One of the reasons I write these articles is to educate my readers about their rights and remedies when it comes to their brokerage accounts. Far too many people with brokerage accounts are unaware of the strict rules and regulations which brokers and firms must follow and the potential violations that can occur. You would be surprised, for example, how many people don’t know that in a non-discretionary account, the broker must discuss in detail each and every trade with the client prior to the transaction, including number of shares, price, and the pros and cons of the security. The SEC, on the same bandwagon, recently completed a week-long Investor Education Campaign that was broadcast by satellite nationwide. The SEC stated, "Americans are increasingly responsible for their own financial security, but many lack the basic information they need to save and invest wisely, and avoid costly mistakes."

While investors must take some responsibility for their brokerage accounts, the bulk of responsibility falls on the shoulders of the brokerage industry - after all - the brokers and managers are the ones with the securities licenses. I must often advise dejected, guilt-ridden clients that they should not blame themselves for their losses (assuming there was wrongdoing in their account).

"Just Say No"

But there’s another problem brewing on the brokerage industry side - the brokerage firm’s routine denial of customer complaints and sometimes outright refusals to respond to customer complaints. I have one case against a New York firm called R.D. White where the customer wrote a complaint letter to the head of the firm’s compliance department. After he received no response, he wrote another complaint letter to the President of the company. He never received a response to either letter! This is a rare and unusual tactic better known as "Just Don’t Say".

The "Just Say No" tactic is employed by most brokerage firms in dealing with a customer complaint. In more cases than not, it doesn’t even matter what the customer is complaining about - the firm typically will send out a standard letter containing some or all of the following language:

• We have discussed this matter with you broker and he assured us that you fully discussed the investment and were fully informed of all of the risks.



• You approved each and every transaction in detail.



• You are a wealthy, knowledgeable and well-informed investor and this was money you were willing to take risks with.



• You were very involved in the trading in the account, as evidenced by the fact that a number of the trades were your own.



• Through the confirmations and monthly statements, you had at your disposal all of the information you needed to evaluate the account, including the level of activity and the types of investments made.



• While we share the disappointment of your account’s performance, courts and arbitration panels alike have routinely held that brokers who make recommendations in good faith based upon publicly available information are not liable merely because the investments recommended decline in value.

What would expect them to say - "Sorry - we screwed you?" And how would you feel if you got a response letter like the above? Many of you would simply drop the matter. And that means that from the brokerage firm perspective, the "Just Say No" tactic works.

A Numbers Game

You see, for the brokerage industry, it’s a numbers game. Very few people catch that their broker has done something wrong. For those who do, there’s a small percentage who do something about it. They blame themselves or figure they can’t fight the system. Many who do take action, make the mistake of verbally complaining, instead of complaining in writing. A verbal complaint is almost always ignored because the securities regulations define a "customer complaint" as only a written complaint, not an oral one. Therefore, there is no requirement that brokerage firms even document, much less respond to or handle professionally, an oral complaint.

If you ever have a complaint or even a question about what your broker has done in your account, always put it in writing. It is most important to document your concerns if you think a broker has made at trade without first discussing it with you in detail (either the buy or the sell). That is a de facto violation, regardless of whether you thought it was okay or your broker convinced you it was okay. You can apologize to your broker verbally, but if you don’t get your complaint in writing, no one is required to look into it. If you later find yourself in a lawsuit, you will be hammered by the brokerage firm for not documenting your problem.

If customers do put their complaints in writing, they are usually rebuffed with the "Just Say No" letter described above. For those who don’t quit, some try to go it on their own and file their own claim. Statistics show that customers representing themselves ("pro se claimants") usually lose. That’s because they are small potatoes for the industry’s high paid securities attorneys who do nothing but defend these type of cases. Some customers hire an attorney who may be experienced in litigation but not in securities fraud arbitrations. They, too, are often mincemeat for the brokerage firm attorneys.

These facts paint a grim picture and I certainly don’t meant to discourage you from taking action when you’ve been wronged. The majority of people who get a good securities attorney to pursue their claim prevail.

A Happy Ending

A woman wrote a complaint letter to a big brokerage firm we all know. She complained that her broker had made too many unsuitable trades in her IRA account. The brokerage firm replied by sending the "Just Say No" letter (much of the above language came right out of her response letter). The woman hired an attorney and pursued her claim. Roughly one year later, the firm settled the case for a figure that was considerably more than her out-of-pocket losses. A happy ending, but how do you reconcile the settlement amount with the "Just Say No" letter? I can’t. And I was her attorney.

Tracy Pride Stoneman is an attorney specializing in investment related complaints. Email her at Tracy@InvestorFraud.com. Preparation of this article was assisted by Douglas J. Schulz, a registered investment advisor and former stockbroker in Colorado Springs.