The way Colwyn Rich sees it, he’s either going to get his money back or die trying.
In fact, that’s a distinct possibility. The 75-year- old investor, who is spending his final days trying to get back $20 million he says he lost to Wall Street scammers, has seen his case mired in arbitration for six years.
“He’s already had one heart attack after having to sit through a hearing where he was accused of being part of the fraud,” says Rich’s lawyer, Stuart Melnick. “They’re trying to run the clock out on my client, knowing he’s in ill-health and may not survive this to the end.”
Rich’s case is extreme, but it’s not much different from what many small investors go through when they take on the big boys.
According to securities law, investors cannot take their complaints to regular courts, but must work it out in the arbitration process, which is run by the National Association of Securities Dealers.
Rules of law in arbitration are entirely different than in courts. And plaintiffs attorneys say that odds are seldom in an investor’s favor, triggering protests that the system is rigged in favor of Wall Street.
Rich says he was victimized by one of Wall Street’s most notorious bucket shops, A.R. Baron, which was shut down in 1996 for peddling hyped-up shares and rigging IPOs to benefit insiders.
Some people were indicted over Baron’s crimes, and others paid millions in fines, but thousands of hapless investors lost everything, for a total of more than $75 million.
The scandal also dragged in one of Wall Street’s giants, Bear, Stearns, whose president at the time, Richard Harriton, was accused of helping run the Baron criminal enterprise.
Harriton was barred from the industry for two years and paid a $1 million fine for his involvement. But he and the other brokers who ran Baron have become familiar faces in several other arbitrations filed over the matter, which was prosecuted by the Manhattan District Attorney’s office.
Rich is going after both Baron and Bear Stearns to get back his $20 million.
But his lawyer Melnick says Bear Stearns is using postponement tricks, paperwork technicalities and arm-twisting arbitrators to stall the case to a standstill.
Bear Stearns’ attorney Harold Ruvoldt denies the charge.
“It was put aside for several years when the Manhattan DA began investigating the case and he took control of it,” Ruvoldt says.
Ruvoldt adds that Melnick has missed appearances himself and delayed the process.
In any event, the dispute has become a public tennis match and wound up in federal court, at least for a little while.
Experts say rules of arbitration have insulated Wall Street from most court scrutiny. Laws on the books require an investor to finish his case first in arbitration, and then appeal for a court airing.
Legal sources say that almost never happens due to the extremely closed nature of Wall Street’s dispute process.
One legal pundit compared it to the Cold War’s “Berlin Wall,” where anybody who tried to make a break over the wall would get shot down.
“If just one gets through, then the whole system is threatened,” the pundit said.
Stacking the deck
Big brokerages require all complaints to be handled through arbitration, but investors aren’t served well by that process.
When the investor brings the suit:
Wins: only 57.2 percent of the cases
Collects: 27 cents on dollar of original claim
When the broker brings the suit:
Wins: 90.2% of cases
Collects: 96 cents on the dollar of original claim
Source: Securities Arbitration Committee