A Bad Sign : Forgery Is a Common Customer Complaint, but Probes Are Rare

Among the most common customer complaints against brokers, one stands out because it is a clear violation of criminal law: forgery.

Charges that brokers forge their customers’ signatures on account documents are common, a Times investigation of the retail brokerage industry shows. Industry experts and brokers themselves say the practice is widespread and even tacitly tolerated by some firms.

Yet the allegations almost never lead to criminal investigations, and disciplinary action is rare.

“I believe forgery is more common than anyone suspects,” says Mary Calhoun, a Boston-based former broker who is now a consultant and expert witness in customer disputes with brokerage firms.

“I’ve had brokers, sales assistants and operations personnel tell me that they have from time to time signed customers’ signatures on documents. Inevitably that confession is accompanied by the phrase, ‘Well, of course, everybody does it.’ I find that shocking.”

Calhoun says the issue is important because a crackdown on forgery could prevent customers from suffering major losses at the hands of unethical brokers. Forged signatures enable dishonest brokers to get around their firms’ compliance departments and carry out trading that customers never authorized.

The records of arbitration cases are replete with charges that brokers forged customers’ signatures on stock options agreements and margin agreements. Margin agreements make possible the purchase of securities with money borrowed from the brokerage. Options agreements enable brokers to trade options for an account, a type of trading that often carries steep risks.

There are also allegations of forged signatures on “activity letters”--form letters routinely sent out for customers to sign when there is unusually heavy trading in an account. The letters state that a customer is aware of and approves the unusual trading.

The extent of the problem is difficult to judge. But The Times, in reviewing the records of more than 40 brokers who have had multiple complaints made against them by customers, found more than a dozen complaints alleging forgery involving seven brokers.

Jonathan Kord Lagemann, former litigation supervisor for the now-defunct brokerage firm Thomson McKinnon and now a lawyer representing brokerage customers, estimates that in arbitration disputes, “at least 5% to 10% of cases involve allegations of forgery, and frequently they’re true.”

In the examples of alleged forgery examined by The Times, there is no way to determine if the accusations have merit, or who may have forged a signature. Brokers interviewed off the record claim that sales assistants are often asked to forge signatures so that the brokers themselves won’t risk disciplinary action. But signatures examined by a reporter in some cases do appear to be radically different from samples supplied by customers.

And in the following instances, despite the serious allegations, the cases have not led to any criminal investigations or disciplinary action by regulators.

* In an arbitration case Paine-Webber has settled, William and Donna Bryce of Los Angeles charged that broker Rodney A. Davis forged their signatures repeatedly on documents relating to limited partnership investments, including a signature on a power of attorney. They also claimed that Davis, a notary, falsely notarized their signatures. The Bryces claimed that they lost substantial amounts of money when Davis misled them about the risks and benefits of investing in limited partnership interests.

Davis has a long record of complaints from customers, settlements, and disciplinary action by the New York Stock Exchange, although none of the disciplinary action related to allegations of forgery. Davis denies any wrongdoing. PaineWebber declines to comment on the case. As in most settlements of this nature, the firm neither admitted nor denied wrongdoing.

* An investor last year won a $70,000 settlement after claiming he lost $117,000 invested with brokerage A. G. Edwards Inc. because of alleged unauthorized trading and forgery of the investor’s signature on an options account agreement.

The settlement came after U.S. District Judge John G. Davies in Los Angeles ruled in a civil lawsuit brought by the investor that there was good reason to believe that the signature had been forged. The judge noted that a handwriting expert testified that the signature was falsified, and the judge said “a simple layman’s comparison” of the customer’s real signature with the signature on the account agreement “would seem to indicate that the signatures appear to be of different hands.”

An A. G. Edwards spokeswoman says the broker who handled the account, Gilbert J. Harris, was fired more than a year ago and is no longer in the business. She says she knows of no criminal or disciplinary investigation resulting from the alleged forgery.

Peter Goldenring, a lawyer for Harris, said there was no legal finding that Harris had forged the signature. He called the allegation “unfounded,” describing the handwriting analysis as unreliable because it was based on a photocopy of the signature.

* At least three customers of PaineWebber broker Sean V. Dillon in Boston have won arbitration awards after filing claims that included allegations of multiple forgery of their signatures. PaineWebber, however, denies that Dillon forged any signatures. Dillon himself declines to comment. And since arbitration panels typically do not explain their awards, there is no way to know if the arbitrators believed the forgery allegations. In one of the cases, customer George Brennan, who won $72,576 after claiming heavy losses from unauthorized options and margin trading, maintained that his real signature did appear radically different from the alleged forgeries. Indeed, the alleged forgeries all appear different from each other.

* A panel of the American Arbitration Assn. in 1988 awarded $275,000, including $100,000 in punitive damages, plus attorney’s fees, to investor Wadleigh Winship, after he alleged that Atlanta-based Shearson broker Randall R. Bryan Jr. made heavy, unauthorized purchases of options for his account.

Much of the case centered on allegations that Winship’s signature had been forged repeatedly on documents that made the trading possible. The panel, however, gave no explanation for its award. Shearson claims that it hired a handwriting expert who “demonstrated conclusively that Mr. Bryan had not altered or forged any client documents.” The punitive damages and attorneys’ fees, however, are extremely rare in brokerage cases, suggesting that panel members were persuaded that severe wrongdoing had occurred.

Stanley M. Ackert III, a New York lawyer, says the securities fraud unit of the U.S. attorney’s office in Manhattan is now investigating an allegedly falsified signature of a brokerage client.

Ackert’s client, Carole W. Davis, won an arbitration award of $70,200 after claiming that Shearson Lehman Bros. broker Charles M. Lewis heavily “churned” her account. At the arbitration hearing, Shearson lawyers presented as evidence a photocopy of an “activity letter” on which Davis appeared to acknowledge that she knew and approved of what was occurring in her account.

Davis at the hearing testified that it appeared to be her signature on the form, but said she had no recollection of signing the document.

Ackert says that after the case was decided, he discovered that the signature on the activity letter appeared to be an identical copy of Davis’ signature on another document filed in the arbitration case, as though Davis’ real signature had been lifted from the document and photocopied onto the activity letter.

Shearson at the hearing introduced only a photocopy of the activity letter, saying it couldn’t find the original.

John Carroll, head of the securities fraud unit, confirms that the unit is investigating an alleged false signature in a brokerage dispute, but declined to say if it is the Carole Davis case.

Shearson denies that the signature was forged.

In an interview, William McLucas, the SEC’s enforcement chief, said he was surprised when a reporter told him that he had found numerous allegations of forgery in brokerage arbitration cases.

McLucas said that if, in fact, the problem is widespread, regulators should crack down and refer cases for criminal prosecution. “If that’s the case, then on the local level we ought to be doing more to get the local district attorneys to bring criminal cases,” he said.

But Edward Kwalwasser, the New York Stock Exchange’s executive vice president for regulation, was considerably more sanguine about the alleged forgeries. Asked if he considers it a big problem, Kwalwasser said: “No.”

He says the NYSE rarely brings forgery cases, except when the allegations are part of a larger case in which a broker forged a signature to steal money from a customer’s account. Of the hundreds of disciplinary cases brought each year, he says fewer than 10 include allegations of forgery, and those cases are mainly based on other allegations. He dismisses most customer allegations of forgery as being without merit. “Lots of times it’s old people who just don’t remember signing margin statements,” he says.

And Kwalwasser says that when his investigators come across suspected forgeries, they do not routinely refer the cases for criminal investigation. “We don’t as a matter of course refer them because there’s not a lot of receptivity in the local district attorney’s office,” he says. “They’re busy doing drug cases and murder cases.”

A Forgery

PaineWebber customer George Brennan won $72,576 in an arbitration award after claiming heavy losses from unauthorized options and margin trading. While the arbitration panel did not explain its reason for the decision, Brennan had accused PaineWebber broker Sean V. Dillon of forging his signature.

* Here is Brennan’s real signature on a form opening an account with PaineWebber.

* This is what Brennan contends is a forged signature on a tax document needed to open another account.

* Yet another allegedly forged signature on an account document.