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Wronged investors get aid
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December 10, 1997: 6:19 p.m. ET
SEC-initiated legal clinics could be headed to a law school near you
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NEW YORK (CNNFN) - The phone rings with a call from a stock broker whose high-pressure tactics convince you to buy 1,000 shares of a "can't miss" penny stock.
But six months later you're sitting on a full-fledged turkey and realize that the broker sold you stock that is entirely different from the way he described it in the pitch.
What's a hapless small investor to do?
Until recently, the answer was "not much." Few attorneys will take on securities cases where damages are for less than $15,000 -- or even below $50,000. It's not worth their time, the lawyers say. That leaves investors to fend for themselves in arbitration cases where they must go up against experienced securities lawyers.
But change is in the works.
The Securities and Exchange Commission has convinced two New York-area law schools to open free legal clinics for small investors in what could become an nationwide initiative. If the pilot programs at Pace University and Fordham University succeed, the SEC plans to encourage other law schools to begin helping small investors with what are deemed legitimate arbitration claims.
Arbitration is the standard method for resolving securities disputes. Investors are usually asked to sign a statement when they open a brokerage account in which they agree to arbitrate any claims against their broker or the firm.
"The problem is these are complicated legal issues and the brokerage firm is typically represented by an attorney who handles these cases day in and day out," said Barbara Black, a law professor who is running Pace University's clinic. "Investors have not felt there is a level playing field."
The Pace program is fairly rudimentary. Students work on only a half dozen cases each semester, acting as legal advisers and even representing the investors in official arbitration hearings. Investors pay no fee to the school, but must cover the costs of filing a claim through the New York Stock Exchange or the National Association of Securities Dealers.
SEC officials say the number of arbitration claims have risen as the stock market has taken on more speculative tones. Most claims involve one of three scenarios: the broker understated the risk of a particular investment; the broker lied to the investor when asked about the performance of a holding; the broker made an excessive number of trades to generate a higher commission.
"One of the most common mistakes is that people don't pay attention and they allow their broker to talk them into something they don't need," Black said.
Experts insist that investors can solve a lot of potential angst -- and possibly prevent the need to file a legal claim -- if they stick to some basic rules:
- Read everything your broker give you, especially transaction confirmations;
- Keep copies of all statements;
- Make your own decisions and don't rely entirely on the broker;
- Remember that you can say "No."
--by staff writer David Rynecki
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