2003 a Record Year for Investor Claims Against Brokers

Investors filed more formal grievances against their brokers in 2003 than any other year, and the amount of damages they won nearly tied a 1998 record.

The National Association of Securities Dealers (NASD) received 8,945 cases in 2003, which is 16 percent more than the year prior. Most of the cases were sparked by investors’ sudden losses from unbalanced or inappropriate investments in the stock market from as far back as 2000, the Wall Street Journal reported.

NASD requires investors to go through an arbitration process to seek damages against their brokers for mismanaging their accounts.

Investors netted a total of $162 million in 7,278 cases that concluded in 2003, a 22 percent increase. The amount of damages collected is just $1 million below the record $163 million won in 1998. The increase in damages won was the result of the higher volume of closed cases, not a higher win rate for investors, the Journal reported. Damages were awarded 54 percent of the time, down from 55 percent a year ago.

Complaints against brokerage firms’ handling of mutual-funds accounts increased 37 percent to 1,706 in 2003, but the largest class of securities cited in cases was individual stock shares, which amounted to a 24 percent increase, or 3,812 complaints.

Linda Feinberg, head of the NASD's dispute resolution system, said it's too early to tell how heavy the caseload will be this year. But she said she would expect an increase if several class-action suits involving analyst conflict-of-interest charges are dismissed. The spurned class-action investors could seek relief from NASB. Another factor would be whether attorneys view the current investigations into mutual fund sales and trading practices as reason to file for arbitration.

Charles W. Austin Jr., president of the Public Investor Arbitration Bar Association, a group of attorneys who represent investors against brokerage firms, said he suspects the caseload will grow in 2004, particularly as mutual-fund investigations come to an end. "I think it may get worse before it gets better," he said of the volume of cases.

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