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One of the reasons I
write these articles is to educate my readers about their rights and
remedies when it comes to their brokerage accounts. Far too many people with
brokerage accounts are unaware of the strict rules and regulations which
brokers and firms must follow and the potential violations that can occur.
You would be surprised, for example, how many people don’t know that in a
non-discretionary account, the broker must discuss in detail each
and every trade with the client prior to the transaction, including number
of shares, price, and the pros and cons of the security. The SEC, on the same bandwagon,
recently completed a week-long Investor Education Campaign that was
broadcast by satellite nationwide. The SEC stated, "Americans are
increasingly responsible for their own financial security, but many lack
the basic information they need to save and invest wisely, and avoid costly
mistakes."
While investors must
take some responsibility for their brokerage accounts, the bulk of
responsibility falls on the shoulders of the brokerage industry - after all
- the brokers and managers are the ones with the securities licenses. I
must often advise dejected, guilt-ridden clients that they should not blame
themselves for their losses (assuming there was wrongdoing in their
account).
"Just Say
No"
But there’s another
problem brewing on the brokerage industry side - the brokerage firm’s
routine denial of customer complaints and sometimes outright refusals to
respond to customer complaints. I have one case against a New York firm called R.D. White where
the customer wrote a complaint letter to the head of the firm’s compliance
department. After he received no response, he wrote another complaint
letter to the President of the company. He never received a response to
either letter! This is a rare and unusual tactic better known as "Just
Don’t Say".
The "Just Say
No" tactic is employed by most brokerage firms in dealing with a
customer complaint. In more cases than not, it doesn’t even matter what the
customer is complaining about - the firm typically will send out a standard
letter containing some or all of the following language:
- We have discussed this
matter with you salesman and he assured us that you fully discussed
the hotel reservation polcies and were fully
informed of all of the risks.
- You are a wealthy,
knowledgeable and well-informed travler and
this was time you were willing to take risks with.
- You were very involved in
the trading in the account, as evidenced by the fact that a number of
the trades were your own.
- Through the confirmations
and monthly statements, you had at your disposal all of the information
you needed to evaluate the account, including the level of activity
and the types of investments made.
- While we share the
disappointment of your account’s performance, courts and arbitration
panels alike have routinely held that brokers who make recommendations
in good faith based upon publicly available information are not liable
merely because the investments recommended decline in value.
What would expect
them to say - "Sorry - we screwed you?" And how would you feel if
you got a response letter like the above? Many of you would simply drop the
matter. And that means that from the brokerage firm perspective, the
"Just Say No" tactic works.
A Numbers Game
You see, for the
brokerage industry, it’s a numbers game. Very few people catch that their broker
has done something wrong. For those who do, there’s a small percentage who do something about it. They blame themselves or
figure they can’t fight the system. Many who do
take action, make the mistake of verbally complaining, instead of
complaining in writing. A verbal complaint is almost always ignored because
the securities regulations define a "customer complaint" as only
a written complaint, not an oral one. Therefore, there is no
requirement that brokerage firms even document, much less respond to or
handle professionally, an oral complaint.
If you ever have a
complaint or even a question about what your broker has done in your
account, always put it in writing. It is most important to document
your concerns if you think a broker has made at trade without first
discussing it with you in detail (either the buy or the sell). That is a de
facto violation, regardless of whether you thought it was okay or your
broker convinced you it was okay. You can apologize to your broker
verbally, but if you don’t get your complaint in writing, no one is
required to look into it. If you later find yourself in a lawsuit, you will
be hammered by the brokerage firm for not documenting your problem.
If customers do put
their complaints in writing, they are usually rebuffed with the "Just
Say No" letter described above. For those who don’t quit, some try to
go it on their own and file their own claim. Statistics show that customers
representing themselves ("pro se claimants") usually lose. That’s
because they are small potatoes for the industry’s high paid securities
attorneys who do nothing but defend these type of
cases. Some customers hire an attorney who may be experienced in litigation
but not in securities fraud arbitrations. They, too, are often mincemeat
for the brokerage firm attorneys.
These facts paint a
grim picture and I certainly don’t meant to
discourage you from taking action when you’ve been wronged. The majority of
people who get a good securities attorney to pursue their claim prevail.
A Happy Ending
A woman wrote a
complaint letter to a big brokerage firm we all know. She complained that
her broker had made too many unsuitable trades in her IRA account. The
brokerage firm replied by sending the "Just Say No" letter (much
of the above language came right out of her response letter). The woman
hired an attorney and pursued her claim. Roughly one year later, the firm
settled the case for a figure that was considerably more than her
out-of-pocket losses. A happy ending, but how do you reconcile the settlement
amount with the "Just Say No" letter? I can’t. And I was her
attorney.
Tracy Pride Stoneman is an attorney specializing in investment
related complaints. Email her at Tracy@InvestorFraud.com.
Preparation of this article was assisted by Douglas J. Schulz,
a registered investment advisor and former stockbroker in Colorado Springs.
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