Where to take broker disputes

Investors are fed up and theyM-Fre not going to take it anymore.

Now the brokerages that let them down must pay the price.


A total of 4,384 arbitration cases involving disputes with brokers were filed with the National Association of Securities Dealers Dispute Resolution forum in the first half of 2004, a pace equal to last yearM-Fs all-time record. There was a 33 percent increase in the number of cases decided, compared with a year ago.

In one glittery recent example, Nancy Stafford Myers, a regular on the Matlock and St. Elsewhere television dramas, was awarded $274,000 by a NASD arbitration panel.


Despite her request for conservative investments, a broker at Janney Montgomery Scott LLC stashed her life savings in high-risk growth stocks, junk bonds and private loans. Her nest egg declined by $500,000.

M-tIM-Fm seeing more investor complaints against brokers than in a long time, a lot from investors who suffered significant losses in the bursting of the tech and telecom bubble,M-v observed Jacob H. Zamansky, principal in the New York law firm of Zamansky & Associates (www.zamansky- .com). M-tTheir main complaint is unsuitable recommendations by brokers.M-v

Pressured by critics who say a self-regulatory industry body shouldnM-Ft be in charge of the dispute resolution system, the NASD is hiring more arbitrators, has stiffened requirements for them and has launched online claim filing.

As part of the crackdown, Citigroup Global Markets, Merrill Lynch & Co. Inc. and Morgan Stanley were recently fined $750,000 for failing to produce documents in 20 arbitration cases. Wachovia Securities and two of its brokers were ordered to pay $408,000 for misconduct in account management.

Investors win 55%

Seventy percent of cases are settled before a hearing even takes place, with the investor getting back some of what was claimed as a loss. Fifty-five percent of cases going to arbitration M-y which is binding M-y are decided in favor of the investor.

Problems arenM-Ft merely because of a rocky stock market, since all investors were in that same boat. However, the advice and sales practices they encountered were not all the same.

M-tThe fact that your investment performed more poorly than youM-Fd hoped is not a basis for a claim,M-v explained Barbara Roper, director of investor protection for the Consumer Federation of America in Washington. Instead, common abuses subject to arbitration include M-tchurningM-v M-y excessive trading in and out of stocks to generate commissions M-y and unauthorized trading in an account, Roper noted.


M-tYou rarely see investor complaints about brokers in bull markets, but they do rise in bear markets,M-v said John D. Markese, president of the American Association of Individual Investors in Chicago.

Other examples of misconduct are a full-service brokerage house promoting an Internet firm long after the firm imploded. It was a conflict of interest because the brokerage had a relationship with that Internet company, Markese added.

Rising interest rates reducing the value of existing bond holdings in individual portfolios may be a signal that bonds will soon be joining stocks as a serious target for arbitration.

If something goes wrong in your relationship with your broker, first talk with the broker to see whether it is a correctable mistake. If that isnM-Ft fruitful, go to the branch manager. You can talk with the manager on the telephone, but also write everything down. If that doesnM-Ft satisfy you, go to the brokerage firmM-Fs compliance office, often located elsewhere.

That failing, look into arbitration at the NASD or the New York Stock Exchange. The NASD Dispute ResolutionM-Fs hot line number is 212-858-4400 and its Web site explaining the claims process is www.nasdadr- .com. Its new online claim filing system can be accessed at http://www.nasdadr. com/ onlineM-yfiling.asp.

If you use NASD Dispute Resolution, you donM-Ft have to appear in person if your claim is $25,000 or less. Under the NYSE Dispute Resolution process, the threshold is $10,000. The SEC investor site is investor.shtml, phone number 1-800-SEC-0330 and address 450 5th St. NW, Washington, D.C. 20549.


Check brokerM-Fs record

M-tBefore you even do business with a broker or firm, use the NASDM-Fs broker check site [] to check out their past history,M-v advised Linda Fienberg, president of the National Association of the NASD Dispute Resolution in Washington. M-tAlso ask the potential broker for references and follow up on them.M-v Investors may also call the NASD at 800-289-9999 to check out a broker.

Look closely at documents youM-Fre asked to fill out and sign, particularly the parts about your tolerance for risk and objectives, and retain a copy, Fienberg added.

M-tRead your brokerage account statements each month when you get them and ask questions about anything you donM-Ft understand,M-v said Susan Wyderko, director of Investor Education for the SEC in Washington.

M-tWe sometimes see investors complain about unauthorized trading in their account which actually involved the sale of their securities to satisfy a margin call, something the brokerage firm is entitled to do.M-v

Even though the broker may have sold a stock that youM-Fd have preferred to keep, in a call on a margin account the action was justifiable, Wyderko added.


M-tThe best thing you can do is keep good records,M-v Roper said. M-tYour chance of getting your money back goes up dramatically if you can document what happened.M-v

Andrew Leckey is a Tribune Media Services columnist.