Five Questions With Tom Ajamie: Fighting for investors against financial powers

Jul 2004 // The Houston Chronicle

Fighting for investors against financial powers

It’s been three years since the tech bust and the unraveling of scandals in corporate America that led to millions in investor losses.

The news of illegalities spurred a spate of arbitration claims filed by befuddled investors looking for someone to blame.

The number of arbitration cases filed against brokers and brokerage firms jumped to 8,945 in 2003, compared with 4,938 in 1998, according to the NASD. Arbitrations filed with the New York Stock Exchange climbed to 1,223 from 554 in 2000.

Chronicle reporter Purva Patel talked about the arbitration process with Houston securities attorney Tom Ajamie , who is credited with winning the largest arbitration award ever from the New York Stock Exchange and recently sued the NYSE in hopes of shedding some light on the process.

1 Q: Has the arbitration landscape changed?
A: The only thing that’s changed are the number of arbitrations people are filing is much larger. The collapses of all the companies and the corporate fraud which has been revealed in the last several years has made investors much more aware that when they lose money in the stock market, it might not just be because the market went down but maybe it was because there was a fraud involved or maybe some dishonesty at companies. So I think investors are less naive then they were before.

2 Q: Are individual investors better off than they were before the corporate scandals spurred reforms such as the Sarbanes-Oxley law?
A: There has been some small change in the law with Sarbanes-Oxley, but overall there has not been any serious, substantive change. If an individual loses money in the stock market and wants to sue his or her broker, that person still has to go to an arbitration system that is run by the brokerage industry itself. And the brokerage industry itself decides who will be in the pool of arbitrators who will decide the case.

3 Q: What would you say to those who say investors have grown lawsuit-happy?
A: I don’t think that’s true. I see so many cases where investors have had money stolen from their accounts or excessively traded. I’ve seen retired people in their 70s and 80s whose brokers put all their money in technology stocks. That’s what I see. Those people are not sue-happy. Normally they don’t want to sue; they’re embarrassed.

4 Q: Do you think the arbitration process should be re-examined?

A: It’s a unilateral contract you must sign if you want to open a brokerage account. Any process that makes individuals give up their right to a jury, which is their constitutional right, should be examined more carefully by lawmakers and judges as to whether this is appropriate. Now, I’m not an advocate of class actions . . . it’s much more beneficial for investors to go to the courts one-on-one against a brokerage or bad company.

5 Q: Why did you decide to sue the NYSE over an arbitrator?
A: We had a career arbitrator in the case who has sat on many arbitration panels. She has many ties to the NYSE and sits on the boards of nonprofits with some of the other investment banks. So she’s very tied to the industry.

She was also hostile toward the investor, slept during the hearing and signaled to witnesses to tell them how to answer, which is all wrong. We sued to have her removed not just from our case but from the whole arbitration process.

The process is also so secret, which is un-American. Anyone can go into a courtroom and watch a trial whether you’re involved or not. Unfortunately, the NYSE arbitration system is secret.

It’s closed off from the public and other customers of that brokerage firm. It’s also closed off from other customers of the broker whose case is being heard.

If you don’t want to provide the access to the public, at least provide it to every customer who has a particular broker as his bad broker.