Debra Speyer In The News - USA Today, April 29, 2003
Don't look to settlement for payback of your investment
If you lost a bundle in the stock market because you listened to Wall Street analysts, you may be wondering when you're going to get a piece of the $1.4 billion settlement announced Monday.
The short answer: Don't quit your day job. Securities lawyers say only a small amount of the money Wall Street firms have agreed to pay will go directly into investors' pockets. And private lawsuits seeking additional damages could take years to make their way through the courts.
State and federal regulators accused analysts for some of Wall Street's biggest firms of hyping stocks to win investment banking business. Many investors who bought highflying technology and telecommunications stocks at the peak of the bull market suffered devastating losses.
The firms neither confirmed nor denied the allegations.
The settlement offers three ways investors can recover a portion of their losses:
A RESTITUTION FUND
About $387 million of the settlement will go into a fund for customers of the firms who suffered losses because of the alleged misdeeds. The Securities and Exchange Commission will appoint an administrator to distribute the money among deserving investors.
While that may seem like a lot of money, it's not going to make anyone rich. "We know investors lost trillions of dollars," says Debra Speyer, an attorney who represents investors. The restitution amount "is very little money when you consider all the money investors lost," she says.
In announcing the settlement, SEC Enforcement Director Stephen Cutler emphasized that it doesn't prevent investors from seeking additional damages through private litigation. Some attorneys may bring class-action lawsuits on behalf of investors who invested in a particular stock based on an analyst's recommendation, Speyer says. Plaintiffs attorneys believe the lawsuits could cost investment banks far more than the actual settlement.
Attorneys who represent investors in arbitration cases against brokerage firms believe the settlement will support allegations of fraud, unsuitability or other Wall Street misdeeds. In a typical arbitration case, a dispute between an investor and brokerage firm is heard by a three-member panel. The decision is final and binding. While a class-action lawsuit can drag on for years, most arbitration cases are resolved in less than 18 months, Speyer says.
Andrew Stoltmann, an attorney who represents investors, says arbitration is often the only option for investors who believe they were defrauded by their brokers. Most brokerage customers are required to sign a waiver agreeing to submit disputes to binding arbitration.
"Arbitration is a pretty fair forum," he says. "If investors can prove they lost money because of fraudulent research reports, they're entitled to recover it."
You don't need an attorney to file an arbitration claim, but if you're seeking a large amount of damages, it's a good idea. "Investors who have them (attorneys) tend to do much better," says Barbara Roper of the Consumer Federation of America.
Most good arbitration attorneys will evaluate your case at no charge, Speyer says. You can find names of arbitration attorneys in your area through your local bar association or through the Public Investors Arbitration Bar Association, www.piaba.org.
Questions to consider
If you're thinking of hiring an arbitration attorney, consider the following:
- Experience. Ask about the law firm's background in arbitrating securities claims, number of clients, number of hearings conducted and results of those cases.
- Extent of evaluation. A good arbitration attorney will look at your entire account, not just specific investments.
- Who will handle the case. Will the attorney you retain handle your case, or will it be farmed out to another law firm? Who will be your contact at the firm?
- Type of claim. Will your case be handled individually or bundled with other customers' claims? A good attorney will explain the benefits and downsides of both approaches.
- Decision making. Who has the authority to accept or reject settlement offers? Will you be involved, or does the attorney expect to have total control?
- Costs. The attorney should discuss expenses associated with arbitration, such as filing and travel fees.
Source: Public Investors Arbitration Bar Association