People like advice, and they like to hold the adviser responsible if his advice fails. This is true in all areas of life, and particularly when it comes to monetary matters.
Today more than ever, complex matters, from dealing with medical issues to purchasing stocks, require experts’ assistance; indeed, an entire industry of professional assistance has come into existence to advise and guide people in all areas of life. Generally, there will be some sort of signed disclaimer limiting the adviser’s liability, but as with any legal dispute, one can never be certain that a contract will cover all possible claims.
Many times, professional advice is offered not in a contractual context but as part of a potential business venture, and if matters don’t work out as expected, a claim against the consultant is more than likely.
Reuven, a close friend of Shimon and a known stockbroker, alerts Shimon to a stock that, in his opinion, has great potential for growth, and urges him to join him in this investment. Stocks are Reuven’s area of expertise as well as his trade, and there is an implied understanding that Shimon will pay for Reuven’s professional services.
Shimon follows the broker’s advice but loses his money after the value of the shares plunges. He is visibly upset about his losses and, not surprisingly, blames Reuven. He suspects that the broker did not properly research the stock before advising him, relying instead on his instincts, and therefore he wants Reuven to compensate him for his losses. For his part, the broker claims that he never misrepresented any facts, nor did he accept responsibility for Shimon’s decision to invest, and in fact he is upset over his own personal losses. To preserve their friendship, they do the right thing and turn to a halachic authority for guidance.
Interestingly, the legal guidelines in a broker/client relationship established by the SEC (Securities and Exchange Commission) in such a case are quite ambiguous. Although there is general agreement that the broker would be liable in a clear case of deceit, most of the time there is no real deceit involved, only a breach of trust. According to some legal opinions, a broker who knowingly misrepresents facts and risks is certainly guilty of fraud, but there is no statutory obligation for the broker to do research; his only obligation is to see to it that all his statements are truthful. Therefore, there is no legal claim for liability if he did not properly research the stock and relied instead on his gut feeling.
The SEC asserts that the so-called “shingle theory,” which obligates the broker to deal fairly with the client, implies that any breach of this obligation can be deemed fraudulent. However, in the words of one well-received article on the subject, “This theory — and the duty it creates — pretty much comes from nowhere.” That is to say, the rulings on such cases in court are arbitrary and as such do not provide useful information about a clear minhag hasocharim, which has halachic relevance.
Unlike general legal guidelines, such as common law, statutes or laws established by judges — through which people’s liability is often ascertained by arbitrary rules based on moral and assumed behavioral standards — halachic ruling is subject to clear, preset definitions of law that categorize people’s liability. Although clear behavioral standards might establish a set of laws known as minhag hamedinah or minhag hasocharim, nevertheless, unless a minhag is proven standard practice, the strict halachic code of law will prevail.
The set of halachos that establishes liability for other people’s losses requires that the liable party has either voluntarily assumed responsibility to pay damages or is legally responsible to compensate for damages caused by a wrongful act (tort).
The arev (guarantor) and the shomer (guardian or bailee) are responsibilities people choose to take, which requires explicit acceptance, verbally or by implied behavior, of fiduciary liability. Thus, for example, a clear directive of the arev to the lender to forward money to the borrower is also an implied commitment on his part to compensate the lender for any damages suffered. The duty of the shomer is the additional responsibility to guard the item entrusted to him to ensure that no harm comes to it. A shomer’s telling the owner to leave the object with him is considered an acceptance of this responsibility.
The legal liability of the mazik for any damages he causes is generally limited to acts of tort. However, halachically, the responsibility for consequent damages is a contentious issue. For example, crashing into a car is clearly tort, but covering a cab driver’s car keys so that he is unable to use his car and therefore loses a day’s income is not. This behavior is certainly halachically and ethically despicable, violating the principle of “V’ahavta lerei’acha kamocha.” Nevertheless, the actions of this wrongdoer cannot be prosecuted legally, and the driver cannot recover his losses in beis din.
Even so, there are consequent damages that are considered acts of tort and fall under the category of dina degarmi — a kind of tort that includes indirect damages. One such case is that of a consultant who has assured the lender that the borrower is an “ish batuach,” a person in good standing who will certainly return the borrowed money or investment. If it is apparent that the consultant is being relied on, he is held responsible for the consequences of this information. Therefore, if it turns out that the consultant’s information was based on negligent research and that the borrower was already then in bad standing, the consultant is liable midina degarmi for any consequent losses.
This means that the consultant caused him an immediate and expected loss, although neither the consultant nor the lender was aware of this until later. The consultant is liable not because of an implied accepted responsibility — which is the principle of arev — but because of the flawed information he gave, which caused damage to the lender. Even if the consultant explicitly declines to be an arev, based on the principles of garmi he is still legally responsible as a mazik.
All these rulings depend on the status of the broker. If a broker’s advice is an implied assumption of responsibility, then in case of any loss he is liable, similar to the arev or shomer. Regarding the case of the stockbroker Reuven and his friend Shimon, it is clear that investing in the market is inherently risky, and a sensible investor will not make a move without serious consult-ation with a professional; but this does not imply that Reuven accepted legal responsibility, similar to the explicit commitment of an arev, for any potential loss.
Neither did Reuven commit a liable act of tort relative to the classic definition of mazik. Although Reuven urged Shimon to invest, he did not force him to invest. It was Shimon’s free decision and desire for profit that influenced his investment.
On the other hand, it was clear that Shimon relied explicitly on Reuven’s expertise to decide that this was a credible investment. As such, it was certainly a breach of trust that Reuven did not research the value of the stock diligently. The argument that there is no statutory obligation to do research is certainly not the assumption of the client in this case. Therefore, although in many cases a breach of trust may not be a winning legal argument in court, it certainly violates the halachic principle of garmi. Consequently, if it is proven that the broker failed to research the investment diligently but relied only on a sloppy analysis, he is liable for this breach of trust as the mazik of dina degarmi. In that instance, even the fact that the broker lost his own money in this investment is no excuse for his negligent behavior.
Words are very powerful. Good advice can create and build; bad advice can destroy. In fact, this is the lesson of the episode of the nachash (serpent) and Adam Harishon. Halachah teaches us that legal responsibilities and liabilities are real entities, no different from any mitzvah or aveirah. Words that create a voluntary legal commitment or that cause monetary damage are scrutinized with the same rules that determined the fate of mankind at the inception of history.