As market falls, arbitration claims rise

Broker-dealers and registered representatives are being hit by the legal fallout of the historic market collapse as investors file a growing number of arbitration complaints against firms and their brokers. Last year, the number of new arbitration cases filed by investors rose 54% from 2007, according to statistics released Thursday by the Financial Industry Regulatory Authority Inc. of New York and Washington. That increase represents a significant change in legal action taken against the brokerage industry during the past few years. Investors filed 4,982 arbitration claims last year with Finra Dispute Resolution, which offers arbitration and mediation services to investors. The number of new arbitration claims by investors had fallen each year since 2003, when they reached a record 8,945 claims, according to Finra data. The huge spike in claims at the time came from investor losses during the last bear market and was also fueled significantly by losses in once-highflying technology and telecommunications stocks. The difference this time around is that many of the lawsuits are being brought by investors who bought fixed-income type of investments, said Brian Smiley, a partner with Smiley Bishop & Porter LLP of Atlanta. “These are suits brought by people who thought they were investing in the safe part of the market,” said Mr. Smiley, who is president of the Public Investors Arbitration Bar Association, based in Norman, Okla. “This is not somebody who bought a dot-com, saw it go to $200 per share and then watched it drop to 10 cents.”