Investors Win Fewer Arbitration Cases
Individual investors are winning fewer securities arbitration cases industrywide, though they continue to win a relatively high percentage of cases against PaineWebber Inc.
Claims won by customers against their brokerage firms amounted to 51% in Securities Arbitration Commentator’s survey of 10,000 cases that investors filed between July 1992 and June 1995, down from 57% in a study of cases between May 1989 and June 1992.
PaineWebber customers, by contrast, won 61% of the 425 claims that went to arbitration between 1989 and 1995, the same percentage as in the first three years of that period, the study found. That’s the highest ratio of losses for any broker-dealer. What’s more, PaineWebber customers won the highest average award: $145,000.
In comparison, customers of Merrill Lynch & Co., the nation’s largest brokerage firm, won 45% of 772 claims and averaged $66,200 per award.
“It appears from the numbers that PaineWebber lets cases go through the arbitration process that at least in the view of the arbitrators should be settled,” said Samantha Rabin, senior editor at the Maplewood, N.J.-based newsletter. “Merrill tries to resolve claims early on.”
PaineWebber executives said the average award figure was skewed by three cases before 1993 that had large awards.
Executives at PaineWebber also pointed out the firm had fewer cases than Merrill, Dean Witter Reynolds Inc., Smith Barney Inc. and Prudential Securities Inc.
Smith Barney, the brokerage arm of Travelers Group Inc., had 1,414 cases go to arbitration, ranking it first among broker-dealers for number of claims. Customers won 54% of those cases.
Prudential Securities, formerly called Prudential-Bache Securities, had 886 claims.
Dean Witter, a unit of Dean Witter Discover & Co., had the lowest average award of 15 firms for which the newsletter broke out figures, at $54,700 per case in which a customer won. Dean Witter clients won 42% of 514 claims.
Customers are generally winning fewer arbitration cases, the study found, because they are settling more of their claims. Settlements rose to about 70% of all reported cases from less than 50% before 1990.
A large number of claims relating to limited partnership sales have been settled in the 1990s, which helps explain the recent rise in settlements, Rabin said. She expects to see a decline in settlements before the decade is out.
As the size of a claim against a brokerage firm increases, so does the percentage of cases customers win. For example, clients win only 50% of the cases with compensatory claims up to $10,000. They win 66% of the cases in which compensatory claims range between $500,000 and $1 million.
Compensatory claims seek restitution for the amount an individual investor lost, usually excluding interest. Punitive damages seek restitution for psychological damage.
