Stockbroker Arbitration Cases Increased in 2009

New York, NYWhen stocks are making money, people usually don't question their broker's actions but—but when stocks and investments lose money, investors start examining the possibility of stockbroker arbitration.

According to Reuters on 01/22/10, approximately 7,100 arbitration cases were filed against brokers in the US in 2009. That number is up 43 percent from 2008 and is more than two times the number of arbitrations filed in 2007. In fact, it is the fourth highest number since 1994.

Breach of fiduciary duty made up 4,206 of the arbitration claims. Meanwhile, representation was involved in 3,408 claims and negligence was found in 3,405 cases. Arbitration claims can cite stockbrokers for up to four kinds of improper acts, and complaints range from misrepresentation to breach of duty.

According to the 1/22/10 edition of Investment News, the most common complaints involved mutual funds and common stock. Complaints involving variable annuities increased threefold, rising to 123 cases in 2009.

In December 2009, a FINRA panel awarded more than $3.4 million to Racetrac Petroleum, a gas station convenience store chain that filed an arbitration after losing money in a Bear Stearns hedge fund. When the hedge funds collapsed in 2007, investors lost approximately $1.6 billion.

According to the Record on 2/10/10, the arbitration panel upheld claims of "misrepresentation and material omission, negligence" and a failure to supervise. The article notes that the hedge funds gave healthy returns for a few years but collapsed when lenders wanted their money back.

In January 2010, a woman who filed a claim against her brother and his brokerage firm was awarded $608,000 in arbitration. The woman alleged churning of highly volatile stocks. Investment News reported on 2/08/10 that the investor was inexperienced and trusted her brother with her money. However, her investments lost $242,000 in three months.

The investor was awarded approximately $340,000 in compensatory damages and $250,000 in punitive damages. The brokerage and the broker have filed a motion to vacate the award, but these motions are rarely won in arbitration cases.