What to do if you can make a claim

John Waggoner

Securities regulators on Monday announced a historic, $1.4 billion settlement with 10 Wall Street firms accused of issuing misleading stock research to win investment banking business. Some questions and answers for investors who may want to claim part of the settlement:

Q: I think I'm eligible for restitution. How do I apply?

A: You can't yet. First, the Securities and Exchange Commission has to suggest a Distribution Fund Adviser, and a court must make the appointment. The Distribution Fund Adviser will set up the system for doling out the $387.5 million earmarked for compensating customers. Interested investors should watch the SEC's Web site, www.sec.gov, for updates.

Q: Can I still go to arbitration if I apply for restitution?

A: Yes. You can pursue any other remedy or recourse against the firm. Anything you might get from the pool would probably reduce the amount you would get in arbitration.

Q: Should I go to arbitration?

A: Yes, particularly if you have a large claim. Even though $387.5 million is a lot of money, it's probably not enough to cover everyone's claims. You may get just a percentage of your claim from the restitution pool. An arbitration victory could get you the full amount, plus attorney's fees and lost interest, says Mark Maddox, lawyer at Maddox Hargett & Caruso in Indianapolis.

The settlement could also help investors in arbitration cases against firms named in the lawsuit, even if they didn't invest in specific stocks mentioned.

"I've had clients come to me thinking they were going to recover $5,000, and when I looked at their case, they had another $200,000 in stocks that were unsuitable," says securities lawyer Debra Speyer.

Q: What are the odds I'll win?

A: Pretty good, because regulators released e-mails and other evidence documenting the problems at Merrill Lynch and other companies. "We thank the regulators," Maddox says.

Q: Must I have a big claim to go to arbitration?

A: Many securities lawyers are reluctant to take cases where the claim is for less than $25,000. If you're out $1,000 or so, the restitution fund may be your best choice. But it's likely that some class-action lawsuits will be formed against the brokerage houses, and it may be worthwhile to join them, too, Maddox says.

Q: I heard an analyst named in the settlement touting a stock. I bought the stock and lost money. Will I be able to get restitution, even though I don't have an account at one of the 10 named firms?

A: It's doubtful. A brokerage account involves a contract with a customer. "If you don't have a contract, there's no fiduciary relationship, and you'd have a much bigger uphill battle," says Douglas Schulz, co-author of Brokerage Fraud.

Q: Is my mutual fund eligible for restitution?

A: "The bottom line is: We don't know," says Brian Mattes at the Vanguard Group. Institutional investors usually rely on their own research. But funds will try to recover what they can. "On a per- share basis, it's very little," Mattes says. "But shareholders are entitled to it, and we'll get it for them on their behalf."