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Investors facing huge account losses take brokerage firms, advisers to arbitration
By Sheri Qualters / Staff reporter
National Law Journal
16 October 2008
Investors grappling with major account losses are flocking to the Financial Industry Regulatory Authority (FINRA) with arbitration cases against brokerage firms and investment advisers.
Typical arbitration claims against brokers and investment advisers fall into three categories, said John Singer, partner and co-founder of New York-based Singer Deutsch. Investors accuse brokers of pushing them into portfolios that aren't diversified, recommending unsuitable investments for the age or sophistication of the investor or churning — excessive trading to generate commissions.
FINRA is the securities industry's regulatory group that oversees brokerage firms, branch offices and certified securities professionals known as registered representatives.
Any sharp downturn in the market generates a large volume of arbitration claims against brokerage firms and investment advisers, Singer said. "We've seen a huge upward trajectory in the last few weeks," Singer said. "Over the next several months will see a huge uptick in these cases, even more so than now."
Marshall Fishman, a partner at New York's Kramer Levin Naftalis & Frankel who represents financial institutions in litigation and arbitration, has acquired a "somewhat bigger case load" during the market turmoil of the last few weeks.
Fishman expects more cased near the end of the year and early 2009. "It takes a while for cases to be filed and served," Fishman said. "[We] have not seen the full impact."
Fishman also anticipates more class actions, which can circumvent brokerage houses' customer agreements requiring arbitration of disputes. "Given what's happened over the last couple of weeks only, there are going to be more and more cases filed in arbitration and court," Fishman said. Class action filings have started to surface in recent weeks with cases filed by plaintiffs' firms like Klayman & Toskes. The Boca Raton, Fla.- based firm has filed lawsuits on behalf of investors who purchased large blocks of Wachovia stocks or preferred stock of Fannie Mae or Lehman Brothers.
According to FINRA statistics, there were 3,469 arbitration cases filed by brokerage customers and employees from January through September 2008, or a 46% jump from the 2,382 cases filed during the same period in 2007.
