Professor Curtis Pew was quoted in a New York Law Journal article about law clinics bracing for investor claims.
New York Law Journal
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Friday, October 17, 2008
LAW SCHOOL CLINICS BRACE FOR INVESTOR CLAIMS
By Pamela MacLean
As investors endure roller-coaster ups and downs on Wall Street, 14 law school clinics devoted to helping small investors with claims against their brokers are bracing for an expected onslaught of claims from small investors with big problems.
The law schools have married the needs of small investors, whose losses are not big enough to make it feasible to hire lawyers, and law students, who gain hands-on experience in research, argument and legal writing on real cases that may range from $3,000 to $25,000 in losses.
The bulk of the clinics began in New York with funding from former Attorney General Eliot Spitzer, generated from fines for misconduct against Wall Street executives, according to Gary Pieples, director of the Consumer Law Clinic at Syracuse University in Syracuse, N.Y. Other clinics have popped up in California, Illinois and Pennsylvania.
At Fordham University School of Law, students have seen an uptick in cases among small investors who bought auction rate securities on the promise that they were liquid and not very risky, according to Paul Radvany, director of the Fordham’s Securities Arbitration Clinic, which was founded in 1998.
Hofstra University School of Law School’s Securities Arbitration Clinic also is expecting an increase in cases as the effects of the financial crisis hit Long Island.
‘Our clients are newly worried over the ability of the brokerage firms, against whom they have claims, to survive,’ said Curtis Pew, associate clinical professor and the clinic’s attorney-in-charge.
‘We expect that as a result of the recent tumult, there will be an increase in cases in about three to six months,’ he said. ‘The financial problem I expect to be most confronted with will be investments made for retirements and now the inability to have enough income.’
Clinics at the University of San Francisco in California, Cornell University in Ithaca and Duquesne University in Pittsburgh, Pa., are expecting calls to start coming in faster by the end of the year.
‘Our clients are generally seniors or disabled,’ according to Robert Talbot, head of the USF School of Law’s Investor Justice Project. Generally, claims arise from brokers who make unsuitable investments because the risk is too great for the age or assets of the customers, he said.
The USF clinic, founded in 2001 by Mr. Talbot, had 33 new cases waiting for his six law students at the start of the school year, he said.
Cornell University’s Securities Law Clinic began in January with a mix of second- and third-year law students. It provides a mix of help for small investors, public education programs and public commentary on rule change proposals by the Securities & Exchange Commission and Financial Industry Regulatory Authority (FINRA).
‘We have filed a dozen comment letters on rule proposals, including FINRA arbitration rule proposals,’ said William Jacobson, director of the Securities Law Clinic. ‘We’ve been very, very busy in just the two semesters of operation.’
Alice Stewart, clinic director at Duquesne University, said she expects to see calls for help begin to pick up in January and February for the small investors her eight students represent in arbitrations before FINRA.
‘We’ve seen churning, quite a bit of misrepresentation and unauthorized transactions and a number of unsuitability claims,’ she said. Ms. Stewart said she expects to see a rise in unsuitability claims, which refers to investments that are unsuitable for the customer either because of their age, resources or risk tolerance.
Students have been aggressive on behalf of their clients, bringing some good results, according to Fordham’s Mr. Radvany.
He pointed to a fraud case last semester that produced $22,000 in compensatory damages and $44,000 in punitive damages for a client whose money was stolen by a broker.
‘It was a great victory for the client,’ he said.
Mr. Pieples said his students have had brokers throw older clients into inappropriate variable annuities that fail to perform and charge much higher fees than a similar mutual fund.
In one case his students represented a retired housekeeper who put her $2,500 from an IRA into a technology mutual fund that lost a majority of its value.
‘These clinics are for investors with no other place to go,’ said USF’s Mr. Talbot.
FINRA did its own study and found the best way to handle this unrepresented market of small investors was through law schools.
Students can handle arbitration because it is streamlined, Mr. Talbot said. Although he has seen lawyers throwing in a lot of legal claims in written filings that do not belong in arbitration and are intended to intimidate the students.
He said the problem for many of these investors is they cannot get lawyers because their $3,000 loss would take as much work as a $100,000 loss case, so it is not worth it for a lawyer to take.
The SEC recently pointed out the clinic students are authorized to operate by the courts in their respective states but noted that investors living outside California, New York, Illinois and Pennsylvania can request help and get advice on drafting a complaint.