Saturday, June 24, 2000

Warning signs and what to do




        Think your broker might be steering you wrong? Look for these signs:

        • Churning. Look at your turnover ratio, calculated as the total costs of purchases over a period of time divided by the average net investment. An annualized turnover rate greater than 2 is a red flag for excessive trading. A rate of 6 is considered conclusive churning.

        • Unsuitability: Look for risky investments, such as obscure limited partnerships. Be especially wary if the securities are not registered with the SEC or state regulators.

        • Margin trading: Keep a close eye on your statement and the size of your margin loan and interest payments. Brokers have been known to falsify account applications to give a bigger margin loan, which ultimately increases their commissions.

        • Unauthorized trading: Double check monthly statements and confirmation slips. If something looks amiss or unfamiliar, call your broker or the supervisor immediately.

        See something that looks like your situation? Follow these steps to seek a remedy:

        • Find a lawyer, perhaps through bar associations' referral services. Having an attorney isn't necessary, but be assured the brokerage firm will have one. Your own legal representation levels the playing field. (Many are paid contingency only, meaning you don't pay unless you win.)

        • File an initial statement of claim with the National Association of Securities Dealers in New York.

        • Go through the process as directed by the NASD and your attorney. It could take 10-14 months to conclude.

       



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