NEWS AND COMMENTARY
January 29, 2001 
Complaints to SEC Against Brokers Set High in 2000 as Market Dropped
By The Associated Press
"My Dog Ate Your Portfolio" is NOT an Acceptable Excuse ... Weiss comments
WASHINGTON - 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%, 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," says 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 in a large part the result of 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 problem 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.
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.
This is precisely why we publish the Weiss Broker Blacklist! Brokers run all types of schemes to get you to invest with them. Some of them are even legal, though, at times, they straddle the lines of ethics. And trying to get your money back once it's gone is usually a losing battle, especially these days.
Most brokers weren't even around the last time that a bull market went belly up. So, as this article points out, regulators are willing to go easy on brokers when it comes to investor complaints. The mindset of regulators is, "why should brokers be punished for their lack of experience?" And these are the people who are supposed to protect investors! The real question should be, "why should investors be punished for their broker's lack of experience?"
And you're not just at risk of inexperienced brokers. The end of the bull market flushed out several investment scams, but the beginning of a bear market brings new opportunities for con artists masquerading as brokers.
The best way to guard against bad brokers is to do your research before investing. Don't be afraid to ask questions. Find out how an investment matches up with your investment profile and risk tolerance. And, ask any potential broker about his personal disciplinary history with the SEC or state regulators and his company's history.
If you're one of the 13,599 investors who lodged a complaint with the SEC last year, make sure that you send copies of your complaints to the National Association of Securities Dealers, the exchange that your security was bought on, and your state's securities agency -- and good luck!
Because if the SEC is going to side with incompetent brokers, your first line of defense has to be yourself.
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