Chicago Tribune (August 30, 1993) — Walter Hojka of Chicago got lucky in the 1980s and made more than $1 million on an oil venture. He was looking for a place to invest the proceeds when he got an unsolicited call from a broker.

Not being too cautious, Hojka listened as the broker discussed the merits of certain tax-exempt investments. Over a series of calls Hojka took the bait and transferred most of his money to an account with the broker’s firm.

Instead of investing in a diversified portfolio, the broker put most of the money into the tax-exempt health-care bonds issued by a single company and its subsidiaries. Many of the bonds defaulted. The company, whose officials were buddies with the broker, went bust. The broker also churned Hojka’s account in and out of some mutual funds.

Hojka met his broker face-to-face for the first time in an arbitration hearing he demanded through the National Association of Securities Dealers. In the remarkably brief time of 16 months from when he filed his claim in October 1991, Hojka got back $700,000, which included about $80,000 in attorneys’ fees.

“It should be encouraging to people to know that this arbitration process is not at all bad,” said Hojka’s lawyer, Henry Field of Robinson Curley & Clayton in Chicago.

Leaving aside the question of Hojka’s broker-selection technique, stories such as his are creating a minor industry within the legal profession. Non-lawyers are hanging out shingles from California to Florida offering to handle brokerage client claims for a percentage of the money recovered.

A few years ago, it was tough to get effective professional help for routine claims against a broker, and the odds seemed to be stacked in favor of the broker and the securities industry. Now help is easier to get, and the playing field is more level. But disgruntled brokerage customers should be careful that they don’t exchange a money-losing relationship with a broker with a money-losing relationship with a lawyer or other arbitration advocate.

For its part, the brokerage industry is walking a fine line between bolstering investor confidence through efficient, user-friendly dispute arbitration and opening a costly grab bag of quasi-judicial litigation that encourages questionable claims and creates negative publicity.

“The amount of money per case being claimed has risen enormously,” said Frederic Roberts, a Los Angeles investment banker who is chairman of the NASD. Most arbitration of disputes between brokers and clients is handled by NASD arbitration panels. The other securities exchanges and the American Arbitration Association also provide this service.

Numbers from the NASD’s arbitration service bear out Roberts’ observation. Last year, there were 111 claims filed for NASD arbitration nationally involving amounts of $500,000 or more. In the first half of this year, there were 314. In a few cases, arbitrators have awarded punitive damages for willful misconduct by brokers. In 1991, NASD arbitration panels handed out $98.4 million in awards. The figure dropped to $89 million last year.

The complexity of claims is increasing, as well. Many involve complicated limited-partnership deals gone wrong. Most brokerage-account agreements bar the customer from filing suit in state or federal courts over disputes arising out of the performance of the broker. The NASD would like to see more disputes handled through third-party mediation, not formal arbitration, but the arbitration caseload keeps growing.

The three-year-old Public Investors Arbitration Bar Association keeps growing, too. There are now about 220 members nationwide, said founding member Robert Dyer. The Securities Arbitration Commentator in Maplewood, N.J., tracks cases.

Non-lawyer firms are busy advertising their services. The firms, such as Securities Arbitration Services in Palm City, Fla., and Investors Arbitration Services of Los Angeles, offer advocacy services similar to lawyers’ services. Needless to say, they aren’t popular with lawyers.

The Securities Industry Conference on Arbitration, which includes non-industry representatives and drafts rules for securities arbitration, is considering a rule that effectively bars non-lawyer professionals from representing claimants. A class-action suit in California accuses one of these firms of mishandling a claim and practicing law without a license.

Ronald Futterman of the Chicago law firm Futterman & Howard notes that decisions by arbitration panels, which typically consist of two public members and one industry member, have no precedent value in subsequent cases. The lack of procedural uniformity and paper trails helps expedite the arbitration process but also makes it hard to separate good claimant advocates from bad.

The NASD is taking a step toward preventing disputes by providing more information to investors about brokers through an “800” phone number. Currently, the NASD discloses civil court judgments and formal disciplinary actions against brokers and brokerage firms. Beginning Oct. 1, the organization also will disclose information about completed arbitration cases, including awards, through the same number: 800-289-9999. The NASD will disclose the names of arbitrators involved in cases.

Currently, there is no arbitration mechanism for settling disputes between investors and investment advisers who handle individuals’ accounts but aren’t subject to the rules of the NASD or the exchanges. Nor is there any arbitration service for investors who think they have been wronged by a no-load mutual fund they bought on their own.