MEMORANDUM
Dеfendant S.F.C. Investors, Inc. (Factor) moves pursuant to Rule 12(b) (6) of the Federal Rules of Civil Procedure to dismiss the cоmplaint as against it for failure to state a claim upon which relief can be granted.
Plaintiff instituted this action against Hertz, Neumark & Warner (Hertz), Spingarn Heine & Co. (Spingarn), both of which are registered brokers, and Factor, alleging that the defendants conspired to violate the рrovisions of Section 7(e) of the Securities Exchange Act of 1934 (the Act), (15 U.S.C. § 78g(c)) and Regulation T issued thereunder by thе Board of Governors of the Federal Reserve System (12 C.F.R. 220).
The complaint alleges that prior to April 5, 1966 аnd pursuant to the conspiracy, Hertz, through its registered representative, Haberman, solicited plaintiff to become its customer, and that plaintiff advised Hertz that he did not have sufficient cash to purchase sеcurities ; that Hertz persisted in its solicitation and, in order to induce plaintiff to become its customer, it represented that (1) Hertz would finance the purchase and ■carrying of securities by plaintiff and extend him a line of credit up to $100,000 on securities transactions conducted by plaintiff through Hertz, and (2) Hertz would guarantee plаintiff against loss suffered by plaintiff on securities purchased for his account through Hertz; that on April 5 and April 6, 1966, Hertz рurchased securities for the sum of $96,-942.03 and placed them in the cash account maintained by Hertz in plaintiff’s nаme, which plaintiff permitted Hertz to do solely in reliance on Hertz’s promises and representations; thаt on or *930 about April 20, 1966, Hertz, in violation of its promises and representations, required plaintiff to deliver to it his shares of CORCO stock, and on April 21, 1966 required plaintiff to provide Hertz with a check for $12,000 (Hertz knowing that plaintiff did not havе sufficient funds) on Hertz’s representation that the check would not be deposited but would only be “shown”; that on Aрril 28, 1966, Hertz, in violation of its promises and representations, demanded that plaintiff pay to Hertz $64,445.81 by 2 p. m. on April 29 or suffer the loss of his equity, Hertz knowing that plaintiff could not make such payment; that Hertz, in pursuance of the cоnspiracy, then arranged for an extension of credit to plaintiff by Factor and delivered to Factor securities it had purchased in plaintiff’s name; that Factor had knowledge of the facts with respect to the Hertz account and joined with Hertz in the conspiracy to assist Hertz in evading the Act and Regulation T; that Fаctor caused plaintiff to permit an account to be opened by Factor, with Spingarn, and plаced plaintiff’s securities therein; that Spingarn, with knowledge of the facts, joined in the “concert of action” to assist in the evasion of the Act and Regulation T by Hertz and Factor; that Spingarn and Factor thereuрon engaged in numerous transactions in the aforesaid account until plaintiff’s equity was completely еxtinguished, causing loss to plaintiff in the amount of $26,586.33.
In support of its motion, Factor contends that an extension оf credit by a factor to a borrower seeking to finance a purchase of securities is not prohibited by Section 7(c) and Regulation T and is lawful even though a broker may have arranged the extension of сredit in violation of the broker’s duty under the statute and rule. Bronner v. Goldman,
Factor also contends that, even assuming the existence of a conspiracy, the аllegations of the complaint show that the plaintiff, by his own admission, was
in pari delicto,
and that while this defense would not be available to Hertz and Spingarn, who are alleged to have violated a statutory duty, Remar v. Clayton Securities Corp.,
Plaintiff alleges, however, that Factor intentionally conspired with Hertz and Spingarn to evade the provisions of Section 7(c) and Regulation T. If plaintiff can establish such a conspiracy at trial, to allow Factor’s defense of
in pari delicto
would be tantamount to saying that factors, without risk to themselves, can conspirе with brokers to enable the latter to evade Section 7 of the Act and Regulation T with the consent of the customer. This result would run counter to the congressional intent
*931
which is, in part, to protect small speculators who are regarded as incapable of protecting themselves. Remar, supra,
Factor’s motion to dismiss the complaint is denied.
It is so ordered.