (CFA).

The lower court pointed out that securities were expressly excluded from the reach of the CFA and dismissed the investor’s complaint. It pointed out that under securities law, the investor had two years to bring an action and she was out of time. On appeal, however, the Appellate Division found that the lower court incorrectly decided the matter according to securities law. It held that the investor’s claims were not based on fraudulent or deceptive practices involving the sale of the mutual fund shares, but that they were based unlawful taking and conversion of the cash tendered to the broker, who never deposited the money into either of the investor’s accounts. Based on its findings and conclusions, the Court reversed the lower court’s dismissal of the investor’s action and remanded the matter for further proceedings.


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