Cere/Ed this seems familiar: A tale of two victims Investors lose big to cold-calling brokers with a slick pitch By Garrett Glaser CNBC Aug 11 - There are almost 600,000 stockbrokers in this country and by most accounts, the vast majority of them are honest and ethical. A minority is not: Complaints about stock brokers were up 30 percent last year in eight states alone. The most recent national statistics are from two years ago: at that time,there were 30,000 complaints. In the first of a four-part series on bad brokers, CNBC talked to two victims. NASD Regulation Securities and Exchange Commission THEY DON'T KNOW each other, but there are similarities in their stories. And they agree on
this: securities investing is a gamble in the best of times. But when your broker isn't playing straight, the odds grow much worse.
Cara Marks, a self-employed illustrator and single mother of three, lost $50,000 in trades her broker made that she didn't authorize. "He really was a wonderful talker,"
said Cara Marks, a self-employed illustrator and single mother of three. "He became my best friend. Always asked me about the kids, how my divorce was going, how the move was, how I was doing. He just became a substitute friend." Marks lost $50,000 through her licensed stockbroker, Michael Katz.
And 18 months after opening the account, Marks came to realize that the broker was trading her account in risky stocks without authorization a -lot.
Marks complained, and got a lawyer - Philip
Aidikoff, a Beverly Hills, Calif.. attorney who specializes in
the area of investors' rights. Aidikoff sees big problems with
some second-tier brokerage firms.Watch our four-part series on Bad Brokers all this
week on CNBC's Business Center, beginning at
7:00 p.m. EDT.
"We're talking systemic fraud," Aidikoff said. "We're
talking about, in my opinion, criminal or quasi-criminal
activity that is fleecing American customers for untold
millions of dollars every year."
Marks was legally unable to sue her broker; she was
required instead to go through arbitration overseen by the
securities industry - the National Association of Securities
Dealers. She is not alone. Virtually every brokerage customer in this country has given
up the right to sue; it's
standard language when you sign a brokerage agreement at
the time you open your account.
Despite more than two years of delays by attorneys for
Katz and his firm at the time (now known as First Asset
Management), Marks won. The arbitrators awarded her the
$50,000 she lost and $82,000 more.
"She put trust in a broker who quite frankly abused that
trust," said Aidikoff.
Five years after Marks opened her account, Michael
Katz is still around and still selling stocks. CNBC traced
him to a firm with its own disciplinary history, Long
Island-based Gaines, Berland.
When we called him for his side of the story, Katz said
he couldn't talk on the phone, so we paid a visit to his office
in person and were told he wasn't available.
"As far as I'm aware, there was no action taken against
him," said Aidikoff. "In the years I've done this, not one
broker involved in any case I've ever tried has ever been
referred for disciplined as a result of that case."
Marks still doesn't have her money. Attorneys are
challenging the arbitrators' decision, calling it "irrational."
One firm principal told CNBC: "We'll fight it. It's unfair."
"I think that's disgusting [that Katz is still working],"
said Marks. "It's egregious. And I think if a broker goes
through a setting as that and has a decision against them,
they should not be able to work."
A $10 MILLION JUDGMENT
Dr. Clark Gardner was even less fortunate. The
California radiologist had been investing for years: he's
hardly what you'd call unaware. Still, when he got a series
of calls from a broker he'd never met, Gardner agreed to
open an account.
Dr. Clark Gardner -- whose
broker wouldn't execute sell
orders he asked for -- lost
$184,000 over a 13-month
period.
"I shouldn't have," he said recently
in an interview at his Los Angeles office.
"I wished I hadn't. With any other
investment, I've always met the
individual. But this gentleman was so slick
and cunning, and so much of a
charismatic individual over the phone, I
felt comfortable in dealing with him."
The broker, Sam Weber, worked
for the now defunct firm regulators say was among the
worst: Stratton Oakmont. Weber's first trade for Gardner
was a small amount of stock in Dr. Pepper. It went up
slightly.
Soon after, Weber pushed a little company Gardner
had never heard of: Select Media.
"It was a communications company and he touted it at
the time as a hot industry," said Gardner. "And that it was a
guaranteed mover."
It moved all right: to the basement. Select Media -
and later, the other stocks Weber sold the doctor -
fluctuated awhile and then, mostly, tanked. The list included
Hemispherx Biopharma, The Dolomon Page Group Ltd.,
Czech Industries Inc., Dualstar Technology Corp., United
Leisure Corp., Modular Visions, and Pace Transfer.
Some have come back. But too late though for the
doctor, who lost - according to case documents -
$184,000 over a 13-month period.
Telephone transcripts show that time and again, when
Gardner called Weber and demanded that Weber sell,
Weber did not. In one 10-minute call, Gardner instructed
Weber to sell 23 times - without success.
Gardner eventually took the firm's four principals to
arbitration. And his attorney says after two years of delay
tactics by the other side, the doctor won not just the
$184,000 of which he'd been cheated, but a record in
punitive damages for an individual investor: $10 million. But
so far, says Gardner, he's collected "not a dime."
"On the eve of Dr. Gardner's arbitration," said
Aidikoff, who also represented Gardner, "the broker
declared bankruptcy."
Weber may be bankrupt, but he's got a nice house on
Long Island, N.Y. CNBC paid a visit there to ask for his
side of this story, but the woman who answered the door
turned us away.
One piece of information that could have tipped off Dr.
Gardner to his broker's disciplinary history is an NASD
report contained in its Central Registration Depository - a
report known in the industry as a CRD.
"Most CRD's are 5 or 6 pages in length, and
[Weber's] is 50 some odd pages," said Aidikoff. "And he
remained in business until just two weeks ago, when the
NASD finally suspended him."
CNBC asked the NASD what took so long. That's the
subject of the second part of our series.
(CNBC's four-part series on bad brokers airs all
week on Business Center, beginning at 7 p.m. ET.) |
