Complaints Against Brokers Hit New High

By KATHY KRISTOF

Jan. 27, 2001 12 AM PT

TIMES STAFF WRITER

Investor complaints against their brokers hit an all-time high amid the 2000 market slide, the Securities and Exchange Commission reported Friday.

The SEC said 13,599 investors contacted national securities regulators last year complaining of everything from improper trading in their accounts to delays in executing orders during 2000. The level of complaints is up 9.1% from 1999 and is at the highest point ever, said Susan Wyderko, director of the SEC’s Office of Investor Education.

Although some growth is a natural consequence of the rising tide of active investors, the SEC believes that a substantial amount of the hike in complaints is a reflection of declining stock prices. Most notably, complaints about margin sell-offs--triggered when stocks that are purchased with borrowed money decline in value--spiked 133% last year, dwarfing the rise in all other types of complaints.

“A rising market tends to hide a lot of problems, but when the market becomes volatile or declines, as it has recently, a lot of those problems come to the surface,” Wyderko said.

For instance, a California man cited by the SEC complained that his broker called at 6 a.m., demanding a check for a margin call, but by the time the man’s bank opened at 9, his stocks had been sold.

And a New Jersey investor said his broker liquidated his account without telling him because of an intraday price swing. Had he gotten a call or had the broker waited until the end of trading, the stocks wouldn’t have been subject to a margin call and he wouldn’t have lost $6,900 on the transaction, he said.

Complaints about margin calls were common last year, when volatile technology stocks--a favorite of speculative margin traders--began the steep slide that helped drive the Nasdaq composite index to a 39% loss for the year.

Such complaints often reflect investor naivete rather than wrongdoing on the part of the broker or brokerage. Many account agreements allow the investment company to sell stocks to cover margin calls, with or without advance notice to the investor, Wyderko said.

Many of today’s investors don’t realize the risks because they’ve been in the market for less than a decade--a period that featured great stock market returns until last year, she added.

And some types of complaints, such as those about brokers not following customers’ instructions, actually saw a big falloff from 1999.

One area that saw a big increase in complaints involved the sale of extremely long-term certificates of deposit to senior citizens.

Although these investments are what they purport to be--bank certificates of deposit, backed by Federal Deposit Insurance Corp.--they may be inappropriate for elderly investors who appear to be the primary buyers, noted Marc Beauchamp, executive director of the North American Securities Administrators Assn., a group that represents state securities regulators.

The SEC received about 300 complaints from elderly investors who thought they were buying one-year CDs when they were actually buying “callable CDs” which didn’t mature for 20 years or more.

Investors who believe they’ve been wronged should first contact their brokerage firm to try to resolve the complaint. If that doesn’t work, they can contact the SEC either by mail or via the Internet.

Send written complaints to the SEC, Office of Investor Education, 450 5th St., N.W., Washington, D.C. 20549-0213. Or go to https://www.sec.gov/consumer/compform.htm.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Investor Gripes

Here are the top 10 complaints against brokers last year, ranked by the change from 1999.

Percentage change from 1999

Margin position sellouts: +132.7%

Errors in processing orders: +4.3%

Failure to process or delays in executing orders: +2.3%

Execution problem: +2.1%

Unauthorized transactions: -2.3%

Errors in account records: -22.7%

Transfer-of-account problems: -27.0%

Misrepresentation: -31.7%