Stock market punt costs £1.8 million
Posted: 16th December 2015
Many people think that gambling on the stock market is easy and a sure fire way to make money – one High Court case revealed how very wrong they can be. A businessman who bet that shares in Royal Bank of Scotland would go up just weeks before Lehman Brothers collapsed ended up losing almost £1.8 million.
Successful Manchester property developer, Aryeh Ehrentreu, treated spread betting as a hobby and rarely bet more than £1,000 on share movements. After reading articles in praise of the bank, he decided that its shares were a sure thing and presented the opportunity of a lifetime. He placed about £7,500 in wagers on the shares heading upwards with a spread betting firm.
About a month later, the worldwide banking crisis hit and the shares plummeted. By the time the firm closed his position, Mr Ehrentreu's losses were catastrophic. He could not pay more than a fraction of the sum due – his property company had also been hard hit by the recession – and the firm launched proceedings against him to recover more than £1 million.
The High Court accepted that the firm was in breach of contract in that it should have closed the position earlier, thus stemming the losses. However, in concluding that the whole sum was payable, with interest, it found that he had decided to stay in the market rather than cut his losses. As an experienced spread better, he had refrained from closing his position in the hope that the bank’s share price would go up. The firm’s breach of contract was thus not the cause of his losses.