Investors may have recognized some familiar names in the news coverage of the Wall Street settlement on April 28, either of their brokerage firm or of stocks they invested in. If someone suspects they may have a claim against a brokerage firm over tainted research, what can he or she do?

The first and easiest thing that somebody can do is access the list of stocks [involved in the Wall Street settlement] and make sure they had purchased or were sold some of those stocks.

Then they have to see if, in fact, they were relying on their broker and their firm in their purchase of that particular stock. Sometimes, I have people who call me and say, "I have an account over here at Ameritrade and I brought WorldCom." I ask, "What did you base your decision on?" They say, "Well, I did my own research and I talked to friends." And I say, "You know what? You're not going to be able to pursue that because there is not a direct connection to a research report or a broker at the firm."

So you have to be a client of one of these firms investing through the firm in one of these stocks.

That's right. But that does not mean that if you lost money in WorldCom or Global Crossing you should chalk yourself off the list. Some large companies are noticeably absent from the list, meaning that they may have been used as bargaining chips. So if you lost money on any tech or telecom stock through those firms, investigate it. Call a lawyer, determine if you have a case.

If you lost a relatively small amount, will it be worthwhile to try to get your money back?

Yes. The way the system is set up, claims for less than $25,000 can be taken through the arbitration process and a decision is made "on the papers," meaning no one has to appear in person. There is one arbitrator who decides the case based on the documents that have been filed. It doesn't cost much to do it. It is relatively fast and simple. At the NASD, the fee for filing a $25,000 loss will be $575.

How long does the arbitration process take? For people filing in the next few months, when can they expect to see some money back?

Let's assume we're talking about a decent-sized case -- let's say $200,000 at issue. I'm telling people now that they're looking at about a year and a half. I used to tell people a year, but that time period has elongated because of the volume of cases being handled. Arbitration is significantly faster than a court case. And it's final. In an arbitration, whatever that panel decides, you're stuck with it. There are very few appeals. In my over a decade of experience representing investors, I have never appealed a case or had one appealed. In a court case, you could be tied up for years in appeals. With arbitration, once there is an award, the brokerage firm has to pay it within 30 days or they lose their license. There's no dragging of feet in terms of getting your money.

In the settlement, firms have agreed to pay $387 million into a restitution fund for investors. Can you both file an arbitration claim and get money from the fund?

Yes. Regulators have said investors can do both. We don't know the details about on what basis the money is going to be divvied out, but when you look at how much was lost and you look at this fund, I think somebody referred to it in something I read as "chicken feed." There's also a very good chance that the cost of administering the restitution fund will come out of that $387 million.

How do you foresee most of these claims being resolved?

I predict that the vast majority will be settled. I read an article recently where one of the firms said they're going to defend all these. Well, that's what Prudential did in the early '90s with the limited partnership scandal and it didn't take long for Prudential to realize that was not a smart decision. So the tide will turn even if we go through a period of obstinate defense tactics. It will be a phase and ultimately most cases will be settled.

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published may 8, 2003

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