Arbitration. A nice sounding word. Definition; if you have a dispute, you can settle it easily without a lot of cost to you. Wrong. Let me tell you from first hand experience how arbitration works if you as, say, a stockholder, have a dispute with your stock broker or brokerage. I will summarize how it actually DOESN’T work:
1. First you will get a batch of papers to fill out to detail your claim. Unless you are adept in understanding complicated forms, you will find you need an attorney.
2. The attorneys will probably only be interested in your case if it is in their field of expertise. (In Peoria, few if any attorneys are interested in helping you with an arbitration case concerning stockbrokers and brokers, especially if it is against a local stockbroker or broker).
3. Once you find the right attorney with a good win record who specializes in suing brokers and stockbrokers and who will take your claim to arbitration (your claim will probably not even be considered unless it has a potential settlement of at least $50,000.00), you will be asked to put down a retainer of probably at least $5,000.00. This could be your first concern that you might be throwing good money after bad.
4. The attorney will want to review the case taking the cost of reviewing from the retainer check you just handed over. After a review, the attorney should tell you what your chances are of winning at arbitration.
5. If the attorney says your chances of winning are good, ask if your attorney will take your case on a percentage of the amount you will win. If your attorney says yes; the amount will likely be 33% to 40% of the settlement. You will then be informed that you will need to pay all expenses. These expenses can range from the cost of copies plus the cost of the person doing the copying all the way up to the cost of an expert; experts come from $1000.00 a day up plus per diem. You will be told you will get this money back when you WIN the case. You probably should continue on because now you have a partner.
6. If the attorney says no, it usually means you are going to make this attorney a lot richer and this attorney is going to make you a lot poorer. I suggest giving up now and accept your loss; by continuing with this attorney, your losses are probably going to get bigger. You make another bad decision and press on.
7. So the claim is filled and a battery of the defendants lawyers sends back their first reply, often many pages long and informing your attorney that you have no case even though you do. (It’s like an attorney defending a murderer by telling the murderer to plead “not guilty”. The defendant will have a large number of attorneys, interns and clerks so expect a sequence like this. Your attorney and his staff answer the defendants attorneys and your claim is again rejected with volumes of pages; some assaulting you personally in every way imaginable, including what a bad guy you are by asking your opponent to spin a racquet to determine who serves first. Your attorney interviews you with the clocks running at $175.00 to $250.00 an hour and then sends a reply back to the defending attorneys. They in turn deny what you are saying and ask you for, say, another thousand documents. (Or send your attorney another thousand forms to fill out) Then your attorney asks you for another $5 or $10 thousand because the case has gotten more complicated.
8. This scenario is repeated over a period of a year or so and your attorney has now 25 or 30 other cases going at the same time and will be asking you for more reviews of your original complaint and for more documentation all the time with the clock running. Your attorney has to refresh his memory at your expense because he has a new secretary or misplaced your file or realizes you aren’t going to win after all. (Most attorneys will not take a case on a percentage of your win because they usually know that if a big firm with batteries of lawyers, secretaries and interns makes up their mind they are not going to lose a particular, case they usually don’t).
9. Somewhere along the line you are out an additional $10 or $20 thousand and you are wondering what you are doing. Your chances are becoming slimmer and slimmer especially if you ask your attorneys how your case stands now and they say “about a fifty-fifty chance. You say, what do you mean? You told me when you took this case you could win it! Then your attorney makes a statement that sounds something like this: I’ve got to have another $10 to 20 thousand as the defendant is bringing up things; well like this tennis thing, which of course has nothing to do with the broader scheme of things but all these claims and counterclaims are costing more money to answer.
10. At this point, you are probably going to say, well, can we settle this without spending more money; such as on the three arbitration judges (who might come from Timbuktu) and who also get salary plus per diem and the expert witness for our side who also might come from Timbuktu. Then you might suddenly realize you are NOT going to beat “city hall” and you are going to be stuck with EVERYBODIES EXPENSES.
11. You are probably going to scream “why didn’t you tell me all this in the beginning”. You will of course not like your attorneys answer so your next statement is “find out what they want will settle for”. You’re thinking you now will maybe get half of what you were asking for and your attorney; if by then you still have the same one; your case may have now been turned over to a younger attorney who is only charging $150.00 an hour; this attorney informs you that he will try to get your expenses back. After you are through screaming and throwing tantrums, your attorney offers to get the best deal he can.
12. When two years of frustration, worry and expenses on top of your original loss, the attorneys office calls and suggest you accept the defendant and his battery of lawyers offer which, of course, won’t cover all your expenses. You then remember that is why they took your retainers. Some day, you’ll get back what’s left from your thousands of dollars in retainers and a thank you note and a request that if you ever need their services again they would be glad to be of service.
13. You remember that the Federal Securities Commission assures you that you will never be cheated because they have established that dissenting parties will settle by arbitration that will be fair and not costly to all parties. You realize they lied.
14. At this point you look at the check you received, look at yourself in the mirror, see your wife and kids packing to leave you, the gray hair and worry lines in your face and suddenly remember you still have your life insurance policy. Vowing to leave something to cover your burial expenses and a few dollars to your kids, you probably commit suicide.
The sequel is that your insurance policy has a disclaimer (in very small print on page 63 of your policy) that if you take your own life the policy is void. (Your family now hates you but at least you are not there to take more abuse).
The first moral of this (sad, but partly true) saga is that you as an individual, have two chances when you sue a large corporation; slim and none. The second moral is that almost all stockbrokers are in business to make money for themselves. If they do make money for you too, so much the better for them as they can use you as a reference for new clients. The third moral is to never buy stocks from a friend or a relative. The fourth moral is before selecting a broker, be sure you have more money than the broker. But then, why would you select a broker that didn’t know how to make money on the market for themselves? The fifth moral is never trust your money to someone just beginning in the business. They are learning the business with YOUR MONEY! There are more morals but it’s getting late ad I’m not being paid for this free advice
When you go to arbitration as an individual, never do so if the attorney won’t take your case on a percentage of the win. Is the system fair? Fair? No, whoever told you life is fair knows better. Does the system of arbitration for the small guy need changed? You bet. How; probably only if some foundation or group of wealthy attorneys decides to enter on the side of the small guy and make the term arbitration mean what it was meant to mean; an inexpensive way to win a claim against the big guys who screwed you. On class actions suits the attorneys or sometimes tort attorneys will charge you nothing but they get a major part of the settlement. And class action attorneys have no interest at all when you have a small case against a major corporation.
My next blog will be a positive blog on my visit to Richwoods High School and my observations of the apparent battleground between the schools and the public and how it can be a win-win for most all.
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