Personal Finance > Investing
You screwed up? Sue!
September 10, 2001: 2:51 p.m. ET

Burnt investors are looking for someone to blame
By Amy Feldman
graphic graphic
NEW YORK (Money) - Since stocks peaked in March of 2000, investors in the U.S. market have lost $4 trillion in paper wealth. That's an awful lot of money, and it's left an awful lot of people pissed off -- and looking for someone to blame.

Their targets: brokers and financial advisers.

Jacob Zamansky of New York City, who represented 46-year-old physician Debasis Kanjilal in his complaint against Merrill Lynch and Henry Blodget, says he has been "flooded with calls and e-mails" since news of the $400,000 settlement broke (for more on the Merrill case, see "Merrill settles complaint"). And in Beverly Hills, attorney Phil Aidikoff says he's getting three times his usual volume of calls -- and accepts only one in 12 investors.

This environment was fueled by two recent landmark cases that may have created new incentives for lawyers -- and their clients -- to pursue brokers. In the first case, 77-year-old multimillionaire Henryk de Kwiatkowski, who lives a rarefied life in the Bahamas trading currencies and breeding horses, was awarded $164 million late last year by a federal court for market losses. It's believed to be the biggest solo-investor award ever.

De Kwiatkowski had claimed that the negligence and bad advice of his longtime brokerage, Bear Stearns, was to blame for $300 million in losses on $6.5 billion worth of currency contracts.

The case, now on appeal, was big news in the legal community, not only because of the size of the award, but also because de Kwiatkowski is the epitome of a worldly investor -- and yet was successful in blaming his adviser. "If someone who does extreme speculation is not responsible, then who is responsible?" asks Walter Olson, a senior fellow at the Manhattan Institute and editor of

In the second case, Marcia Roubik, a 51-year-old Illinois real estate broker, received a jackpot arbitration award against Merrill Lynch. Roubik had filed a claim over a $56,000 loss after the crash of 1987. Her case went all the way to the U.S. Supreme Court over technical questions on arbitration payouts.

But Roubik stuck with it, and this past April she got her prize: a $2 million award, most of it punitive damages. While a Merrill spokesman argues that the award "wasn't warranted," the fact that Roubik's payoff is 36 times her investment loss -- far better than the S&P 500's total return over the decade since her claim was filed -- piqued plenty of interest in the securities bar.

But before you begin to think about litigation or arbitration as a turbo-boost for your depleted accounts, keep in mind that filing claims and suits is far different from winning them. For all the notoriety of successes like de Kwiatkowski's and Roubik's, the broader picture is far bleaker.

Class-action suits, as the recent dismissal of suits against Morgan Stanley Internet analyst Mary Meeker demonstrates, face a difficult road in getting to trial, let alone in winning outright. And even successful bids usually leave the typical investor with minuscule awards, compared with the lawyers' take. Most investors lawyers work on contingency -- fees typically range from 30 percent to 45 percent of the payout.

As for arbitrations, historically only 46 percent of investors whose claims reach a hearing ever get payback, receiving just 36 cents on the dollar for their losses, according to data compiled for MONEY by Securities Arbitration Commentator on claims against the top 10 brokerages over the past five years. It typically takes 14 months for an arbitration claim above $25,000 to work its way through the system -- a process that can frustrate even the most patient person.

Plus, since the most egregious behavior is often associated with smaller brokerages that then close down, only a third of plaintiffs who win in arbitration ever get paid in full, according to a General Accounting Office study.

Still, the rush of claims shows no sign of easing. Certainly investors who've absorbed big losses may feel they have little to lose, as lawyers scramble to take cases at no up-front cost. "It is almost like a free lottery ticket," says Henry Hu, a professor of securities law at the University of Texas at Austin. "And lots of people pay good money for lottery tickets." graphic