Firm Helps Investors Fight Back : Arbitration: William Levine and Barry Alper have a caseload of 90 complaints from people who feel cheated by their brokers.
Eleanor Gorman smelled trouble when she saw ZZZZ Best’s stock on a list of companies her stockbroker had bought for her account. ZZZZ Best wasn’t exactly the kind of investment she wanted to make. The San Fernando Valley-based carpet cleaning company went bankrupt in July, 1987, and its now-notorious whiz-kid founder, Barry Minkow, was later convicted of conspiracy, securities fraud and money laundering.
But Gorman couldn’t take the broker to court. Like most investors, she had signed away that right when she hired the broker and could only bring her complaint before an arbitration panel.
In the summer of 1989, however, Gorman met former broker William Levine through mutual friends. Levine offered to help Gorman free of charge because he was considering starting a company to help people such as Gorman take their cases to the National Assn. of Securities Dealers or one of the exchanges and self-regulating dealer organizations that arbitrate such disputes away from the courts.
Levine and his partner, another former stockbroker, Barry Alper, now say their Woodland Hills-based company--Investors Arbitration Services--has a caseload of about 90 complaints from unhappy stock investors with a total of $10 million in alleged damages. Because it takes about a year for a case to complete the arbitration process, none of their cases has reached a full-fledged arbitration hearing. But in the last year, they have concluded six cases, winning four for their clients in pre-hearing settlements, and losing two others in simplified arbitrations that did not involve formal hearings, Levine said.
Gorman’s case was one of the wins. All it took was a few phone calls from Levine, and Gorman’s broker started sending her checks, refunding most of Gorman’s unwitting $5,000 investment in ZZZZ Best, Levine said.
Nowadays, Alper and Levine charge at least $500 upfront, plus 25% of any eventual settlement. And they don’t take cases for claims under $10,000.
“We’re not altruistic,” Alper said. “We’re businessmen.”
Levine works in a Woodland Hills office and Alper works in another office in Boca Raton, Fla. Basically, Levine and Alper take charge of the case, using their expertise about how stockbrokers work to prepare the necessary papers to bring a case to arbitration, and they hire an attorney to be present at the hearing.
Many of their clients’ complaints concern stockbrokers “churning” stocks, that is, buying and selling stocks just to earn a commission, or making inappropriate investments, such as putting a widow’s funds into a perilous stock.
A decade ago, there would have been almost no business for Alper and Levine. In 1980, the nine securities exchanges and self-regulating dealer organizations only received 830 new cases for arbitration nationwide. Many stock investors had to sign away their right to sue their broker, but the system wasn’t ironclad and some could still take their complaints to court.
Then in 1987, the U.S. Supreme Court ruled that investors can legally sign the right away whether they understand what they’re signing or not. With that, arbitrations soared. In 1988, there were 6,100 such arbitrations. Of about 1,000 cases surveyed in 1989, only 55% were won by customers, said Richard Ryder, who publishes a newsletter on stockbroker arbitrations.
Typically, Levine and Alper first screen complaints from potential clients, agree to help those that they feel have legitimate gripes and then prepare a statement that is sent to one of the arbitrating bodies.
Investors’ cases are arbitrated by one of the nine securities exchanges or self-regulating dealer organizations with procedures set up for it. About 90% of such cases are handled by the NASD or the New York Stock Exchange, but smaller regional exchanges can arbitrate disputes.
For complicated cases, Levine and Alper consult accountants or securities specialists to help analyze their clients’ trading records. If they can’t settle a complaint before going to an arbitration hearing, Levine says, they hire an attorney to conduct the proceeding. Levine said any accountant’s or lawyer’s services are paid from the 25% fee.
Levine and Alper run ads in small newspapers that claim investors “can recover all your losses and more.” Technically, that’s true. But in practice the arbitration panels rarely call for investors to be repaid full damages, much less any punitive damages, said Cara Eisenberg, a Los Angeles attorney who frequently handles such securities arbitrations. People who win arbitrations typically win awards worth about half of what they sought, according to a survey of about 1,000 cases by Ryder. And, of course, Levine and Alper get 25% of any award.
Alper and Levine hit on the idea of helping investors over corned beef sandwiches at a delicatessen in Northridge in June, 1989. Both had been stockbrokers for years, although they had recently left the business.
Alper had been investing his own money in real estate since leaving his job as an account executive for Bear, Stearns in Century City in 1987. Alper was an inspector and an assistant vice president in charge of disciplinary actions for the New York Stock Exchange from 1968 to 1971; from 1972 to 1975 he was a compliance officer for Lehman Bros.
Levine had been a stockbroker almost continuously since graduating from college in 1956. In 1988, he left H&J; Meyers Co. to form a merger and acquisition firm, Berti-Levine. But the company failed to acquire a real estate investment trust from a New York insurance company, and Levine concluded that his company “didn’t have the staying power or the resources” to make it. In the summer of 1989, he was looking for a new business venture.
Levine and Alper penned their first ad on a napkin at the deli, ran it in a local newspaper and were pleased by the initial response.
Now they say their most important cases are six by customers who complain their brokers told them to buy stock in Van Nuys-based Valley Federal Savings and Loan.
The cases are being coordinated for Investors Arbitration by John Allen, a San Diego attorney who has worked as a public prosecutor and as a stockbroker. All six clients allege that their brokers assured them that Valley Federal would soon be taken over by another company and that the stock would go up in price. In fact, a potential buyer had approached Valley Federal, but no firm offer had ever been made. Since then Valley Federal’s stock has collapsed because of financial problems at the thrift.
None of the cases has been filed yet with the NASD. But one of the investors, Kim Giffoni, a local house builder, complained that his broker convinced him to buy $350,000 worth of Valley Federal stock on the argument that only the final details of a Valley Federal merger had to be worked out.
