Sue Your Broker

Sue your broker
Money Magazine

October 2001

Since stocks peaked in March of last year, investors in the U.S. Market have lost $4 trillion in paper wealth. That’s an awful lot of money, and it’s left an awful lot of people pissed off – and looking for someone to blame. Their targets: brokers and financial advisors. The total dollars claimed are rising too. The average case against a top brokerage that completed arbitration that surpassed $500,000.00 last year, compared with $370,000.00 five years earlier.

Time for a case study: Madelyn “Mady” Shibe vs. Prudential Securities and broker Larry Mayer. To hear Shibe tell it, she was once so delighted with Mayer that she gave him a gift certificate for a pair of Gucci shoes. By catching the tech craze and buying stocks with margin loans, Shibe’s $350,000.00 account rocketed to $3.5 million. But that was just before tech stocks collapsed and Shibes’s account fell straight back to $350,000.00. These days she has the fury of an investor scorned. The 74-year-old widow recently filed a complaint against her former brokerage for giving her bad advice, loading her with margin debt and over concentrating her portfolio in too risky stocks (including Cisco, Lucent and JDS Uniphase) that have since tanked. She’s mad, she says, because her concerns about the account’s downward slide were brushed off. Compensatory and punitive damages claimed: $11.7 million, plus interest and attorney’s fees. “I didn’t know anything about the stock market,” Shibe wails over the telephone from her Lauderdale, Fla. Home. “I just had my trust in Larry, and there was no reason not to.”

What does Prudential say to all this? While the firm declined to make Mayer available for comment, it argues that Shibe’s claim is without merit -and it plans to fight her all the way. “We recommended that the client take profits,” says a spokeswoman for Prudential. “The claim does not mention that she took the money out of the account and that the account was profitable.”

So who’s to blame for Mady Shibe’s roller-coaster ride? Or is this just the kind of thing that happens sometimes when you invest in stocks? “This was complete mismanagement of her account and greed on the part of her brokers,” insist Plantation, Fla. attorney, Darren Blum, who is representing Shibe in her claim. “This account should have set off red flags in the office.”