Newb mistake / Broker error?

[Smokezz]

I purchased 5500 shares of AIG on Tuedsay.  Woke up Wednesday morning and saw the price at $17.50, and looked at the press releases and saw a bunch of good news "happy" press releases related to the sale of the credit card division and that the company was in much better condition.  So, thinking I got one of those breaks and a share skyrocketed overnight I sold the shares.

An hour later, I get a call... the 20:1 reverse split meant I only really had 275 shares, and had to make up the short immediately.  The problem being the price now was $20.75.  I didn't have any choice in waiting until later in the day (Yes, I could have lost even more, but I also could have lost a lot less).

They tell me that they didn't put the block on AIG "in time", and that it was just minutes AFTER I put in my order that the block went in.

My argument is, if there was a reverse split overnight, I shouldn't have been able to sell my 5500 at all.  It should have shown the split before the market opened.  Or the block should have been in there before the trade was possible (it was a pre-market trade).  They also called over an hour after I put in the trade.  If it was a bad trade, why didn't they call immediately?  Why didn't they fix the short condition immediately?

Do you think I have any recourse at all here?

[denhams]

OUCH! I certainly do feel for you. Luckily for me, I don't think I'd have been able to meet the margin requirement to even be allowed to do such a thing.
If I didn't meet the margin requirement, I think I'd have reason for recourse, if
they screwed with me in that fashion.

Do you meet the margin requirement?

Also, I think you possibly have reason to make grievance because splits are often announced well ahead of time and are posted publicly (on Yahoo for instance) and I can't find a place where AIG's split announcement is posted. Doesn't mean it isn't though, I suppose.

What do you think?

                       

I hope you add this experience to your trading rules. I will.

___________________________

[Smokezz]

I don't have a margin account.  It's a cash account.  The split is buried in their meeting announcement yesterday, and that's about it.  If you search for AIG reverse split... it comes up all over the place though.

When I talked to them a bit ago, he said splits don't show up in accounts right away.  They block trades and that this trade was done just moments before the block was put in place.  My problem with that is, the block should have been in place before any trades could have been made.  It's not like AIG is a tiny little company... surely every broker out there knew about it, even if a person fairly new to trading didn't.

And it's certainly added to my trading rules.  I asked him outright if I should even trust their system in the future if a stock does make a big jump, since lots do make legitimate big jumps and then fall fairly quickly... am I going to miss out on those because I'm lacking faith in their systems? 

[garilou]

Smokezz,
Your story is heartbreaking.
When I opened my trading account Wednesday morning, on the home page, as an important message, the split was announced with huge warnings for whoever wanted to tradeAIG.
Your broker should have put it's "block" earlier, before the markets opened.
But I wouln't put the all the blame on the broker.

You should report your misfortune to the proper instances in the US, because it is - if it was needed - another example that there is really a need for better regulation.

Try this email:
tradingandmarkets@sec.gov

I have never seen a split announced and applied so fast.
They probably did that because VERY often, the announcement of a split (reverse or not) pulls the stock down for a while.
This is immoral, dishonest, but AIG has not shown any respect for anyone except for their big shareholders.

In September 2008, I tried to short a stock that ( I had checked) was not on the "no short list".
My broker blocked my order, and when I called to know why, they told me that maybe it was not yet on the list, but it would probably be there very soon, and then I would have to cover promptly, with possibly a bigger chance to loose. Although I appreciated the idea from my broker, I was disappointed, because I would have had time to make a good gain before the stock was actually added to the "no short list".

I wrote to the highest level of the SEC , and to my great surprise, I DID receive a reply!

This only to tell you: do not think that if you complain, your email will just get lost!

Let us know!

Louise

[Smokezz]

I'm thinking of possibly talking to a lawyer, or going up higher in the broker talking to people.  Since the person I'm talking to is admitting they should have blocked the trade, and it was just "minutes" after my trade went through that the trade would have just been blocked.  They're already offering to cover the fx spread, a free trades package, possibly refund some of the previous trade commissions I've paid.. This kind of set off the "They know they're at fault at least partially, and trying to deflect the blame" alarm.

[garilou]

Since we don't know (which is none of our busyness) how much $$$ you lost, it's hard to say if going to a lawyer is worth it: lawyers are terribly expensive! .

I know from a recent experience when a group of us had a problem with Canada Revenue  : even if we won even before we went to court, and even if we were 10 to share the costs of the lawyers, they took us "an arm and a leg"!
I must say that our case was so special, there was absolutely no "jurisprudence", and we had hired the most expensive fiscalist firm.

I guess if you can settle something with your broker, this would be the best.
As you said, as soon as they make a move, even if small, this means they know they are at fault.
But a  lawyer letter might not be too expensive, and be enough to scare them, and you could get a better settlement.

Good luck, and please keep us informed: we could all profit from your experience.

Louise

[Smokezz]

I don't mind sharing that.  I had $12k in the account before this... and now I owe them $8400 once I sell the other shares I have in the account.  So at least to me, it's a rather significant amount of money.

[garilou]

I understand! To me it would also be a significant amount of money.

I don't know in which province you live, but if in Quebec, you could also go to the “small claims court”, where you can claim up to $7000.00 at no cost.
It says:
"If you have a dispute (for example, with a service provider, tradesperson, merchant or small business) that you are unable to resolve, a quick, economical solution is available in the form of a legal action in the Small Claims1 Division of the Court of Québec, commonly referred to as “small claims court”."
http://www.justice.gouv.qc.ca/english/publications/generale/creance-a.htm

Long ago (there was no Internet to help), we had to go there twice, and we won both times.

If you are not in Québec, I guess there should be something similar in your Province.

If not, I'm pretty sure you know (or a friend of you has one in his family) a lawyer who would not charge too much to send a letter.

Louise