As investors endured another market meltdown last week, 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 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 experience in research, argument and legal writing on real cases that may range from $3,000 to $25,000 in losses.
New York roots
The bulk of the clinics began in New York with funding from former Attorney General Eliot Spitzer, generated from fines levied against Wall Street executives, according to Gary Pieples, director of the Consumer Law Clinic at Syracuse University College of Law. Others have popped up in California, Illinois and Pennsylvania.
At Fordham University School of Law in New York, students at the Securities Arbitration Clinic, founded in 1998, 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 clinic.
Fordham’s closer proximity to Wall Street may put it out front with claims. Law school clinics at the University of San Francisco in California; Cornell University in Ithaca, N.Y.; and Duquesne University in Pittsburgh have not seen big jumps yet, but 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 University of San Francisco 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 clinic, founded in 2001 by Talbot, had 33 new cases waiting for his six law students at the start of the school year, he said.
Cornell Law School’s Securities Law Clinic began in January with a mix of second- and third-year students. It provides a mix of help for small investors, public education programs and public commentary on rule-change proposals by the U.S. Securities and Exchange Commission and the 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 clinic. “We’ve been very, very busy in just the two semesters of operation.”
Alice Stewart, clinic director at Duquesne University School of Law, 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. Stewart 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.