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Securities Regulators Served Up a Fresh Helping of Outrage Last Week


Just in case you weren’t steamed enough about the losses in your stock portfolio, securities regulators served up a fresh helping of outrage last week. In announcing their record settlement with 10 Wall Street firms accused of misleading investors with bogus recommendations, they also released new e-mail records showing stock experts chortling about how they were making out like bandits at the expense of the average investor.

ONE LEHMAN BROTHERS analyst even conceded in an e-mail that stock ratings are “fairly meaningless … the ‘little guy’ who isn’t smart about the nuances may get misled. Such is the nature of my business.” The firms and two analysts have to cough up a $1.4 billion settlement. But the payback would mean a lot more if some of that money actually helped pay you back. If you believed some of those crazy “buy” recommendations and did business with one of the firms in the settlement, here are some steps you can take:

Get your piece of the pie. An administrator will be doling out $399 million in restitution to injured investors, but clearly that’s pennies on the dollar lost, say securities lawyers. “Paper clips and postage,” scoffs Seth Lipner, a New York lawyer. The SEC says it wants to give out fewer awards so that they’re big enough to be meaningful, so it’s worth getting on the list, which isn’t being compiled just yet. To qualify, investors will have to prove that they had an account with one of the firms and lost money buying at least one of the specific stocks named in the settlement during the time period covered. The SEC is preparing a list of the named companies to post on its Web site (, so watch that space and start gathering receipts.

File your own complaint. The settlement carries two bits of good news for wounded investors. It doesn’t stop them from filing private arbitration claims against their brokers, and it gives their lawyers a lot of ammunition. These cases can take 16 months or more to resolve, and last year arbitrators for the National Association of Securities Dealers (who hear most of these cases), found for investors in just over half the cases. To win an arbitration award through the NASD or the New York Stock Exchange, investors have to prove that they relied on a broker’s bad advice and that the advice was unsuitable for them, says Philip Aidikoff, a Los Angeles lawyer specializing in these cases.

Find a pro. This week’s settlement is already proving irresistible to gadfly attorneys who hop from car lemons to medical malpractitioners. But there’s a science and an art to filing a securities claim. Look for a lawyer through the Public Investors Arbitration Bar Association (

Don’t get fooled again. There’s a passel of promises in this deal. The Wall Street firms involved (go to the news section of the SEC site for a complete list of the firms) say they’ll separate analysts and investment bankers, buy independent research for clients and paste conflict-of-interest disclaimers on research reports. We’ve said it before, we’ll say it again. Get financial advice from people who don’t charge commissions or make money from the companies they’re “researching.” (Independent companies like Value Line and Standard & Poor’s don’t do investment banking, though a separate division of S&P is paid by companies to rate their bonds.) Keep your portfolio diversified. And don’t be cowed into investing in anything that doesn’t make sense. As it turns out, a lot of those crazy ’90s deals didn’t make much sense to their promoters either.