Analysts Foresee Deluge of Securities Arbitration Cases

By Kristof, Kathy | THE JOURNAL RECORD, May 17, 1994 | Go to article overview

Analysts Foresee Deluge of Securities Arbitration Cases


Kristof, Kathy, THE JOURNAL RECORD


The stock market slide that has pushed the Dow Jones industrial average down 300 points in the past two months is expected to spur a tsunami of securities arbitration cases, in which customers maintain their brokers lied, cheated, stole or misled them into taking bigger risks than they were prepared for, experts say.

Some securities arbitration firms say they've already been deluged with phone inquiries in the wake of the market drop. The National Association of Securities Dealers _ which handles 80 percent of all such cases _ has also detected an increase in the number of individuals requesting arbitration information packets.

While no one can say exactly how many additional individuals will take their broker disputes to arbitration this year, previous market slides have caused dramatic increases. The October 1987 market crash, for example, helped boost NASD arbitration filings that year by 82 percent. The following year, arbitration cases rose another 38.2 percent. (Filings often lag a market correction by as much as nine months.) The number of cases received in 1989 and 1990 fell.

"We always see an increase in a down market, but it usually takes several months before a severe market drop will filter into lawyers' hands and arbitration filings," said Ted Eppenstein of Eppenstein Eppenstein, a New York-based securities law firm.

It is important to note that broker wrongdoing _ the basis of a securities arbitration case _ does not increase when the market dives. Investors are just more likely to notice and object to it when they're losing money than when their accounts are profitable, said Deborah Masucci, vice president and director of arbitration at the National Association of Securities Dealers in New York.

"People start taking greater risks as the market goes up, but they don't recognize the risks until the market comes down and they start to lose money," she said.

But experts stress that a market loss does not necessarily translate into an arbitration case. Indeed, arbitration firms generally reject between 10 and 50 cases for every case they take.

That's sometimes because the cases are too small for an attorney to litigate. Or because the statute of limitations has expired. But often it is because there was no sign of illegal or improper activity, regardless of the loss, said William Levine, chief executive of Investors Arbitration Services in Los Angeles. …

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