The Supreme Court ruled yesterday that investors who sign contracts with stockbrokers agreeing to submit disputes to arbitration may not sue the brokers, even when the dispute involves possible violations of federal laws.

In what was seen as a major victory for the securities industry, the court ruled 5 to 4 that arbitration clauses written into most contracts with brokers are legal and binding. The court also ruled unanimously in the same case that civil claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) can be arbitrated.

Justice Sandra Day O'Connor, writing for the majority, ruled that Congress, in setting up the Securities and Exchange Commission in 1934, did not intend to preclude the use of arbitration to settle differences or to prevent the SEC from enforcing arbitration agreements. O'Connor argued that the SEC is able to control the brokerage industry by acting as a watchdog over such self-regulating organizations as the stock exchanges and securities associations.

O'Connor also said that the arbitration agreements are valid under the Federal Arbitration Act, which stays federal court proceedings if a predispute arbitration agreement is in effect.

O'Connor was joined in the opinion by Chief Justice William Rehnquist and Justices Byron White, Lewis Powell and Antonin Scalia. The decision overturned a ruling by the 2nd U.S. Circuit Court of Appeals last year.

Securities Industry Association President Edward I. O'Brien said the New York-based trade group was "pleased by the decision."

"The action removes the last major impediment to arbitration and will permit customers and brokers to resolve disputes more quickly and inexpensively than earlier," he said. "Previously, many cases involving federal securities laws had to be heard in federal courts, subjecting customers to lengthy delays in resolving disputes, which greatly increased the costs of the cases."

Some critics have argued, however, that the arbitration process -- in which a panel generally consisting of one person from within the industry and two from outside it hear and decide disputes -- can be less favorable to the brokerage customer than a jury proceeding.

That point was made by Justice Harry Blackmun in a dissent joined by Justices William Brennan and Thurgood Marshall; Justice John Paul Stevens filed a separate dissent.

"There remains the danger that, at worst, compelling an investor to arbitrate securities claims puts him in a forum controlled by the securities industry," Blackmun wrote. "This result directly contradicts the goal of both securities acts to free the investor from the control of the market professional. . . .

"The court . . . approved the abandonment of the judiciary's role in the resolution of claims under the Exchange Act and leaves such claims to the arbitral forum of the securities industry at a time when the industry's abuses toward investors are more apparent than ever," Blackmun wrote.

Blackmun disagreed with O'Connor's argument that a 1953 Supreme Court case on securities-dispute arbitration, Wilko v. Swan, had been superceded by improvement in self-regulation by the securities industry and increased SEC enforcement activities.

"I have serious reservations about the {Securities and Exchange} Commission's contention that its oversight of the {self-regulating organizations'} arbitration procedures will ensure that the process is adequate to protect an investor's rights under the securities acts," Blackmun wrote.

The case decided by the court yesterday was filed in New York in 1984 by Eugene and Julia McMahon against Shearson/American Express Inc. -- now Shearson Lehman Bros. Inc. -- and one of its brokers. The McMahons filed suit against Shearson charging that accounts opened by them were "churned" by the broker, costing them $200,000 in commissions. They charged the brokerage with fraud, breach of fiduciary duty and violations of RICO and the Securities Exchange Act.

A federal district judge ruled that the dispute should be heard under the arbitration process, which the McMahons had agreed to when they opened their account.

In other business-related cases yesterday, the Supreme Court: Set aside an appeals court ruling that limited the federal government's power to relieve merged railroads from some legal obligations, including union contracts.

Refused to apply the so-called "fairness doctrine" to "teletext" technology, in which printed information is sent over television lines. The justices, without comment, let stand a Federal Communications Commission policy exempting teletext services from rules that requires broadcasters to present differing views on public issues.

Ruled that disability benefits may be denied to workers who are able to perform basic work activities even if they are not capable of doing their former jobs.