Complaints Against Brokers Set High

Friday, January 26th 2001, 12:00 am

By: News On 6

WASHINGTON (AP) â€” A man from Yonkers, N.Y., says his brokerage account dissolved from $171,666 last March 30 to a negative balance of $23,610 a few weeks later, as his broker failed to execute his request to sell stocks.

A broker in Georgia used the money in a retired man's IRA account to buy 1,950 shares of high-tech PSINet Inc. at almost $58 a share on March 7. The stock plunged to $34 a share by March 31 and to 65 cents by year's end, virtually wiping out his retirement fund, the man says. The broker, he told the Securities and Exchange Commission in a written complaint, ``misrepresented ... by purchasing this speculative stock.''

Amid last year's market slide, there were plenty of tales of woe. Some investors felt the pain doubly when they believed they were deceived by their brokers.

Investors' complaints to the SEC against their brokers set an all-time high in 2000 as the market turned downward. Complaints overall jumped about 10 percent, to 13,599 from 12,463 in 1999. Among those, complaints related to brokers' sales practices rose to 4,476 from 4,152, reversing a five-year decline, according to figures to be posted on the SEC's Web site next week.

A bull market with blissful investors, such as the one that finally expired last year, hides a lot of blemishes in brokers' behavior that can become exposed once the tide runs out, securities regulators say.

Many investors, and brokers, had never experienced a declining market before last year. Regulators are therefore willing to give some brokers the benefit of the doubt, suggesting that they may not have been prepared to respond appropriately in handling their customers' money.

``When markets go up, people tend to let their guard down. They don't research their investments carefully,'' said Susan Wyderko, director of the SEC's Office of Investor Education and Assistance. ``In a down market, their chickens can come home to roost.''

Regulators believe that last year's spike in complaints was due in large part to an increase in difficulties with margin accounts in a declining market.

Investors buy stocks on margin by borrowing part of the purchase price from their brokerage firm and putting up the securities as collateral for the loan. An investor can lose more money than he or she put into the account if the securities bought on margin decline in value.

In margin calls investors are asked to come up with more money to meet the minimum requirement of loans used to buy securities.

Another growing problems is with so-called brokered certificates of deposit, especially among the elderly. They have quite different properties from the plain vanilla CDs that people have bought for years at their local banks, and not understanding the differences can lead to significant financial losses.

In the case of the Yonkers man, he told the SEC that when he asked his broker, with a large investment firm, why he hadn't executed all the sell orders he had given him, the broker ``explained in near tears ... that he lost track of his orders and got confused. He also said that he was on medication and so forth.''

The man said the broker apologized. But when he later contacted managers at the firm, he said they took ``a coercive approach'' and threatened to begin collection proceedings against him for the negative balance.

Complaints against brokers related to margin accounts made it into the top ten complaint categories (at No. 8) for the first time in 2000, according to the SEC. The leading category was problems with having accounts transferred, followed by delays in executing orders, unauthorized account transactions and misrepresentations.

As a first step, SEC officials say, investors should talk to their broker and try to resolve the complaint. If that fails, they should write to the brokerage firm's compliance officer.

If no resolution is reached, investors should send an online complaint form to the SEC.

SEC staff will study a complaint and send it with an official form letter to officials at the brokerage firm involved, asking them to respond to the investor within 30 days and to inform the SEC. The SEC staffers themselves don't resolve individual disputes with brokers.

The regulators caution that investors should always carefully research investments before committing money to them.

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On the Net:

Online complaint forms are available on the SEC's Web site at http://www.sec.gov/consumer/compform.htm

Data on complaints against brokers in 1999 can be found at http://www.sec.gov/consumer/jdatacom.htm