Twenty years ago, major corporate accounting scandals and the tech wreck caused havoc on financial markets. Angry investors quickly followed, and law firms like KlaymanToskes helped champion investor rights in lawsuits against Wall Street brokerage firms.
Between stock option cases involving Microsoft, WorldCom and Merrill Lynch, dozens of claims were filed by KlaymanToskes in the National Association of Securities Dealers’ arbitration forum, which was the precursor to the Financial Industry Regulatory Authority (“FINRA”) dispute resolution forum.
The claims back then involved familiar investor protection issues present today, mainly with employee stock option 401(k) investment loss cases. For the Microsoft stock option cases, for example, the firm alleged that the Microsoft employees were advised to use their company stock as collateral to secure loans for home purchases. This allowed the customers’ portfolios to increase borrowing power of the accounts while avoiding margin maintenance levels that would trigger a margin call. KlaymanToskes also had many claims against several of the major Wall Street brokerage firms at the time: Oppenheimer, Merrill Lynch, Salomon Smith, and UBS.
One particular case that stands out from twenty years ago was a matter involving a Microsoft employee who had an account at Merrill Lynch’s Wenatchee branch. KlaymanToskes alleged that the investor relied on the company’s stock option plan for retirement, and lost a tremendous amount of money “for no reason.” The claim sought more than $10 million, and was decided in arbitration.
Arbitration and Retirement Plan Employee Stock Option Concentration Risk Still Exists Today
For those who do not know, arbitration is a method of having a dispute between two or more parties resolved by impartial persons who are knowledgeable of the securities issues in controversy. Arbitration of disputes with broker/dealers has long been used as an alternative to the courts because it is a prompt and inexpensive means of resolving complicated issues.
Certain laws govern the conduct of an arbitration proceeding that must be considered by those planning to use arbitration to resolve the dispute. Perhaps most important is the fact that an arbitration award is final and binding, subject to review by a court only on a very limited basis.
Parties should also recognize that in choosing arbitration as a means of resolving a dispute, they generally give up their right to pursue the matter through the courts. Typically, when investors open an account with a brokerage firm, the customer agreement contains a binding arbitration clause which requires the customer to arbitrate any disputes which may arise against the brokerage firm.
Today, customer agreements with brokerage firms mandate that customer disputes be resolved in FINRA arbitration. The FINRA arbitration process begins with a party filing a Statement of Claim with FINRA. The party who files the Statement of Claim is called a claimant. The party against whom the Statement of Claim is filed is called the respondent. The Statement of Claim should provide the details of the dispute, including relevant dates, names of entities and individuals involved, and the type of relief requested and the respondents from whom the claimant is seeking relief or damages. The type of relief a claimant may request, includes, but is not limited to, actual monetary damages, interest, and specific performance.
When is There Concentration Risk in Retirement Accounts?
Claims today in FINRA arbitrations vary, but we may be seeing an emerging trend in employee stock options cases of yesteryear, like Microsoft. Specifically, investors may be at risk like in the past of concentration risk in their stock options. But how does concentration happen in an account?
According to FINRA, there are a number of factors:
Connect with Us to Learn More about Retirement Plan Employee Stock Options, Concentration Risk
For more information about the risk of improper diversification in retirement plan accounts and the risks associated with employee stock options, contact Lawrence L. Klayman, Esq. at (888) 997-9956, and download our Special Investor Report.
About KlaymanToskes
KlaymanToskes is a leading national securities law firm which practices exclusively in the field of securities arbitration on behalf of retail and institutional investors throughout the world in large and complex securities matters. KlaymanToskes has recovered more than $228 million for investors in FINRA arbitrations. KlaymanToskes has office locations in California, Florida, New York, and Puerto Rico.