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Winning an arbitration award was the easy part of a case Clearwater lawyer Jeffrey Coleman took on for a Palm Harbor investor who got burned on high-risk stock investments. Now comes the hard part: collecting.
A panel of arbitrators for the National Association of Securities Dealers ruled last month that New York stockbroker Michael McNulty mishandled client Berhardine Timmerscheidt's account. Coleman said McNulty traded the hairdresser's account aggressively and inappropriately and doctored statements to hide her losses. The panel ordered McNulty to pay $158,571 plus interest, costs and attorney's fees. McNulty denied the charges but did not show up at the hearing and says he will not pay.
"I'm obligated to pay, but I don't have the money," he said. "If they're going to go ahead and pursue it, they will never see a dime."
It's not unusual for brokers accused of investment wrongdoing to plead poverty. That's why lawyers usually go after the broker's employer too. Things get sticky when the company isn't in any better financial shape than the broker.
Coleman filed a complaint against Weatherly Securities, where McNulty worked, but the company filed for bankruptcy, which brought all legal proceedings against it to a halt. A receiver is liquidating Weatherly's assets for the Securities Investor Protection Corp., which protects investors if assets are lost or stolen. However, SIPC doesn't reimburse investors for bad investments, even if a broker was found to be negligent or to have acted fraudulently.
Florida investors are a little better off than those in most states. If they have been awarded damages they cannot collect, they may qualify for up to $10,000 from the Florida Securities Guaranty Fund. However, they have to wait two years after getting a court judgment (arbitration awards must be confirmed in court) and no more than $100,000 can be paid out in total claims against one broker or brokerage. With so many restrictions, the fund paid only 14 claims each of the past two years.
McNulty says he couldn't defend himself against Timmerscheidt's allegations. Although he worked in Brooklyn, Weatherly's headquarters was in the World Trade Center and company records were destroyed in the terrorist attacks. McNulty said records he kept in his own office were seized by federal agents investigating Park South Securities, a company where he worked after leaving Weatherly. McNulty now works for another New York brokerage, though he could be suspended from the industry if he fails to pay the award.
Coleman says he hasn't given up yet on collecting from McNulty.
The case is one that should unsettle any investor who deals with a brokerage. Is the company not only reputable but financially stable enough to weather a few storms? And have you done all you can to prevent problems from occurring in your account? If you don't want to take much risk, tell your broker in writing to eliminate any possibility of a misunderstanding. Check your statements to make sure every transaction is one you authorized. If you see something amiss, call right away, and don't drop the matter until you get a satisfactory answer.
Q. For years I have been purchasing EE bonds as gifts for my grandchildren, who are in elementary school. Recently it was suggested that I purchase I bonds instead. Would this be a better investment? If so where can I purchase them and where can I get information about them? I cannot use the Internet.
Savings bond interest rates change every six months, but currently I bonds are a better deal, yielding 3.39 percent while EE bonds yield 2.84 percent. The I bond rate is partly tied to the rate of inflation.
You can buy I bonds and get information about them at the same bank where you now get EE bonds. You might have to increase the size of your gifts since the smallest I bond costs $50 (I bonds are sold at face value), while the smallest EE bond costs $25.
Other places to get savings bond information are the Internet (www.treasurydirect.gov) and the Federal Reserve Bank of Richmond, which you can call toll-free at 1 (800) 322-1909. Eventually savings bonds will be sold only over the Internet, so you might want to learn how to use it.
- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to huntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.