Saturday, June 24, 2000

Complaint may aid those burned by broker

By Amy Higgins
The Cincinnati Enquirer

        You don't have to be uneducated or unsophisticated to be taken for a bumpy ride on Wall Street. Just ask John Metz, a high-profile Cincinnati lawyer who says he lost about $225,000 thanks to a bad broker. But Mr. Metz fought back and was recently awarded $193,000 in damages. And you can too, if the same kind of thing happens to you.

        Between 6,000 and 7,000 complaints are filed against brokers each year with the National Association of Securities Dealers, the industry's self-regulatory group. And of those, about 60 percent of cases arbitrated are won by the investors.

  When hiring a stockbroker or any financial adviser, don't forget to check his or her background. If they've scammed once, they could scam again. Try contacting the following:
  • U.S. Securities and Exchange Commission (SEC) (800)732-0330 or
  • North American Securities Administrators Association (NASAA) (202) 737-0900
  • National Association of Securities Dealers Regulation (NASDR) (800) 289-9999 or
  • Certified Financial Planner Board of Standards (CFP Board). (888) 237-6275 or
  • National Association of Insurance Commissioners (NAIC). (816)842-3600 or
        “The statistics haven't changed much” in the last 10 years, said Rick Ryder, editor and publisher of the Securities Arbitration Commentator, which has tracked filings and awards since 1988.

        But he expects the numbers to shift in the future. A record bull market has created greed and false confidence that can leave novice investors vulnerable to unscrupulous brokers, especially given volatile markets that can take a downturn like April's.

        “People lost money and a people were in over their heads,” Mr. Ryder said. “These ingredients are the mix necessary for lawsuits. Next year we'll see more cases entering arbitration.”

        Cases of bad brokers are almost always settled out of court because of an agreement clients usually sign when opening accounts. Complaints also can be filed with federal or state government departments.

        But be reasonable. Just because you lost money in some highfalutin' dot-com doesn't mean you have a case against your broker. Losing money doesn't mean you were swindled and regulators can't make everything up to you.

        “The brokerage industry is not an insurer against market losses,” said Tom Hargett, an Indianapolis securities lawyer.

        Some of the biggest causes for action he handles are fraud — when a broker sells you something risky and unsuitable to you. In those cases, that “something” also typically includes a hefty commission for the broker himself.

        And the brokers also might lie about what they are actually selling.

        “When selling a security, you can't sell a Cadillac and deliver a Yugo,” he said. “The same standard holds for securities.”

        Mr. Metz's arbitration tale begins one afternoon in 1995 when he was sitting in his downtown office. His phone rang, “out of the blue.” He was reasonably impressed with the broker cold-calling, and he wrote a big check.

        “I suppose I should have somebody handle this,” Mr. Metz remembers thinking.

        The Boston-based broker produced some decent returns in the first few months, so Mr. Metz sent him more money to handle. It was money intended to get his three kids, now aged 8 to 13, through college.

        “Looking back on it, I guess I was pretty naive,” Mr. Metz said. “But I just didn't have the time.”

        But then he started getting confusing and convoluted brokerage statements that the firm couldn't explain. After months of not getting a straight answer, he decided to move to another brokerage.

        That second firm told him that the hundreds of thousands of dollars he'd invested was gone. His balance was in the negative.

        Mr. Hargett, who eventually became Mr. Metz's attorney, said that the broker's scam was among the most common: Churning. That's when they buy and sell simply to rack up commissions.

        In a similar case Mr. Hargett has pending, the client's portfolio would have needed to return 73 percent last year just to cover the commissions. Remember that the Standard & Poor's 500 Index returned just about 20 percent in 1999.

        Mr. Metz said his commissions ran in the six figures. Other losses were from unsuitable, risky investments that went down.

        “He didn't steal my money,” Mr. Metz said. “He stole my children's future.”

        Being a trial lawyer, Mr. Metz sought a remedy. But at first he was told there wasn't anything he could do. As a “sophisticated investor,” he should have known better.

        “That really ticked me off,” Mr. Metz said. “It was like they were saying, "You're a lawyer so you're screwed.'”

        Eventually he found Mr. Hargett's firm in Indianapolis, and last month was awarded his $193,000 judgment by a arbitration panel in Cincinnati. But neither Mr. Metz or Mr. Hargett think they'll see any of the money again because the broker, Christopher Eposito, is broke.

        The result for Mr. Metz is that he and his wife have learned never send money to anyone over the phone again.

        “When you can look at them face to face, that's when I feel a lot more comfortable,” he said.

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