Attorneys and arbitration pros say that Ameritrade, TD Waterhouse and E*Trade Securities are shifting strategies for resolving customer disputes and are pushing cases into mediation rather than trying to litigate them via arbitration. “In the beginning, [E*Trade] absolutely refused to mediate, now they are mediating everything,” said one California mediator, noting that the online giant has shown the most marked turn-about.
An Ameritrade spokesman declined to comment. E*Trade’s outside counsel referred call to their spokespeople, who did not return calls. Calls to TD Waterhouse’s spokeswoman and its counsel were not returned.
Indeed, Ken Andrichik, the director of mediation for National Association of Securities Dealers, said cases going to mediation have increased 50% overall. A numerable breakdown by firm is not available. Many plaintiffs’ attorneys feel that mediation, a voluntary process whereby both parties work together through the efforts of a mediator to create a mutually acceptable settlement, removes the risk of loss that can occur in arbitration, which involves the presentation of evidence to a panel that renders a binding decision.
The mediator’s sentiments about the online firms were echoed by Douglas Schulz, a Colorado-based securities fraud expert witness, currently involved in an arbitration case in San Francisco. Schulz said many of the online firms, especially E*Trade, were, until recently, fighting everything, even the “little” cases. Phil Aidikoff, a Beverly Hills attorney who has represented several investors in claims against E*Trade and other firms, said he has also experienced the now willingness to go to mediation.
Schulz said the online firms are exhibiting a new willingness to “put money on the table and talk settlement.” He speculated that a string of losses before arbitration panels triggered the new attitude. Schulz also thinks that the accompanying negative publicity from arbitration losses played a role. “The firms were losing and getting bad press. People were seeing that and saying: ‘Hey! I can sue and win.'” The apparent strategy backfired for the firm, he said. For example, according to attorneys involved in the cases an arbitration panel, in October ordered E*Trade to pay a Chicago couple $230,000 in compensatory damages. Also that month, the Menio Park, Calif.-based firm was also ordered to pay another of its customers $38,226 in compensatory damages. This past summer, the firm was ordered to pay another customer $61,000 who complained that the firm ignored a cancellation of a limit order.
The mediator emphasized that E*Trade isn’t the only firm suffering from an apparent change of heart. “They’re all getting on the bandwagon,” he said, adding that he has cases scheduled with several other online firms. “They’ve all gotten hits in arbitration.”