Disputes with Brokers Go Mostly to Arbitration
Guy Halverson, writer of The Christian Science Monitor, The Christian Science Monitor
It's probably not surprising that disputes over stock transactions are on the rise, given increasing participation in the market by individual investors. Last year, for example, some 6,388 claims were filed before two of the main arbitration groups in the US, up about 10 percent from 1994.
Complaints vary, but involve such practices as (1) misrepresentation - such as statements by a broker that an investment has a certain guaranteed return; (2) omissions, when one party hides important information; (3) "churning," where a broker frequently trades investments to generate commissions; (4) unusual markups, such as large spreads between a buying price and selling price; (5) selling a client clearly inappropriate investments; or (6) a broker trading an account without the client's permission.
MOST individuals seeking redress in a securities case have no other option than arbitration. Brokerages usually require that an individual opening an account sign a release form stating that in event of a dispute, the matter will go to arbitration rather than court litigation.
That's not necessarily bad. Arbitration is usually less costly and speedier than a court action. Arbitration panels may now lean more to individual claimants than to brokerage houses, says Hartley Bernstein, an arbitration expert with Bernstein & Wasserman, a New York law firm.
A person signing an arbitration clause can still request that a matter go to court. Usually, however, the brokerage house, "insists on arbitration," Mr. Bernstein says.
Arbitration is a method of resolving a dispute through use of a panel of impartial experts. The hearing is held under the auspices of an exchange or securities group, such as the National Association of Securities Dealers (NASD), or by the American Arbitration Association (AAA), a national group that arbitrates diverse types of claims, not just securities cases.
Usually the panel includes one to three arbitrators. One is from the securities industry; the other panelists are nonindustry experts. A claimant usually can reject an arbitrator. In that case, a substitute will be appointed.
If you feel you have a legitimate case involving a securities transaction, consult either an arbitration lawyer or an arbitration consultant. …