A predicted wave of legal disputes has arrived, from angry investors who bought into the market on borrowed money, and found themselves yanked back out, often at a loss, by dreaded margin calls.

In what are already record numbers, investors are striking back against their broker-dealers by filing arbitration claims against them. By the beginning of October, investors had filed more complaints over margin calls with the

National Association of Securities Dealers

than in any other full year in the past decade. And by the time 2001 rolls around, the association expects the number to reach at least 200, double the challenges filed in any one year in the 1990s.

Linda Fienberg, the NASD's executive vice president of dispute resolution, attributed the sharp increase in margin claims to the fact that more people are investing in the stock market, many of them are naive about investing and they're using margin -- money borrowed from brokerages -- at record levels.

Although it peaked at $299 billion in March and has subsided since, the level of margin debt issued to investors in August was still $265 billion, more than twice what it was in August 1997.

Steep Increase in Margin-related Securities Claims

Source: The National Association of Securities Dealers

Part of the current swell in margin disputes, securities lawyers say and Fienberg agrees, stems from that fact that neophyte investors don't understand that margin lending doesn't work like a car loan or a credit-card account.

It's far from it, in fact. Under the agreements investors sign, brokerages can place a call on margin loans at will with fluctuations in the market -- requiring investors to provide more cash as collateral -- and sell an investor's stock without warning or approval to satisfy the call.

"There are many more people buying on margin than you had before, perhaps less-sophisticated people," Fienberg says.

Mark Maddox, an Indianapolis securities lawyer whose firm represents investor clients in margin arbitration claims, agreed, but laid some of the blame at the feet of brokerages. Brokerages have a duty to not allow investors to overextend themselves with margin in the market, he says.

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"If unsophisticated investors are getting too heavily margined -- the brokerage firms have a responsibility to step in," says Maddox, who's president of the

Public Investors Arbitration Bar Association

, an investor trade and lobbying organization.

After the market's precipitous drop this past spring, securities lawyers correctly predicted the flood of margin-related

arbitration claims. And Maddox says he expects another wave of complaints related to this September's selloff in the markets to begin flowing into the NASD early next year.

The NASD has developed an

information sheet on margin accounts for brokerages to voluntarily provide to customers. The association in July also proposed a rule that would require all brokerages to give margin customers a statement explaining risks of margin-backed trading and then remind them of the terms of the lending arrangement once a year.

"The goal is to make sure that investors are fully aware and fully informed of the risks," Fienberg says.

The proposal is awaiting approval by the

Securities Exchange Commission

.