There are almost 600,000 stockbrokers in this country and by most accounts, the vast majority of them are honest and ethical. A minority is not: Complaints about stock brokers were up 30 percent last year in eight states alone. The most recent national statistics are from two years ago: at that time, there were 30,000 complaints. In the first of a four-part series on bad brokers, CNBC talked to two victims.
THEY DON’T KNOW each other, but there are similarities in their stories. And they agree on this: securities investing is a gamble in the best of times. But when your broker isn’t playing straight, the odds grow much worse.
“He really was a wonderful talker,” said Cara Marks, a self-employed illustrator and single mother of three. “He became my best friend. Always asked me about the kids, how my divorce was going, how the move was, how I was doing. He just became a substitute friend.”
Marks said she lost $50,000 through her licensed stockbroker, Michael Katz. And 18 months after opening the account, Marks said she came to realize that the broker was trading her account in risky stocks without authorization – a lot.
Marks complained, and got a Beverly Hills, California attorney who specializes in the area of investors’ rights.
Marks was legally unable to sue her broker; she was required instead to go through arbitration overseen by the securities industry – the National Association of Securities Dealers. She is not alone. Virtually every brokerage customer in this country has given up the right to sue; it’s standard language when you sign a brokerage agreement at the time you open your account.
Despite more than two years of delays by attorneys for Katz and his firm at the time (now known as First Asset Management), Marks won. The arbitrators awarded her the $50,000 she lost and $82,000 more.
“She put trust in a broker who quite frankly abused that trust,” said her attorney.
Five years after Marks opened her account, Michael Katz is still around and still selling stocks. CNBC traced him to Long Island-based Gaines, Berland.
When we called him for his side of the story, Katz said he couldn’t talk on the phone, so we paid a visit to his office in person and were told he wasn’t available.
“As far as I’m aware, there was no action taken against him,” said Marks’ attorney. “In the years I’ve done this, not one broker involved in any case I’ve ever tried has ever been referred for discipline as a result of that case.”
Marks still doesn’t have her money. Attorneys are challenging the arbitrators’ decision, calling it “irrational.” One firm principal told CNBC: “We’ll fight it. It’s unfair.”
“I think that’s disgusting [that Katz is still working],” said Marks. “It’s egregious. And I think if a broker goes through a setting as that and has a decision against them, they should not be able to work.”
A $10 MILLION JUDGMENT
Dr. Clark Gardner was even less fortunate. The California radiologist had been investing for years: he’s hardly what you’d call unaware. Still, when he got a series of calls from a broker he’d never met, Gardner agreed to open an account.
“I shouldn’t have,” he said recently in an interview at his Los Angeles office. “I wished I hadn’t. With any other investment, I’ve always met the individual. But this gentleman was so slick and cunning, and so much of a charismatic individual over the phone, I felt comfortable in dealing with him.”
The broker, Sam Weber, worked for the now defunct firm regulators say was among the worst: Stratton Oakmont. Weber’s first trade for Gardner was a small amount of stock in Dr. Pepper. It went up slightly.
Soon after, Weber pushed a little company Gardner had never heard of: Select Media.
“It was a communications company and he touted it at the time as a hot industry,” said Gardner. “And that it was a guaranteed mover.”
It moved all right: to the basement. Select Media – and later, the other stocks Weber sold the doctor – fluctuated awhile and then, mostly, tanked. The list included Hemispherx Biopharma, The Dolomon Page Group Ltd., Czech Industries Inc., Dualstar Technology Corp., United Leisure Corp., Modular Visions, and Pace Transfer.
Some have come back. But too late though for the doctor, who lost – according to case documents – $184,000 over a 13-month period.
Telephone transcripts show that time and again, when Gardner called Weber and demanded that Weber sell, Weber did not. In one 10-minute call, Gardner instructed Weber to sell 23 times – without success.
Gardner eventually took the firm’s four principals to arbitration. And his attorney says after two years of delay tactics by the other side, the doctor won not just the $184,000 of which he’d been cheated, but a record in punitive damages for an individual investor: $10 million. But so far, says Gardner, he’s collected “not a dime.”
“On the eve of Dr. Gardner’s arbitration, the broker declared bankruptcy.”
Weber may be bankrupt, but he’s got a nice house on Long Island, N.Y. CNBC paid a visit there to ask for his side of this story, but the woman who answered the door turned us away.
One piece of information that could have tipped off Dr. Gardner to his broker’s disciplinary history is an NASD report contained in its Central Registration Depository – a report known in the industry as a CRD.
“Most CRD’s are 5 or 6 pages in length, and [Weber’s] is 50 some odd pages,” said Gardner’s attorney. “And he remained in business until just two weeks ago, when the NASD finally suspended him.”