A Houston lawyer has made a second big score on the New York Stock Exchange arbitration floor.
Attorney Tom Ajamie represented a New York couple who claimed Prudential Securities Inc. mismanaged their accounts and took the matter to arbitration. A three-member NYSE panel ruled in favor of Ajamie’s clients this month and ordered Prudential to pay $11.8 million plus interest, for a total of $14.5 million.
The award is the third-largest handed down by the NYSE arbitration panel.
Ajamie also holds the record. The managing partner of Ajamie LLP won a $429 million arbitration award against a former PaineWebber broker in 2001.
The record award remains unpaid. The broker was prosecuted by the Department of Justice and sent to prison.
Prudential has filed a motion in New York state court to vacate the latest award — a process similar to an appeal.
Ajamie is more confident of collecting this time.
He says motions to vacate awards are uncommon and nearly impossible to win, since courts usually uphold arbitration decisions.
Explains Ajamie: “Brokerage firms always make clients sign an arbitration clause, and the arbitration system is biased in favor of the brokerage firms. The court’s attitude is if parties decide to go to a private arbitration system, they have to live with it.”
As a result, arbitration decisions are “pretty much final,” he says.
‘Most people lose’
Investor complaints against brokerage firms were relatively rare until the bull market bust of the 1990s, followed by corporate and financial scandals.
The number of cases began to jump in 2000 and peaked at nearly 9,000 in 2003.
Cases have been in decline since then. In 2005 just over 6,000 were filed with the National Association of Securities Dealers (NASD), which handles more than 90 percent of investor complaints.
The percentage of cases won by investors also has been dropping, from just over half in 2001 to 43 percent last year, according to NASD.
Ajamie says he has securities arbitration cases pending “all over the country.” But every case is an uphill battle, so he screens very carefully and accepts only about one in 20.
Says Ajamie: “If these cases were being brought in courts, they’d be good cases. But the arbitration system is very biased against investors. Most people lose. And even if you win, most awards are for zero or pennies on the dollar.”
He says the bias is evident in the fact that his recent $14.5 million ruling is the third-largest ever awarded.
The case involved a couple who put $23 million into a discretionary account that lost $21 million in four months.
Investors have prevailed in a couple of other notable arbitrations. In May, $22 million was awarded to a group of ExxonMobil Corp. retirees who claimed brokerage firm Securities America Inc. wrongfully sold them high-risk investments.
In October 2005, a Boston couple won a $2.4 million award against Citigroup Inc. and analyst Jack Grubman for recommendations on WorldCom Inc. stock — the telecom that eclipsed Enron Corp. with the biggest bankruptcy in U.S. history in 2002.
Another investor represented by a Houston attorney with a similar complaint against Citigroup and Grubman lost his case.
David E. Warden, a partner at Yetter & Warden LLP, is asking a federal court to overturn the decision on the grounds that one of the arbitrators should have been disqualified.
Warden’s case illustrates one of the many difficulties investors face in an arbitration process controlled by the securities industry.
“There doesn’t seem to be a watchdog for any of this,” Warden told the New York Times.
Attorney Ajamie says securities arbitration is attracting the attention of institutions as well as individual investors.
“We’re getting a lot of calls from pension funds now,” says Ajamie.