As losses in the stock market mount, plaintiffs’ lawyers are eyeing opportunity.
“It is easy to conclude that all losses were due to coronavirus pandemic fears, that they were out of anyone’s control,” New York-based lawyer Jacob Zamansky posted on his site on Tuesday. “But dig a little deeper and it turns out that, in many instances, broker misconduct was really to blame for an individual investor’s losses.”
Few plaintiffs or defense lawyers expect complaints to quickly flood into the Financial Industry Regulatory Authority’s dispute resolution forum or other venues. The extent of losses may not be apparent to investors for three to six months, they said, and plaintiffs’ lawyers will then have to analyze portfolios and underlying claims of unsuitability to triage the ones most appropriate for litigation.
“There are a lot of lawyers who are kind of excited about this, and think there are going to be a slew of claims filed,” said Andrew Stoltmann, a Chicago-based lawyer and former president of PIABA, the bar association for plaintiffs’ lawyers. “There will be—if this market stays down for three months.”
He said he has not fielded calls from investors in the immediate aftermath of the past week’s market carnage.
The S&P 500, Dow Jones Industrial Average and Nasdaq Composite were down by more than 4% in early afternoon trading from Tuesday’s close, and are each off more than 17% from recent highs.
Lawyers, however, are examining whether the extraordinary volatility of recent weeks can support some quick-hit breach-of-contract and other trust-violation claims against brokers. The average daily movement of the indexes have exploded from under 1% in all of 2019 to ranges above 3% in the past 13 days.
“I’m seeing clients getting killed with volatility who were overweight in stocks or on margin,” Zamansky said. “We’re going to be filing some complaints in the next couple weeks.”
Jeffrey Sonn, a lawyer in Aventura, Florida, said he is watching oil-and-gas investments vulnerable to the Saudi Arabia/Russia supply contretemps that broke over the weekend and travel-industry stocks hard-hit by the coronavirus crash.
“We’re definitely seeing an uptick in investors who are waking up to the fact that their advisor did not sufficiently diversify them,” Sonn said.
Customer arbitration complaints filed with Finra plummeted by 55% from 5,246 in 2009 to 2,363 last year, a Finra spokeswoman said. The bull market that followed the 2008 financial crisis began in March 2009.
The downward trend continued this January. Customer claims plunged 9% to 160 from 176 that were filed in January 2019, according to Finra’s dispute resolution site.
But customer claims have been yielding a higher percentage of awards. Forty-eight percent of arbitration decisions rendered this January resulted in damage payments to customers, compared with 45%, 40% and 43% respectively in the three preceding years.
Stoltmann said he expects to see cases tied to over-concentration and suitability as some brokers may have been lulled into boosting customers’ investments stocks or structured products amid a rising market.