Swatting at Wall Street From a Bunker in Brooklyn

Securities Arbitration Clinic in The New York Times, May 21, 2010

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By ARIEL KAMINER

Congress took its time regulating the financial industry. City Hall and Wall Street are BFFs. Where do you go to find someone who’ll stand up to the bankers and brokers?

How about 1412 Coney Island Avenue, in the Midwood section of Brooklyn, between the laundromat and the baby gear store? Open a battered steel door, walk up a narrow flight of worn stairs and enter a dingy, cluttered office the size of a studio apartment. This is the home of Stock Market Recovery Consultants — antagonists of brokerage houses, advocates for investors and self-described ambulance chasers.

Ben Lapin founded the firm, with Mitchell Markowitz, in 2003 to help aggrieved clients of Merrill Lynch, Morgan Stanley, Charles Schwab and the like recoup their losses. Merely having lost money in the stock market is not grounds for a refund. If, however, you wanted Treasury bonds and your broker put you in tech stocks, or if he “churned” (bought and sold just to generate commissions), or if the service was not, to use the industry’s somewhat vague term, “suitable,” then there may be hope.

“If you trip and fall, every child in America knows you can sue,” Mr. Lapin said. “But for some reason, they don’t advertise that if you’re railroaded by your broker, you have a right to file a claim.”

According to documents you sign when you open a brokerage account, that claim does not go through the courts. Instead, it is arbitrated in a process overseen by the Financial Industry Regulatory Authority.

Since the stock market plunge in the fall of 2008, claims are way up: 1,994 new ones so far this year, and 2,403 in the same period of 2009, compared with 1,325 from January to April 2008.

Hearing Stock Market Recovery Consultants’ tough-as-nails ads on the radio, you’d never guess the firm operates out of a paper-stuffed hovel that makes Max Bialystock’s office look fancy. Or that Mr. Lapin and Mr. Markowitz have no legal training.

“We’re not lawyers,” Mr. Lapin said. “That’s the juicy part.”

In some states, only lawyers may represent clients in arbitration. But New York doesn’t make that requirement, so Mr. Lapin, whose background is in trading, and Mr. Markowitz — who pleaded guilty in 2004 to insurance fraud in a million-dollar scam involving jewelry — saw an opportunity.

Sitting in what passes for a conference room, at a table stacked high with three-ring binders, sheafs of documents and synagogue schedules, Mr. Lapin explained last week that the firm generally does not charge clients upfront; instead, it takes 50 percent of any award.

That’s more than they could charge if they were lawyers. His lack of credentials, he said, also helps him to goad his opponents into settling. “You don’t want to lose a hearing to us,” he tells opponents. “That’s like Michael Jordan losing to a kid in a street game.”

The consultants say they have represented around 500 clients, and recovered at least some money for 95 percent of them. In their biggest victory, they won $950,000 — less than half of what they sought — for a client who accused his broker of churning and front-running (personally profiting from the client’s investment plans).

Most cases, though, go for far less money, sometimes for just pennies on the dollar. And sometimes a brokerage firm will settle smaller matters just to make them go away. “There is something called a nuisance-value case,” Mr. Lapin said. “In the old days, when there wasn’t so much business, that was worth $20,000. Now, $10,000 to $15,000.”

When the cases make it to a panel of arbitrators, however, the crusaders of Coney Island Avenue usually go home empty-handed; in a couple of cases, their clients were even told to pay the brokerage house.

Mr. Lapin offered a lawyer who has opposed him on several cases — Michael Schwartzberg of Winget, Spadafora & Schwartzberg — to vouch for his performance. He vouched thusly: “Dealing with Mr. Lapin and his operation is one of the most frustrating experiences I’ve ever dealt with.” Mr. Schwartzberg said the claims that Stock Market Recovery Consultants files — before it has fully investigated the case, and using passages cut and pasted from previous claims — sometimes don’t even get the client’s name right. When it comes to settling, he added, “It’s like hondling at a flea market with these guys: ‘I got these shirts 3 for 10, but for you, 3 for 5.’ ”

If you lost money in the stock market and believe your broker is at fault, you have some options. People who have a slam-dunk case, or some money to put up front, can go to a lawyer (try the Public Investors Arbitration Bar Association). People who don’t can go to the free arbitration clinic at Fordham Law School. People who are somewhere in the middle, however, might find something weirdly appealing about impassioned but uncredentialed outsiders like Stock Market Recovery Consultants — scrappy New York characters who say things like: “We’re crazy. We’re suicidal. We’ll fight for anything.”

Russell Bourrienne said he lost hundreds of thousands of dollars because of his broker’s mismanagement. Last year, Stock Market Recovery got Merrill Lynch to settle for what he said was 4 or 5 percent of what he lost. And he had to fork over half of that to Mr. Lapin and Company.

Two percent might seem like a rounding error, but like a lot of clients Mr. Lapin put me in touch with, Mr. Bourrienne seemed to find the process itself somewhat restorative. He said he had no reservations about having entrusted the case to Stock Market Recovery.

“I mean, they are lawyers, aren’t they?” he asked me. After he got over the initial surprise about the firm’s lack of legal credentials, Mr. Bourrienne decided that was impressive in its own way.

“It’s amazing that a firm like Merrill Lynch, with their docket of lawyers, would have been pushed around by a bunch of” — he paused — “whatever-they-are from Brooklyn. They were cool.”