Judith was a widow who lived in the Northeast section of Philadelphia, close to Bucks County. In a million years, she could not have imagined that she would ever sue her stockbroker. In the end, that's what she had to do.
Judith's husband was an artist. When he died, he did not leave her a great deal of money. Whatever she had, she wanted to invest conservatively. It needed to last a long time.
In 1993, she set up an account with a reputable, national stock brokerage firm. She made it very clear to her broker that her primary objective was to preserve principal.
For a few years, activity in her account was uneventful. Each month she would take a glance at the monthly statement and then put it away in a drawer. Her investments did well enough for her to draw a modest income each month to supplement her retirement benefits.
Because she left matters in her broker's hands, Judith did not feel it was necessary for her to learn very much about her investments. She felt that was what the broker was paid to do. She would listen to his recommendations, however, and generally went along with whatever he suggested.
In 1998, Judith's broker advised her that she might do well to invest in certain high yield bonds. He did not explain to her that these were essentially more risky than lower yielding bonds. He did not tell her that these bonds were rated lower than the kinds of bonds that conservative investors ordinarily bought. He did not tell her that these bonds were often referred to as "junk" bonds.
On the advice of her broker, Judith sold good, conservative bonds and replaced them with $30,000 worth of junk bonds. In early 1999, on the advice of her broker, she bought another $10,000 worth of junk bonds from a different source.
Sometime during 2001, Judith noticed that her account balances were a lot lower than she expected. Then she received notice that the municipal authorities which had issued the junk bonds had gone into bankruptcy. All of her junk bonds were now worth almost nothing.
As quickly as she could, Judith changed stock brokerage firms and transferred all of her accounts. She was furious about what had happened and felt that she had been duped. No one had given her any idea that this could happen to her, a conservative investor.
In September, 2001, Judith was advised to contact Michael Bomstein. She was told that he had previously had success in handling cases like hers. She was told that he would look very carefully into her situation and do whatever he could to help her. She was also told that she would not pay any attorneys' fees unless she made a recovery that was satisfactory to her.
Mr. Bomstein went to Judith's home to meet with her and go through her records. After a few hours, he had enough information to begin his investigation. Bomstein then began to work closely with Judith's new broker. He realized that Judith had lost more than the $40,000. He quickly determined that there were other questionable transactions. His client's losses probably approached $60,000 and an argument might be made that the loss was closer to $100,000.
Mr. Bomstein contacted the stock brokerage in order to try to settle the case early. After a few months, despite letters and phone calls, the brokerage took no steps to resolve the matter amicably. The case would, therefore, have to be decided in a securities industry arbitration.
The case was started in December 2001. There was an exchange of information between attorneys. The brokerage lawyer finally recognized that his client would have a problem explaining why he placed Judy's life savings at risk. He then suggested that the matter be mediated.
An experienced mediator was selected by the agreement of both attorneys. In June 2002, the mediator called the parties together for several hours. By the end of the session, the brokerage agreed to pay Judy $55,000, more than she knew she had lost in the first place.