Legal Briefs? Not In 2002

February 1, 2003
By Ross Tucker
Registered Rep.

Well before the year ended, 2002 was poised to set arbitration records — but not the kind of records many would be proud of. For the year, the number of NASD arbitration claims reached 7,704, the greatest number in history, up from 6,915 in 2001.

In the past, claims of negligence dominated the complaints, but in 2002 the biggest increases were claims of unsuitable recommendations, with a 73 percent increase from 2001.

Claims of failure to supervise have increased significantly over the last several years, as investors place blame not just on brokers, but on managers and firms also. Claims of this type rose to 2,633 in 2002 from 1,968 in 2001, a 34 percent jump. “People are in the market for the first time, and they’re losing money,” says Linda Fienberg, president of NASD dispute resolution. “They’re angry at everybody.”

Lawrence Klayman, who represents plaintiffs at Klayman & Toskes in Boca Raton, Fla., says growth is partially due to people believing they have a case simply because they’ve lost money. “People are coming out of the woodwork,” says Klayman. “It doesn’t mean they have a worthwhile claim.” In some cases, says Klayman, clients are being egged on by new lawyers hoping to earn big bucks. He points out that his firm turns away 20 to 40 people a week.

Despite myriad arbitration claims, customers aren’t faring much better in terms of rulings. Customers have received awards in 55 percent of cases, compared with 53 percent the last two years.

However, damage awards are up. Through December, $139 million had been awarded in customer claimant cases, compared with $97 million in all of 2001. Only 1998’s $163 million dwarfs this, and 57 percent of those awards were the result of seven cases.

The average lag time between filing and the issuance of an award is 16 months.

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