Modern Settings v. Prudential

This case is still valid as precedent though it has been 18 years.

Not only still valid, I was at a conference this morning at which a lawyer active in securities practice treated this as still the leading case on the validity of a "ratification" defense in a dispute over unauthorized trading.

I find it fascinating that this hasn't been superceded, since it seems to me the underlying question must arise all the time.

Many clauses between an investor and an asset manager will provide that if the asset managher makes an arguably unauthorized trade, the investor must make his displeasure known within a specified number of days and in writing in order to preserve a cause of action. If he does not, then his silence is held to have "ratified" the trade.

This rule has some prima facie validity. It limits "buyers remorse," where an investor is willing to accept the upside of a manager's decisions on his behalf but wants to dispute any decisions that turn out to have a downside. On the other hand ... well, it raises the old "agency problem" in sharp form.

Anyway, Modern Settings remains the modern setting. And the neat thing is: one of the defendant entities went by the name: Bialystock & Bloom.