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Do you have a case against Wall St. banks?

USA Today

After this week’s $1.4 billion settlement between regulators and 10 Wall Street investment banks, investors who’ve been burned by a broker may be wondering whether it’s time for payback.

Securities lawyers say they are already busy fielding arbitration inquiries.

You don’t have to be directly affected to have a good case. Many kinds of broker misconduct can result in a damage award. Don’t wait too long to act because the statute of limitations in your state could prevent you from filing a claim, experts say.

If there is a significant amount of money at stake, you’ll probably need a lawyer. But be selective. As arbitration damage awards have grown, lawyers have flocked to the field.

“Lawyers are advertising and yet they often have little or no experience,” says a past president of the Public Investors Arbitration Bar Association (PIABA). Consumers who don’t want to be victimized twice should carefully check out a lawyer’s credentials and experience, he says.

Arbitration claims are soaring. Claims at the National Association of Securities Dealers, which handles 90% of cases, already are on track to surpass last year’s record 7,704 filings. Answers to common questions about arbitration:

How do I know if I have a case?

Just because you lost money on investments recommended by a broker doesn’t mean you have a legitimate claim.

In general, you must have lost some of your original principal, says Tracy Pride Stoneman, a securities arbitration lawyer in Colorado Springs. If you invested $1,000 and it went up to $5,000 and then dropped to $2,000, you may not have a case.

If you invested through a discount broker and made your own decisions, it’s unlikely that you have a case.

Most cases involve several types of misconduct, says Andrew Stoltmann, a Chicago securities lawyer. Among them:

  • Suitability. Did the broker consider your investment objectives, age and risk tolerance when making the recommendations?
  • Misrepresentation and omission. Did the broker fail to disclose the risk of an investment?
  • Churning. Did the broker make excessive trades in the account to generate commissions?
  • Unauthorized trades. Did the broker make trades without your approval?
  • Negligence. Did the broker fail to properly diversify your portfolio?

How can I find a lawyer?

If you know a lawyer you trust who specializes in another area, ask for a referral. Or go to and look for the names of lawyers in your area. Select several to interview.

Then ask good questions. Among them: What is your training and experience? How many cases have you actually tried? And ask to speak to a couple of the lawyer’s clients.

Arbitration lawyers usually take cases on contingency, which means you don’t have to pay a retainer and their fee comes out of any award you receive. Sometimes an arbitration panel will award lawyers fees on top of your damage award.

Arbitration complaints
Types of arbitration cases filed by investors against securities firms:





Margin calls










Unauthorized trading





Failure to supervise










Omission of facts





Breach of fiduciary duty















Online trading**





* – through March; ** – first tracked in 1999 Source: NASD

It should be a red flag if the lawyer asks for a big upfront payment.

Will a lawyer take my case?

Because cases are taken on a contingency basis, lawyers will usually only take cases that have merit. And they usually won’t take small claims because they want to be able to recoup their fees. Some lawyers only take cases with $100,000 or more in losses.

But most will give you a free initial consultation. Stoneman usually doesn’t take cases with claims below $100,000, but she made an exception for an 82-year-old investor who lost $40,000, all the savings she had.

In addition, some lawyers are making exceptions for small claims that stem from the cases detailed in the Wall Street settlement. That’s because they may be able to group them together.

What can I do if I have a very small claim?

NASD and the New York Stock Exchange, which also has an arbitration forum, have simplified arbitration procedures for small claims. You may be able to represent yourself in such a case. The procedure is more streamlined. Often there is only one arbitrator.

Is arbitration like a lawsuit?

There are some major differences. Civil lawsuits routinely take three to five years, while arbitrations typically take a year and a half.

Brokerage firm agreements generally require customers to resolve disputes through arbitration.

In a lawsuit, your case will be decided by a judge or jury. Arbitration is usually decided by a three-person panel, which includes one representative of the brokerage industry and two independent arbitrators, who might be lawyers or businessmen. Investors sometimes complain that the cards are stacked against them.

Because there are no depositions, costs are much less. There is a filing fee of $1,000 to $2,000. There may be a fee to prepare a profit and loss statement.

About 80% of cases are settled prior to arbitration. But if your case goes to arbitration, you may have to pay all or some of the hearing fee. If the panel rules in your favor, it also may require the brokerage firm to pay costs and legal fees.

Another important difference: In arbitration, neither side can contest the panel’s decision, except in extreme circumstances. You could appeal, for example, if you later discover that one of the members of the panel was related to the broker.

Los Angeles screenwriter Aleks Horvat has firsthand experience with the arbitration process – which he describes as nerve-racking but ultimately satisfying.

He and his brother filed a claim against their broker in 2001 for losses stemming from churning, among other things. Churning occurs when a broker trades frequently to drive up commissions. Horvat’s claim was for $2.6 million, money from a publishing business he had sold and invested with the broker.

But in February he finally was awarded $1.8 million, or 70 cents per dollar of his claim. Because there were no appeals, he got his money within two weeks. All in all, he says, “I feel very good.”