Investors have their ups and downs in the market, but when it comes to resolving disputes with Wall Street brokers they seldom win, according to a study to be released next week.
For years investors and their lawyers have complained that the little guy doesn't get a fair shake from the arbitration system, which was blessed by the Supreme Court two decades ago, when pursuing complaints about unauthorized trades and other claims against brokers.
Daniel Solin, a lawyer who represents investor cases against brokers, and Edward O'Neal, an assistant finance professor at Wake Forest University's Babcock Graduate School of Management, next week will unveil a study they say shows that investors have not fared well when taking on brokers.
The duo reviewed 14,000 cases between 1995 and 2004 against brokers that were submitted to arbitration panels convened by the NASD or the New York Stock Exchange. On average, investors recovered about 34% of their claims, they found.
"The vast majority of cases are getting a tiny fraction of what they are entitled to," Solin said. "In my view, the NASD is largely in the business of protecting the rights of industry members."
Under U.S. law, people opening accounts sign an agreement not to sue their broker in court but instead to take disputes to three-person panels.
Solin spoke with Reuters about the study in March, but has declined to comment further ahead of its Wednesday release.
"The NASD works to continually improve our forum and the services we provide to our constituents," a spokeswoman for the group formerly known as the National Assn. of Securities Dealers said Thursday. She said she had not seen the study but was responding broadly to criticism about arbitration. About 94% of the cases were filed with the NASD last year.
The spokeswoman said there had been a steady decline of cases going through any actual ruling as more brokerages aim to settle. Since 1991, there has been a 30% rise in the number of cases in which cash was paid through settlement, she said.
The NYSE declined to comment on the study.
The Securities Industry and Financial Markets Assn. said government and independent studies had shown arbitration to be fair and efficient. The lobbying group also criticized the objectivity of Solin and O'Neal, who has testified as an expert witness in suits against brokerages.
"When all you have is a hammer, everything looks like a nail; when you're a trial attorney, everything looks like a profitable lawsuit," association spokesman Travis Larson said.
But arbitration already faces scrutiny. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said in February that the system's fairness was on his agenda.
Frank's committee is "closely monitoring the issue," both on its own and as part of its review of the pending merger of NASD and NYSE regulatory bodies, a spokeswoman said Thursday. No hearings or bills are imminent.