Wall Street’s titans are facing an onslaught of lawsuits and other claims against them from disgruntled investors

The Financial Times reports that the number of cases filed to the NASD’s arbitration group are constantly making new highs.

In July, the filings rose from record levels in June by another 17% to 3,949. “I think we’ll hit 7,000 claims this year for the first time,” said Linda Fienberg, president of NASD dispute resolution unit, which has recently added more staff to keep up with the caseload. “Margin issues and online trading claims are [running] at substantial increases from prior years.”

Large tech losses seem to be the most popular complaints. “What’s happened is brokers forgot the rules,” said Darren Blum, a Florida attorney with more than a hundred claims, worth close to US$50 million, pending arbitration. “They over-concentrated investors’ portfolios in the technology sector. Many dot-coms were completely unsuitable in the amounts the brokers were recommending.”

Merrill Lynch has already settled one claim against it and its technology analyst Henry Blodget for US$400,000. Now Morgan Stanley, and its top Internet analyst Mary Meeker, have been hit with claims, too. Two class-action lawsuits on behalf of shareholders in certain stocks were filed against Morgan Stanley and Meeker.

It is the arbitration disputes, however, that could pose the biggest threat to brokerage firms, says FT. Although the amounts involved in recent settlements have often been small, at their core such claims could further undermine confidence in the quality of advice and interactions between brokers and retail clients, it argues. “Arbitration cases are going up and that’s scaring people,” said one Wall Street strategist. “Investors are going through shock and looking for a culprit.”

It notes that many claims are based on a broker’s “suitability” duty. In Canada, suitability requirements are in the midst of being relaxed. Clients can agree to waive suitability in their discount trading, and possibly soon in their full-service accounts. This week, CIBC introduced cheaper commissions for clients that waive suitability in their discount trading accounts.

There are also “failure to supervise” claims, “margin call” claims and negligence claims. Most of the cases target the big firms, such as Merrill Lynch, Morgan Stanley and Salomon Smith Barney. Those firms declined to comment.