Little profit in suing broker
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Dear Mr. Berko:
My wife and I have Independent Retirement Accounts that combined are worth about $1.3 million. We’re both 68 and still working because we like what we do. Each of us bought 1,000 shares of Fannie Mae, Freddie Mac and Lehman Bros.’ preferred stock in our IRAs and, as you know, they went belly-up. We bought them in the mid- to high teens because our Merrill Lynch broker believed they would be excellent long-term income investments. He didn’t recommend them, but we asked him about those issues because we believed the high dividends would be secure. He took two days to get back to us and told us that he and several analysts he consulted with told him Fannie and Freddie looked safe, but they couldn’t get a handle on Lehman even though it was rated AA. So my wife and I each invested about $50,000 from our IRAs and now all of them are out of business. We saw several lawyers’ advertisements in our paper, and one attorney came to our home to see us. He says he can get all our losses back by suing Merrill Lynch. There will be no charge, he says, because “it’s a shoo-in.” He also doesn’t want us to tell him that buying the three preferreds was our idea. He wants the complaint to read that the broker recommended the three preferreds to us. That bothers us. But the attorney said everybody does it and wants us to sign a lot of forms, one of which gives his firm 50 percent of what he collects. When we asked about that, he said 50 percent is a standard fee. He was so positive in his pitch that I felt uncomfortable. What do you think about this? We would really like your opinion.
B.R., Boca Raton, Fla.
Dear B.R.:
I’ve been contacted by at least a dozen law firms around the country to be an expert witness for investors who purchased the preferred shares of Washington Mutual, Fannie Mae, Citigroup, Merrill Lynch, Freddie Mac, Lehman Bros. and more. I’ve also been offered some attractive fees by several South Florida law firms to consult and testify. A large law firm offered me a six-figure annual stipend if I allowed them to use my name in their solicitation efforts.
I use intemperate language in rare moments of frustration, like when the retards at Comcast surprised me and changed my e-mail platform overnight with an arthritic abomination called SMARTZONE. And I couldn’t help resorting to the same verbal behavior when I told those slimy, pus-brained lawyers what they could do with their filthy money.
When I think a brokerage firm intentionally takes advantage of its customers or if a broker’s stupidity or greed causes a client to lose money, I’ll castigate the offender faster than a duck can hop on a June bug. However, I cannot fault your purchase of Fannie Mae or Freddie Mac preferred stock nor can I fault the advice — not recommendation — of your Merrill Lynch broker. Even if he did his research, vetted those issues and recommended them to you, I still wouldn’t fault him. I owned all three of them at the same price.
The collapse of Fannie, Freddie, and Lehman caught the Wall Street “experts” with their pants around their ankles. As you know, not a single major wire-house brokerage had a sell recommendation on those three preferred stocks. Moody’s and Standard & Poor’s had AA and A-plus ratings on those issues, and many mutual funds and investors bought Fannie and Freddie after Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, unequivocally said in September in a televised interview that Freddie and Fannie were sound. Perhaps that shifty, mendacious, shyster lawyer ought to sue Frank.
Now I can’t abide that shyster who told you to lie in your complaint and deposition. Were I you, I would have literally dragged him out of my home, hired a cleaning service to disinfect every room through which he walked and reported him to the bar association.
Your chances of collecting even a pfennig in damages from Merrill are nearly nil because arbitration panels recognize the modus operandi of your shameless shyster and others of his ilk — the panels keep lists of these greedy lawyers — and will most often find for the brokerage. I also doubt that you will prevail because your $100,000 loss represents about 8 percent of your two IRAs and certainly a much smaller percentage of your joint assets. I doubt that you will collect even a centime because those issues were highly rated by Moody’s and Standard & Poor’s, because Frank told the nation that Freddie and Fannie were sound and because only one brokerage, Citigroup, had a sell recommendation.
I suggest you both suck it up and take personal responsibility for this loss. You and tens of thousands of others made the same mistake, listened to the same people and relied on the same data. The system, which is flawed, hurt you and there’s no recourse. I remember what the late Sen. Daniel Patrick Moynihan (D-N.Y.), once told me: “Most members of Congress, most lawyers and most big shots on Wall Street are crooks and liars until proven otherwise.”
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net. © 2008 Creators Syndicate Inc.
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