Lawyers seek to file against brokerage houses

Published: Sunday, September 1, 2002 at 6:01 a.m.
Last Modified: Saturday, August 31, 2002 at 11:41 p.m.
ORLANDO - Squeezed between a political ad and a weather update from the local news station, a bearded man in a yellow shirt and a lime-colored tie appears on the television screen.
"So you worked hard and socked your money away so that you could enjoy retirement," Orlando lawyer James Richard Hooper says. "You selected a major Wall Street brokerage firm to invest and protect your money and now, now you're left holding the bag. Your money is gone."
He blinks. Across his chest is a white graphic listing a toll-free number.
"Your dreams are shattered, but you might just have a claim against that trusted brokerage house," he says in the ad.
Hooper is one of a number of trial lawyers who are finding a niche in mining the discontent of retired investors. At a time when many retirees are depending on their investment income more than ever, their portfolios have headed south with the stock market.
While bigger law firms are getting attention filing class-action lawsuits against companies and brokerage houses, Hooper is casting his net for clients in a state that is home to large amounts of retirement money. About 18 percent of Florida's population is over age 65.
"Most of the grandmas and grandpas in Florida who lost money in the market think it's their own fault or God's will. We're trying to educate them that they may have a claim," he said. "There's a fiduciary relationship with your stockbroker, not unlike your doctor or lawyer. They're supposed to be looking out for you."
Hooper has yet to file any claims, although his law firm has received hundreds of calls since his four radio and television ads began running in Florida two weeks ago. About half of the calls appear to have some merit, he said.
Among the claims that can be made against the brokerage firms, Hooper said, are breach of fiduciary duty, unsuitability, negligence, failure to supervise and misrepresentation.
Not everyone who loses money in the stock market has a legal case. But Hooper said a case could be made if an investor tells a broker to invest conservatively and the broker puts the money in high-risk stocks or if the broker ignores specific instructions.
Hooper also points to the $100 million fine Merrill Lynch agreed to pay New York Attorney General Eliot Spitzer and the resignation of analyst Jack Grubman, who promoted WorldCom stock while his Salomon Smith Barney firm did investment banking business for the telecommunications company, as evidence of bad behavior by brokerage firms.
"When you get retirees, they can't afford to take those kinds of risks," Hooper said. "Every day we're getting calls from people who shouldn't have been in telecommunications, high-tech, dot-coms."
Hooper isn't alone in seeking claims against brokerage firms. Arbitration claims nationwide are up 10 percent this year, according to the National Association of Securities Dealers, which regulates brokers and brokerage firms.
The number of lawsuits also has grown recently.
Last year, the number of class-action lawsuits for federal securities fraud more than doubled from the previous year, according to the Securities Class Action Clearinghouse at Stanford Law School. In 2000, there were 214 lawsuits. In 2001, there were 486 lawsuits, many deriving from initial public offering claims.
Merrill Lynch spokesman Bill Halldin said he has no figures on how much of an increase there has been in legal claims against his company.
"Typically, in bear markets that have followed bull markets, situations when investors have lost money because of investment decisions, all of Wall Street sees a rise in claims," Halldin said from his New York office. "If a client has a concern, we will look into that concern for them, review it thoroughly, and get back to them with what we think is an appropriate answer."
Lawyer Vincent DiCarlo points to the number of hits on his Web site as evidence of the recent interest in legal action against brokers. In October 2000, the Web site had 410 hits. Last month, the Web site had 19,000 hits.
"There has been a tremendous increase in the number of claims," he said. "When the market falls, all of the misconduct is revealed."
One of DiCarlo's clients, Kenneth Shanon, last year was awarded $90,000 by an arbitration panel in California. Shanon had accused First Union Securities and a broker of misrepresentation and selling him bonds without telling him they were "junk bonds," or below investment grade. He had sought $115,000.
"I sued the firm and the broker because both of them dropped the ball" Shanon said from Auburn, Calif. "I thought the arbitration was very fair."
Because the hurdles are higher, investors' claims are unlikely to be the next frontier for trial lawyers who have found gold mines in asbestos, tobacco and defective tire cases, legal experts said.
"You're talking about a different situation than Firestone or asbestos," said Carlton Carl, a spokesman for the American Trial Lawyers Association in Washington. "You're talking about financial injury rather than physical injury."
Almost all such cases are heard by arbitration panels rather than the courts because of arbitration agreements investors sign when they hire a broker.
"Arbitration doesn't have the same power as class action," said Georgetown University securities law professor Donald Langevoort, a former special counsel at the Securities and Exchange Commission. "It's not the same mega-money that class action produces. You don't get a global settlement. You fight one-on-one."
In addition, the downturn in the stock market has occurred over a limited period of time.
"When you're talking about tobacco, you're talking about years of history," said Francis G.X. Pileggi, a Wilmington, Del., attorney who specializes in shareholder disputes.
Finally, no one can guarantee what the stock market will do and low share prices may soon rise again.
"That's the biggest defense the brokerage houses have," Pileggi said.
Added Dominic Caparelli, chairman of the trial lawyers section of the Florida Bar, "These are difficult cases to prove. You have to show that a stockbroker has been managing an account poorly, against instructions."
--- On the Net: Securities Class Action Clearinghouse:
NASD: Public Investors Arbitration Bar Association:
"Most of the grandmas and grandpas in Florida who lost money in the market think it's their own fault or God's will."

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