Leaders & Letters
Sir, I commend Patti Waldmeir, your legal correspondent, for her article, “Only the lawyers benefit from over-policed securities laws” (March 9). She is on solid ground by showing that ordinary investors are not well served by over-zealous attorneys-general and costly class action settlements where they generally receive only a couple of cents on the dollar.
A small investor, however, can fare much better when filing an individual arbitration claim through the New York Stock Exchange or the National Association of Securities Dealers where they can potentially recover all of their stock losses plus attorney’s fees. For example, an Ohio retiree who saved in a “conservative” manner for retirement for more than 30 years recovered all of his losses plus attorney’s fees against his Merrill Lynch broker who had lost a substantial portion of his retirement funds by investing in an unsuitable portfolio of high-technology stocks.
Another Ohio couple had a similar recovery against Prudential Securities, receiving 100 per cent of their losses plus attorney’s fees back in arbitration. These cases “set the bar” and led to additional significant recoveries for individual investors in cases throughout the state and the country. These cases show that the system can work in favour of individual investors where there is proof of wrongdoing. Arbitration also does not clog up the courts the way the class actions do.
But this system also has its flaws. Unfortunately, investors have a success rate of just over 40 per cent in arbitration and that number is trending lower at an alarming rate. Several factors stack the chips against the investor. No precedent is ever set, so cases with virtually the same circumstances can have very different outcomes without any explanation. Further, the individuals pooled from the Wall Street community that invariably sit on the arbitration panels and decide cases are too many times by nature aligned against small investors. These and other reforms should also be part of the discussion.
Corporate America should rightfully be protected from “drummed up” class actions and the “Spitzer” factor, but individual investors should have more protection in return to pursue meritorious cases on their own in arbitration.