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Alex. Brown named in suit on transfers


Baltimore's Alex. Brown & Sons Inc. is one of 11 Wall Street firms charged in a lawsuit with improperly enriching themselves by not transferring investors' money speedily enough when the investors changed brokerage houses.

The class-action suit, filed by three investors in Phoenix, Ariz., claims that when investors changed from one brokerage to another, some mutual funds and money market funds were not transferred as quickly as possible to the new brokerage firm.

The firms unnecessarily took the maximum 10 days allowed under law before transferring funds to the new brokerage and used this time to earn interest, which the former client did not receive, the suit charges.

"This practice has permitted these named defendants to unlawfully and illegally retain or use free cash belonging to plaintiffs and the respective members of the class," the suit said.

Some of the firms involved disputed the charges, saying they transferred funds promptly.

"We transfer as efficiently as possible and in full compliance with the law," said Jami McDonald, a spokeswoman for Alex. Brown. Ms. McDonald said transferring the money was not as simple as sending money by wire because accounts must be closed, funds sold and paperwork filled out before the money can be wired.

Other firms involved in the suit, which was filed July 12 in TC Superior Court of Arizona, refused to comment publicly.

Frank Lewis, an attorney in Phoenix representing the three Arizona investors, said the companies do not need the 10 days. The money is not being processed for 10 days, he said, but is usually held in a brokerage firm's account for nine days and then sent on the last day.

"They can use the money as they want. They are getting the benefits of using the money as they want, and the clients are not," Mr. Lewis said.

The suit does not characterize the potential members of the class on whose behalf the suit was brought but said there might be "thousands of class members" with total claims in the millions of dollars.

In one of the three cases detailed in the lawsuit, Phoenix investor Burton Solomon moved his investments from one securities firm to another through Alex. Brown. Stocks and bonds were shifted without problem, but proprietary mutual funds and money market account funds that were not accepted by the new brokerage firm had to be sold first and the cash then transferred. These funds were sold for $22,295 and, on the ninth day of the 10-day period, the cash was transferred to the new brokerage.

The suit does not claim that Alex. Brown failed to transfer the money or that the sale was improper. But, the suit alleged, it took too long, and during the wait, Mr. Solomon did not earn interest. Such cash transfers are made through the National Securities Clearing Corp. (NSCC). The transfers through NSCC could be done in one or two days, the suit claimed.

Alex. Brown was one of four firms named in the suit because the primary plaintiffs have accounts there. The others were Dean Witter Reynolds Inc., Shearson Lehman Brothers Inc. and Kemper Securities Inc.

The suit also named Charles Schwab & Co., Merrill Lynch & Co., Bear Stearns Securities Corp., Kidder, Peabody and Co., PaineWebber Inc., Prudential Securities and Smith, Barney Harris, Upham & Co. because they work through the clearinghouse.

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