Atomic Bomb Essay

Submitted By shus04
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The case is considered as a classic litigation case. The reading brings the name of Leston Nay who immigrated to the United States from Hungary at the age of 18. Right after he came to Chicago he found an employment in the securities industry working for a small brokerage firm; however, during the Great Depression he and the other young employees were first to be laid off.

After the American economy started to recover out of the depression, Nay found a permanent employment at the brokerage firm of Ryan-Nychols & Company where after two years he was promoted to be the president of the company and later he became the owner of 90 percent of the company outstanding stocks. In 1945 the name of the firm was changed to First Securities Company of Chicago and the company became a member of Midwest Stock Exchange.

During that time Nay was able to establish a network of customers to whom he offered an opportunity to invest in a very lucrative fund that he personally managed. The fund was called "escrow syndicate" and was not an asset of First Securities of Chicago. The money from the syndicate was loaned to the blue-chip companies that were paying interest rates above the market rates.

The Tragic Ending

On June 4, 1968, Leston Nay’s fraud has been revealed when he shot his wife and himself. In the suicide note he admitted that he had been stealing money from his customers for more that thirty years. He also revealed that the escrow syndicate did not exist.

Defrauded Customers Sue to Recover Their Investments

The defrauded investors filed civil lawsuits against several parties in order to recover their investments of over $1 million .

One of the first suits was against Midwest Stock Exchange. They claimed that the stock exchange did not properly check Nay’s background before admitting him to the membership.Unfortunately for the investors, this attempt was unsuccessful because the hearing court dismissed the case.

The customers also tried to sue First Securities of Chicago. In this case the court ruled that the brokerage firm was facilitating the Nay’s fraud, but the investors sill were not able to recover the damages because the company went bankrupt.

Finally, the customers sued Ernst & Ernst the public accounting firm that was auditing First Securities of Chicago for more than two decades. The main allegation in this suit was that the accounting firm had aided Nay’s fraud by failing to detect and reveal his "mail rule" in which Nay did not allow anyone to but himself to open his office mail. The rule allowed him to maintain the "escrow syndicate" as a secret. The investors charged Ernst &
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