Attention, shoppers: Challenging your broker may be cheaper in October. But whether it’s a good deal depends on your situation. When hiring a broker, investors typically sign waivers agreeing to arbitration if the relationship sours and they file a claim of wrongdoing. Investor advocates long have argued that the arbitration system is stacked against investors because it essentially is run by the industry, a group known as NASD, formerly the National Association of Securities Dealers.
A decade ago, NASD launched a separate mediation program that has drawn comparatively little scorn, settling more than 12,500 cases. If both parties agree, any claim can be mediated informally and settled rather than proceed to a full, winner-take-all arbitration decision.
This month, as it has done the last seven years, NASD is running a special on mediation filing fees as an incentive for smaller cases to use the alternative system.
In October only, fees for claims involving less than $25,000, for example, will cost $100 for each side, less than half the usual fee. Cases involving $25,001 to $100,000 will cost $200 per side, and larger cases will pay $500 per side. The largest cases assume an eight-hour mediation, and the smaller cases assume a four-hour session. Of course, these are mediation fees only and don’t reflect investors’ attorneys fees.
“We do this to make mediation more feasible for people with smaller cases, though we don’t discourage the larger cases,” said Linda Fienberg, president of NASD Dispute Resolution.
“Mediation can give an investor who has lost money an opportunity to vent, and it gives each side an advance look at the other side’s case. An investor’s lawyer has the opportunity to see what kind of witness the broker is, and if he’s not credible, perhaps [the investor] can hold out for more,” she said.
Of course, the same is true for the firm’s side.
Mediation “saves people a lot of grief,” said Constantine Katsoris, a Fordham University School of Law faculty member who frequently is hired as an arbitrator and a mediator.
“I’ve had several cases where the mediation didn’t get resolved, and then I’ve been pulled back into the middle of the arbitration because the parties are trying to get back to what was being agreed to in mediation,” Katsoris said.
NASD also has been expanding the geography of mediation to make it more feasible for claimants. Ten new hearing locations were opened this year, providing sites in all 50 states. Other relatively new locations have been opened in Des Moines, Providence, R.I., and Hartford, Conn.
Check out www.nasd.com, the regulator’s Web site, which discusses the dispute resolution system in detail.
So what could go wrong?
Mark Tepper, a Ft. Lauderdale attorney who represents investors, generally is a fan of mediation but with a couple of caveats.
First, he said, investors should be prepared to compromise even more in mediation than in arbitration.
“By definition it is a compromise solution. And for an investor who really wants his money back, this method rarely results in one side winning and the other side losing,” Tepper said.
When all parties mediate in good faith, the process results in a good settlement, but each case is subject to different individuals’ agendas, he said. Mediators looking for repeat business, he fears, may skew the process in favor of the industry.
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“It seems like more cases are not settling,” Tepper said, adding that he believes more lawyers are using the process as a discovery tool in preparation for arbitration rather than as a real settlement path. Through August, according to NASD statistics, the number of settled mediation cases had dropped 14 percent compared with the same period in 2004.
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E-mail Janet Kidd Stewart at [email protected].
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The most common claims by investors
When is it a stupid investment mistake, and when is it the broker’s fault? The most commonly filed investor claims against their brokers include:
– Breach of fiduciary duty (involves a claim that a broker did not act in the investor’s best interest)
– Unsuitability (refers to a claim that a broker recommended investments that did not match the investor’s time horizon or risk tolerance)
– Failure to supervise (refers to a brokerage firm’s duty to make sure its brokers are acting properly)
– Negligence
– Breach of contract
– Misrepresentation
Taking action
If you want to file a claim, go to the NASD Web site (www.nasd.com). From there you can file the claim directly online, learn about the process or print out forms that can be mailed by you or your attorney.
–Janet Kidd Stewart