Investor Paybacks Small and Slow

Distributing Money to Compensate Burned Buyers Requires Complex Calculations

On Dec. 20, 2002, state and federal regulators gathered amid holiday decorations at the New York Stock Exchange to announce a $1.4 billion settlement with 10 of Wall Street's biggest firms over allegations that analysts at the firms wrote biased research to curry favor with banking clients.

Regulators said they hoped that much of the money would go to investors who were misled by the research. But they admitted that figuring out who lost money based on individual research reports would be exceedingly difficult.

"I'm not Publishers Clearing House," New York state Attorney General Eliot L. Spitzer, the driving force behind the settlement, said at the time. He warned that investors "won't be getting checks in the mail anytime soon."

He was right.

Around the nation, shareholders are clamoring to be made whole after losing billions of dollars in the accounting frauds and Wall Street scandals of the past several years. But if history is a guide, average investors face daunting obstacles to recovering even a small portion of the money they lost -- even with the help of regulators and prosecutors.

Nearly a year and a half after the settlement of the biased research case, the $400 million investor fund set up as part of the settlement is still just getting off the ground. Other investor restitution programs in the WorldCom Inc. and Enron Corp. cases, set up using provisions in the landmark 2002 Sarbanes-Oxley securities law, also are just getting started.

The problems with investor restitution are simple -- there is never enough money to go around -- and complicated -- it can be difficult to determine who should get what little money there is. The efforts often end in frustration.

"There's a real potential for people to be disappointed about what the restitution program can provide and come away feeling even more cynical about the process," said Barbara Roper, director of investor protection for the Consumer Federation of America.

Investor scams are nothing new, of course, and authorities for years have attempted to help victims recover at least some of the money they lost in smaller, more common fraud schemes. Take Merilyn Walter, a widowed retiree who invested more than half of her savings in what turned out to be a massive pay phone scam in 2000.

The Securities and Exchange Commission, 25 states and the District of Columbia sued ETS Payphones Inc., a Georgia telephone leasing firm, and its chief executive. In all, government officials said, the Ponzi scheme bilked 10,000 investors out of $300 million.