Net Net: Broker Poker

No one complained about making too much money. Loading up on tech stocks seemed like a no-brainer when the bubble was inflating. Who knew we should have been blaming our brokers all along? Lawyers working on contingency fees, that's who, and they are eager to help recoup the $3 trillion that investors have lost since the NASDAQ tanked last spring. For retirees who fried their nest eggs or boomers who blew their kids' college tuition on margin, the road to restitution could be as easy as dialing 877-CAN-I-SUE (where you'll reach some New York City lawyers).

Most brokerage account agreements require disputes to be settled through arbitration, and lots of distressed investors are doing so. The National Association of Securities Dealers (NASD), which handles 90% of arbitration cases, is hiring more staff to help sift through all the Internet rubble. During the past five months, new claims were up 27% over the same period last year. Securities attorney Jim Shapiro has landed 70 "slam-dunk" cases since running newspaper ads in March that asked, "Have you lost more than $100,000 in NASDAQ stocks?" His argument is simple: even if customers clamored for more tech, their brokers had a responsibility to apply the brakes.

"Brokers forgot the rules," says lawyer Darren Blum, who won a $98,000 award last year after arguing that a broker failed to make suitable recommendations based on his client's assets and investment experience. The client, a 73-year-old bookkeeper in Hollywood, Fla., agreed to put nearly $200,000--or roughly 80% of his liquid net worth--into a stock he'd never heard of, Sigma Design. "I was buying like crazy on margin," says the bamboozled bookkeeper. "And I got wiped out."

Of course, investors forgot the rules too. (Diversification, remember?) So don't count on being bailed out by NASD arbitrators, who ruled against 47% of investors last year. "You never know what's going to happen in arbitration," says Deborah Bortner, Washington State's chief securities regulator. "It's a total crapshoot." Claims involving more than $25,000 are decided by three-member panels that can be swayed by the expert testimony of compliance officers or "forensic" stockbrokers.

While failure to diversify left many Americans with too much tech exposure, brokers often gave them fair warning. If you listed your initial investment objectives as "speculative" or received a call or letter from the brokerage firm stating that your portfolio had entered Riskville, "then you're S.O.L.," says Bortner, president of the North American Securities Administrators Association (NASAA). "People need to take responsibility for their actions."

But that sentiment goes against our inalienable rights to life, liberty and the pursuit of litigation. Even the talking heads on CNBC are being dragged into the fray. A pediatrician in New York City recently filed an arbitration claim against celebrity analyst Henry Blodget, accusing him of keeping a "buy" rating on a downhill dotcom because his employer, Merrill Lynch, was underwriting a merger pegged to the company's share value. Merrill Lynch insists Blodget did not know about the impending merger.