Trusting Gretchen Morgenson

Gretchen Morgenson writes today about

an 86-year-old former client of Morgan Stanley Dean Witter, she sued the firm in 2002 for $281,729 in investment losses. Her case — which she won, by the way — ended in a truly bizarre twist: she was awarded damages of $5,000 but was ordered to pay $10,350 in fees even though an arbitration panel found Morgan Stanley liable for her losses.

Sounds pretty bad, and it may well be. But before we reach that conclusion we need to be sure that these really are all the relevant facts. They may well be, in which case Morgenson has shown that securities arbitration is not perfect, for those who maybe thought it was.

On the other hand, there may be more to the story. The plaintiff lost 30% investing over the period 1998-2002.  So did a lot of other people. According to Morgenson, the broker had the client in "racy" tech stocks and class b mutual fund shares -- not optimal, but not capital offenses either. Might the arbitrators reasonably have ruled that MSDW was liable for some losses or fees but not all?  After all, a broker is not an insurer.  The judge disagreed, but he's not necessarily right even if he was, as Morgenson gratuitously points out, "appointed by President Bush" (I suppose this means that the injustice was too much even for the sort of moral midget that Bush appoints).

In other words, one starts to wonder about the facts Morgenson chooses to leave out because they don't fit her slant.

Consider this incident, in which there is surely more we would like to have known about the whistleblower in Morgenson's story.

And note that this isn't the first time Gretchen has written about an MSDW client done wrong. There's this 2001 story of a brokerage client's $700,000 loss, which was part of the basis for her 2002 Pulitzer. Is there anything else you should tell us about that story Gretchen?

Journalists can't reveal all the support for and background of every article.  As a result, we have to trust them to be fair. Yet journalists also want to entertain, and stories may come out just boring when you tell both sides.  Pulitzers don't get won when you reveal that the customer was actually treated sort of fairly.

Can we trust Gretchen Morgenson?

Additional note:  With respect to the reference above to Morgenson's 2001 Pulitzer story about the customer's $700,000 loss, here's what Holman Jenkins had to say about the case on May 22, 2002 ($ search):

Overlooked in the Times' rendition, however, is that much of the decline came about because Mr. Teeples withdrew $280,000 to pay various expenses, including an alleged $68,000 down payment on a boat called "The Stock Option." His complaint also accuses Morgan Stanley's Mr. Sardana of lying about his academic qualifications but this turns out to be a canard too

Comments

[Ted]

Here's a free version of the article: http://www.iht.com/articles/2006/12/10/yourmoney/morgenson.php

There seems to be a larger error. Morgenson treats this as a case where the plaintiff "won," but was worse off. But the plaintiff didn't win: she alleged losses of $280K, and proved losses of only $5K in nominal damages. That's a loss (and a typical split-the-baby arbitration award reflecting that the defendants were probably completely in the right), and it makes sense that she was ordered to pay fees.