The SEC has been deluged with letters and calls from investors complaining of delays in transferring accounts.
According to SEC records obtained by RR through the Freedom of Information Act, the SEC received 1,739 complaints (both written and telephone) between 1996 and 1998 from brokerage firm customers. Over 620--more than a third of the complaints--came from wirehouse customers.
Clients allege unexplained delays lasting from a few weeks to several months, causing them in some cases to lose money.
Separately, the SEC reports that in 1998 it received 1,180 investor complaints relating to a broader complaint category it tracks--"transfer of account problems." This category, which saw a 41% jump from 1997, is now the No. 2 problem area behind misrepresentation.
Here are some stories from a random sample of 15 letters complaining of delays:
* A Prudential Securities client submitted an account transfer request March 17, 1998. On April 20, the firm receiving the account said it hadn't received any securities. The client never got an explanation for the delay from Prudential. The securities showed up May 1, 1998. The client filed a formal complaint May 3, 1998, alleging $3,000 in losses as a result of the delay.
* An investor requested that Dean Witter transfer an IRA rollover account to a bank (the date of the transfer request isn't specified). Three weeks later, the client says, he was told by his new broker that the account had not been transferred. His former broker gave him an 800 number for Dean Witter's transfer department but no one there could give an explanation.
"I was in need of some of that money to pay bills," the client tells RR. "I had to call all of my creditors and explain the situation."
The client wrote a complaint letter to the SEC on June 25, 1997. The account finally transferred with no explanation at an unspecified time later, with a $50 transfer charge.
* Another Dean Witter client discovered 2,300 shares of stock mysteriously pulled back when Dean Witter transferred his account to another firm. The client asked the Dean Witter broker to sell the shares, but the broker said she first needed to find out why the shares had been pulled back. Nine days later the client was still unable to sell the shares. The customer filed a complaint with the SEC.
* A Merrill Lynch client alleged that he sold some stocks and directed that the proceeds and all of his accounts be transferred in full to another wirehouse. Nearly six weeks later, most of the accounts still weren't closed. Merrill then said it couldn't transfer an account holding a proprietary annuity. The annuity finally did transfer, but only after five months had passed and a $60 transfer fee had been charged, according to the complaint.
SEC documents show the client reached an undisclosed settlement with Merrill Lynch three months after the customer filed a complaint with the SEC.
* It took a PaineWebber client nearly three months to get the assets in his company's profit-sharing account transferred out, according to a complaint letter.
* Another PaineWebber client found some preferred stock didn't get transferred when he moved his account to another firm May 29, 1998. Two months later, the client's new broker was assured by PaineWebber that the stock would be in the account no later than July 31.
The client then asked his new broker to exercise an option, expiring Aug. 5, which would allow an exchange of the preferred stock for common. The preferred stock transfer wasn't completed until Aug. 17--too late to exercise the option.
"It appears that the exchange can now only be accomplished by selling the preferred and buying the common shares involving income tax considerations," said the client in his SEC complaint.
The following October, PaineWebber responded to the client's request for an explanation, attributing the delay to a reorganization of the company that issued the preferred stock. The client told the SEC that PaineWebber never notified him of a reorganization.
In a final letter dated Feb. 3, 1999, the customer complained about the SEC itself, saying the agency shut down an investigation of the case because it was unable to reach him by phone. Yet the SEC left no message and failed to correspond, the customer claimed.--P.F.
The age-old fight about who owns the clients contributes to account transfer delays. And it's the public customer who's ultimately hurt.
One recent and particularly nasty case has apparently resulted in Salomon Smith Barney filing a formal complaint against Prudential Securities. The broker involved, SSB rep Robert Perconte in Garden City, N.Y., says several of his clients were unable to make trades in their accounts when his previous firm held up account transfers for six weeks.
Perconte moved from Prudential Securities in Massapequa, N.Y., on Sept. 28, 1998, and quickly submitted signedAutomated Customer Account Transfer Service forms from customers. He says that the day before the processing deadline, Prudential got a temporary restraining order against him and canceled all the transfers. When the TRO was lifted, Perconte says he resubmitted the transfer requests. But the day before the processing deadline, problems again surfaced.
"Prudential said a computer error had caused some of the forms to be canceled," Perconte says. "This error canceled 80% of my highest revenue generators." The accounts didn't start transferring until Nov. 10, he claims.
SSB attorneys told him the firm filed a formal complaint with the NASDR against Prudential Securities for the delays, Perconte says.
Officials from SSB, Prudential Securities and the NASDR would not comment.--P.F.
It's no secret among regulators that firms play games in delaying account transfers. The NASD's own Rudman committee reported that the SEC itself had found "a failure [of the NASD] to oversee adequately transfers of customer accounts between member firms."
The committee discovered the problem based on at least one SEC oversight report it reviewed, which arose from a 1992 inspection.
(The Rudman committee was formed by the NASD in November 1994 in response to the Nasdaq price collusion scandal. The committee documented widespread problems at the NASD and made recommendations in a September 1995 report.)
It's unknown if the SEC has found similar problems at the NYSE. SRO oversight reports are not public documents, and the SEC would not comment on past inspections.
Despite the SEC findings, regulatory action against firms for transfer problems has been rare. Firm CRD reports run in 1997--five years after the SEC found problems in its 1992 NASD inspection--show only a $5,000 NASD fine issued in 1985 against Dean Witter for an eight-month delay in transferring an IRA. Merrill Lynch, Salomon Smith Barney, PaineWebber and Prudential Securities had no transfer-related actions taken against them by regulators over the period.
An SEC spokesperson says agency enforcement staff could not recall any action taken against firms for transfer problems.--P.F.