Securities Arbitration vs. Class Action: The Choice is Easy

I’m often asked whether aggrieved investors are better off joining a class action suit or pursuing their own individual FINRA arbitration claims.  The answer invariably depends on the individual’s circumstances and the depths of the financial pockets of the company engaged in wrongdoing.

Let’s take Enron for example given the similarity of the cases and that the legal costs would have far outweighed any potential recovery, it would have made more sense to join a class.

However, if you are an individual investor, particularly one with a conservative or risk-adverse profile, who was talked into purchasing dubious Wall Street products such as Lehman Brothers Principal Protected Notes by UBS and other brokers, you would be much better off filing an individual claim.

Here’s why:

-       Depending on the circumstances, aggrieved investors can potentially recover 100 percent of their losses, plus damages - far greater than 2-5 cents on the dollar that is typical in a class.

-       Many investors believe that they must invest a lot of time and money into an arbitration claim when the truth is, it takes a lot less time and if you work with an attorney on a contingency basis, you only pay legal fees in the event of a recovery.

-          Arbitration claims can typically be filed and adjudicated within a year to 18 months; class action cases usually drag on for many years.

-       Class action attorneys must prove that everyone they represent is equal. Arbitration highlights the merits of individual cases.

If you joined a Lehman Protected Notes class action suit your unique circumstances would never be heard. Many investors that we have spoken with never even received a prospectus much less knew that the “protection” on the notes was only good if Lehman survived to make good on the commitment.

UBS and the other Wall Street firms that sold the Lehman notes will almost certainly argue that investors may have headed the risks if they had read the fine print in the prospectus. That argument may hold legal sway in a class action suit involving thousands of investors, however in an arbitration, an investor’s entire circumstances are taken into consideration.

If your broker failed to abide by his or her fiduciary responsibility to only recommend “suitable” products or failed to mention the associated risks of certain products an arbitration panel could award a rescission of the product and possibly damages.

Over the past few months investors have hired Zamansky & Associates to file claims from $100,000 to several millions of dollars. In some cases, brokers put their customers’ entire nest eggs at risk.

The merits of filing an arbitration claim are compelling.