Back in 1974, Mittie Hobbs inherited about $80,000 in blue chip stocks from her husband.
On her lawyer's advice, she put the account with a Los Angeles brokerage firm, Bateman Eichler, Hill Richards. Over the next three years, without her knowledge, her broker sold the conservative holdings and engaged in frequent buying and selling of wildly speculative stocks. By the time Hobbs realized that the checks the firm kept sending her were not dividends or profits but actually her account's principal, her holdings had dwindled to $2,500.
"They had a field day," Hobbs, 78, recalled in a phone conversation from her Burbank home.
She was lucky. Tim Sargent, a Los Angeles securities lawyer, tried her case and won $316,000 in damages, four years after the case started.
While the stakes for Hobbs might have been higher than for many small investors, her experience illustrates a common problem: disputes between clients and the professionals who handle their money. Sources of problems can range from stockbrokers to bankers to mortgage lenders to real estate brokers to insurance agents to financial planners.
Fortunately, if you have a beef, you needn't keep quiet. Often, you can work out a simple problem, such as a late dividend payment, with a call to the firm involved.
But when that isn't enough, submit a letter of complaint to the appropriate agency, or request an arbitration hearing. Or hire a lawyer to pursue a case in court, depending on the type and seriousness of your complaint.
Finding the right agency or organization might take a phone call or two. And beware: Some agencies, such as the state Department of Corporations, are charged with stopping violations and are not responsible for recovering lost funds.
"All those steps prior to contacting your own lawyer do absolutely nothing to get your money back unless the brokerage house wants to voluntarily give it to you," says Michael E. Friedman, a Pasadena securities attorney.
And, he cautioned, while arbitration is generally touted as faster and cheaper than court proceedings, there are drawbacks. Many arbitration panels are composed of people with close or indirect ties to the securities industry. And, in the wake of the Oct. 19 crash, a sizable arbitration backlog has developed. Cases may take several months to resolve.
Many agencies offer toll-free hot lines or provide addresses where you may send complaints. Here are some of the most widely used:
North American Securities Administrators Assn., an organization for state securities administrators, offers a free brochure "Coping With the Crash: A Step-by-Step Guide to Investor Rights." Call 800-942-9022, or write: 555 New Jersey Ave., N.W., Suite 750, Washington, D.C. 20001.
National Assn. of Securities Dealers offers a customer complaint procedure and operates the nation's largest arbitration forum among self-regulatory bodies. For information about arbitration filings and small-claims proceedings, call 212-858-4372 or write: 33 Whitehall St., New York, N.Y. 10004.
A tip from Douglas F. Parrillo, NASD spokesman: Filing letters of complaint does not in any way result in recovery of damages. Instead, it entails investigating for a violation of rules and may result in a broker's being disciplined. Often, it's best to try to work things out with the brokerage directly, through the branch manager or compliance department.
New York Stock Exchange provides help for investors in stocks listed on the NYSE or traded over the counter. Once you have exhausted efforts with your brokerage, write to the exchange, which will contact the member firm on your behalf. The NYSE also offers a brochure on arbitration. Write: Sales Practice Unit, NYSE, 20 Broad St., New York, N.Y. 10005.
American Arbitration Assn., a nonprofit organization specializing in dispute settlement services, provides information about arbitration procedures. Write: Gerrold L. Murase, Regional Director, AAA, 443 Shatto Place, Los Angeles, Calif. 90020, or call 213-383-6516.
Commodity Futures Trading Commission, which regulates futures and options contracts, offers an arbitration procedure and a reparations program in which you can decide to have a complaint reviewed by an administrative law judge. For information about a registered broker or company, call the CFTC at 202-254-8630. To file a complaint, call 202-254-3067 or write: 2033 K St., N.W., Washington, D.C. 20581. For information about whether a company or broker is registered, the CFTC recommends calling the National Futures Assn. in Chicago at 800-621-3570.
California's Department of Corporations investigates investment fraud, including boiler room operations. Call the duty investigator at 213-736-2520 Mondays through Fridays from 8 a.m. to 5 p.m. Or write: Department of Corporations, Enforcement Division, 600 S. Commonwealth Ave., Los Angeles, Calif. 90005.
Tip from G. William McDonald, enforcement chief: Before investing, check with the department to be sure that the company has a state permit.