Burned by a broker? Consider arbitration

Ever acted on a hot tip from a broker or brokerage that left you feeling burned? Many investors have, and a growing number are seeking recourse through arbitration.

In fact, 2,137 arbitration cases were filed between January and April of this year, according to the National Association of Securities Dealers. That's up 24 percent from the same four-month period last year. At this pace, investors will file more securities-arbitration cases this year than in any prior year, says Paul Young, founder and CEO of Securities Arbitration Group Inc.

Mr. Young lists the rise in online trading, the growing number of people investing in the market, the collapse of risky Internet stocks, and abuse of margin accounts as some of the reasons for the increase. He says investors can recover their lost money if they were not "suitable" for a recommended investment, consistently lied to, or duped into "churning" - a practice in which an investor makes repetitive buys that generate additional commissions to a broker.

Investors who feel they have been taken advantage of can call Young's Securities Fraud Hotline (800-222-4724). While he says only 2 percent of those who contact him have a case with merit, he adds that investors who wind up in arbitration have won 60 percent of their cases.

(c) Copyright 2001. The Christian Science Monitor