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Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony, -- Ignore unavailable to you. Want to Upgrade?

To: Fast Eddie who wrote (57579)	6/27/2000 5:29:00 PM
From: StockDung	Read Replies (1) \| Respond to of 122087

Investors Who Win Broker Arbitration Collect Little, GAO Says Washington, June 27 (Bloomberg) -- Investors who win arbitration disputes with brokerages typically collect little of their award because the firm is out of business or bankrupt, a congressional report found. About 61 percent of the 845 investors who won arbitration awards in 1998 collected only part of the payment or nothing at all, according to the General Accounting Office, Congress's investigative arm. Investors who won their disputes failed to get 80 percent of the $161 million they were due, the report said. The GAO called on the National Association of Securities Dealers, which sponsors most of this arbitration, to routinely monitor brokers' award payments. The NASD, an industry self- policing group, doesn't do so. ``We weren't aware of a problem that we thought we could address,'' said NASD Regulation executive vice president Linda Fienberg. ``But we've always reacted immediately any time an investor or his lawyer told us they weren't being paid.'' Fienberg also said the GAO's data was skewed because it didn't consider cases in which brokerages settled with investors before an arbitration decision was reached. Brokerages require investors they deal with to agree to arbitration, an often more efficient way to resolve disputes than going to court. Arbitration is used to resolve about 6,400 disputes a year between investors and their brokers over a range of allegations that can include unauthorized trading, theft and misleading sales tactics. Disciplinary Action The NASD, which monitors all 5,500 U.S. brokerages, will start requiring these firms to notify it when they pay an arbitration award for which they are liable, Fienberg said. Any firm that fails to make timely payments will face disciplinary action. The NASD also will ask investors to report if they haven't received an award within a certain period, she said. The congressional report also called on the Securities and Exchange Commission to require the NASD to adopt procedures for monitoring the payment of arbitration awards. ``We agree with these recommendations and urge their prompt adoption,'' said U.S. Representatives John Dingell and Edward Markey in a letter to SEC Chairman Arthur Levitt. Dingell, a Michigan Democrat, and Markey, a Massachusetts Democrat, requested the GAO study. Among the most common reasons that brokerages didn't fully pay awards was that they went out of business, which happened in 53 percent of the cases examined by the GAO, or had filed for bankruptcy protection, which occurred in 21 percent of these cases. Neither arbitrators nor courts have the authority to collect judgments from brokerages that are out of business or bankrupt, Fienberg said. When awards are imposed against active firms, the NASD has fully collected payment in more than 90 percent of these cases, she said. Financial Penalties The NASD has put a number of penny-stock firms -- including Stratton Oakmont Inc., A.R. Baron & Co. and Sterling Foster & Co. -- out of business in recent years after finding a host of abuses. The SEC expressed concern that as many as 13 brokerages and 15 brokers cited by the GAO as not paying awards to investors may still be in business. The federal agency may seek financial penalties against these unnamed firms, SEC market-regulation director Annette Nazareth said. Some investor attorneys have recommended that unpaid arbitration awards be covered by the Securities Investor Protection Corp., a brokerage-financed group, or by an NASD fund that would be created for this purpose. These requests have been opposed by SIPC, which reimburses investors whose shares were stolen or used for unauthorized trading at a bankrupt firm, and other industry officials. Jun/27/2000 16:50 ET For more stories from Bloomberg News, click here. (C) Copyright 2000 Bloomberg L.P.