Lawyers for consumers are gearing up to go after banks in the mutual fund business.

So far, customer litigation against bank brokerages is believed to make up only a miniscule portion of the legal disputes in the brokerage business.

But lawyers predict a boom in the business this year, as more consumers sue to recover losses in mutual funds they thought were insured like bank deposits.

"I just see it as a fertile ground for customer loss," said David E. Robbins, an attorney and arbitration specialist in New York.

Mr. Robbins said he was considering focusing on suits against bank brokerages for the first time in lawyer training seminars he leads for the Practicing Law Institute and the American Arbitration Association.

The possibility of a legal backlash against banks in the funds business was highlighted recently by two suits filed against NationsSecurities, a joint venture of NationsBank Corp. and Dean Witter, Discover & Co. The suits - one filed by a customer, the other by a former broker - allege improper sales tactics.

Only a Matter of Time

While few other banks are known to have been sued over such charges, lawyers suggest that it's only a matter of time.

The reason that little litigation has been directed at bank brokerages so far is that banks are still new to the business, experts say. As banks brokerages grow, so should their share of legal disputes.

Certainly, complaints against the brokerage industry at large are on the rise. More than 5,400 disputes were filed with the National Association of Securities Dealers for arbitration in 1993, 24% more than 1992, and 50% more than 1990.

The vast majority involved consumers who claimed to have been misled or defrauded by brokers, said Deborah Masucci, NASD's arbitration director.


Customer Confusion

The volume of NASD arbitration is a barometer of legal disputes in the industry since most disputes involving margin accounts, where money is loaned by a broker to fund a deal, are settled through arbitration.

Banks face a special concern. Namely, regulators worry that many customers find it difficult to differentiate between insured deposits and investments.

Regulators have vowed to vigorously enforce rules intended to alleviate the confusion.

One litigator coveting the business of disaffected bank customers is William N. Levine, chairman of Investors Arbitration Service, Inc., of Woodland Hills, Calif.

His firm employs 5 lawyers and has agents in 12 cities who specialize in seeking trading disputes to litigate for a share of the awards.

Mr. Levine said that since the market turbulence began in the spring, his firm has been flooded with calls from 1,000 investors a week, five times more than normal.

Combing Through Claims

Most of the calls are from customers of banks and savings & loans who claim to have been misled by brokers over mutual fund investments. These calls are now being examined to see which will be pursued for legal recourse. So even though few suits against bank brokerages are now in the hamper, Mr. Levine sees the calls as a harbinger of things to come.

"Those people were sold a bill of goods," Mr. Levine said.

He declined to comment on any specific cases.

Michael Crotty, deputy general counsel for the American Bankers Association in Washington, D.C., cautioned that much of the legal action could be groundless.

"Anybody can sue anybody for anything," he said.

But he added that if some suits prove to have merit, regulators "will pay attention."

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