Investor Wins $450,000 in Case Against Broker
Donna Manwarren, a high school graduate, considers herself a homemaker, not a sophisticated investor.
A stack of blue-chip stocks she inherited from her great-aunt 20 years ago sat in a bank safety deposit box for 18 years, growing in value to nearly $1 million and generating $40,000 a year in income, said her lawyer, William R. Hart of Santa Ana.
For the record:
12:00 a.m. Aug. 31, 1996 For the Record
Los Angeles Times Saturday August 31, 1996 Southland Edition Business Part D Page 2 Financial Desk 2 inches; 51 words Type of Material: Correction
Smith Barney Inc.--A report Friday about an investor who won a $450,000 arbitration award against the brokerage used a different method from the one the securities industry uses to measure the success rate of investors seeking such awards. Of all cases in 1994 that went to hearings, 47% of the decisions favored investors, according to industry calculations.
The Huntington Beach resident used the money from those shares in IBM, AT&T; and other Fortune 500 companies, her lawyer said, to meet living expenses and help her do what she loves most: adopt and raise orphaned and foster children.
But that income stream was put in jeopardy two years ago after she turned over the stock certificates to a Smith Barney Inc. broker, whom Manwarren later accused of unloading the shares and reinvesting the proceeds in riskier ventures, including Argentine and Mexican government bonds that soon dropped in value.
Manwarren contended that the broker, Elaine Hineman, sold the shares without her knowledge and never warned her about the likelihood that the trades would result in a huge capital gains tax.
In a binding decision disclosed this week, a three-member panel of Pacific Stock Exchange arbitrators unanimously found that Smith Barney failed to supervise its broker adequately. The panel awarded Manwarren $450,000.
The decision was unusual. Barely 10% of all cases filed with stock exchanges nationwide result in arbitration awards favoring investors, according to 1994 figures compiled by the Securities Industry Conference on Arbitration.
The panel did not comment on Manwarren’s allegations that she didn’t authorize the sale and that she was forced to sell part of the portfolio to pay a $318,000 capital gains tax. The value of her portfolio fell by half.
“When she learned of the sale of her stock, she was told by the broker not to worry, that she was in good hands,” Hart said. “But her portfolio was effectively destroyed.”
The grounds for appeal are very limited, noted a Smith Barney lawyer, Michael Licosati of Long Beach, and it’s unclear whether the brokerage will seek court review of the decision.
Manwarren was unavailable for comment. She is in Belarus arranging for the adoption of two war-orphaned children, her lawyer said. She and her husband, who earns about $13,000 a year as a school bus driver, have three children of their own and five adopted children.
Smith Barney denied it did anything wrong. Licosati said Manwarren had sought additional income and wanted Hineman to take steps to increase her cash flow. Manwarren, he said, was told that much or all of the existing portfolio would have to be sold and reinvested. Neither Hineman nor her superiors could be reached for comment.
All trades were done with Manwarren’s knowledge, he contended.
