| NEW YORK, Sept 26
NEW YORK, Sept 26 Lawyers who fight brokers on
behalf of aggrieved investors often see the most sordid side of
Wall Street. So it is not surprising that they would be
extra-cautious about investing their own money.
In a typical week, these lawyers field calls from people who
allege their brokers led them astray or that a long-trusted firm
peddled securities that were far riskier than marketing
Many of those claims end up in the Financial Industry
Regulatory Authority's arbitration unit. There the lawyers hear
about the inner workings of a brokerage firm - everything from
how it developed and marketed the security in question to how
much brokers actually understood about what they sold.
Reuters recently spoke to three securities arbitration
lawyers who represent investors to find out how they invest.
Here is what they said.
Philip Aidikoff, 65, of Aidikoff, Uhl & Bakhtiari, Beverly
Notable case: A $54 million ruling against Citigroup in 2011
on behalf of a group of investors for their losses in complex
municipal bond funds. It was the largest FINRA award ever on
behalf of individual investors, according to Securities
Arbitration Commentator Inc.
Investment strategy: Aidikoff says he has long been a
conservative investor. "I've seen what can go wrong," he said.
"I'm not trying to hit home runs."
He entrusts his money to the wealth management division of
Kayne Anderson Rudnick, a Los Angeles based investment adviser
that he pays "far less" than 1.5 percent of the value of his
assets - and no commissions. "I don't have the time or tools to
do this myself," Aidikoff said.
Aidikoff avoids complex securities that he says often
camouflage their true risks. Among them: reverse convertibles,
a type of short-term note that is linked to the performance of
an underlying stock and uses options to boost yields. He also
shuns bond funds, because he believes rising interest rates may
lead to plunging bond prices and potentially steep losses for
investors. "I think they are the next big product to blow up on
the horizon," he said.
Instead, he relies on his advisers to build portfolios made
up of individual stocks and bonds. Corporate bonds, for example,
represent a large percentage of his individual retirement
account, followed by agency and Treasury bonds. (Because
retirement funds offer tax deferral, it can make sense to stash
high-income securities in them.)
Andrew Stoltmann, 41, of Stoltmann Law Offices, Chicago
Notable case: A $1.46 million award in 2009 on behalf of
ex-National Basketball Association star Horace Grant, who
claimed that his brokerage firm misrepresented the risks of bond
funds it sold. A federal appeals court upheld the ruling last
Investment strategy: Stoltmann worked as a broker for a
major firm for a few years in the mid-1990s, and that soured him
on the industry. "People wouldn't trust their money to brokers
if they knew all the inherent conflicts of interest," he said.
Among the problems: Brokers earn sales commissions, an
incentive that may motivate them to push products that are not
appropriate for certain investors. They also take part in sales
contests, Stoltmann said.
Stoltmann has his own registered investment advisory firm,
but he says he is not actively running it.
For his own money, he opened a self-directed brokerage
account at Malvern, Pennsylvania-based Vanguard Group, which is
known for its low-fee investments.
He invests in Vanguard's traditional index funds, whose low
operating costs are typically passed on to investors as higher
returns, he said. He shifted to exchange traded funds after
Vanguard rolled them out in 2001 because their costs are even
His favorites include Vanguard's Small-Cap ETF, which
track the index made up of small publicly traded companies, and
the Mid-Cap ETF,, which does the same for midsize
companies. "I like the long-term growth prospects of small and
mid-cap funds - and I'm a patient investor," Stoltmann said. "I
buy and hold forever."
Adam Gana, 33, of Gana LLP, New York
Notable case: A $2.8 million ruling in August against a
Bronx-based tax preparer and broker who was indicted for running
a Ponzi scheme.
Investment strategy: Gana's nearly 10 years as a securities
lawyer have had an impact. "The fact that you see smart people
who lose tons of money really starts to scare you," he said.
Gana trades stocks on his own after researching them in
investment publications. One factor he considers: the time it
will take for dividends he racks up to equal his initial
He recently sold Apple Inc stock that he bought
for $99 per share in 2009, more than quadrupling his investment.
(Apple closed at $481.53 on Wednesday). "I made enough, and the
market is also saturated with smart phones," Gana said.
But Gana is skittish about picking individual bonds. For
this, he turns to a Morgan Stanley broker whom he found
after asking around for references and researching public
Among Gana's favorites: highly rated municipal bonds that he
can hold for the long haul. "They have to be for good projects
that are not going to go bust - like bridges in New York," he
Gana gets to hear those bond stories, because he will not
give his broker permission to trade without his approval. The
lawyer says he tried that but "got too scared."