Wronged investors hoping for their big day in court might want to think small -- as in small claims court.

Matt Davies, a disgruntled


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shareholder, recently scored a quick victory in this unconventional venue. Fuming over a $7,500 loss, Davies decided to bypass the routine class-action lawsuits and fight for a bigger settlement on his own.

He spent three hours highlighting a dozen pages worth of regulatory filings, showing Tenet's heavy insider selling and the company's tendency to downplay its reliance on controversial "outlier" payments from Medicare. He collected one of Arne Alsin's columns from


to serve as expert testimony. He scribbled out a $38 check for filing fees. And he went down to the local California courthouse, located in a jurisdiction where Tenet does business, and declared war on the multibillion-dollar corporation.

"The judge had no idea what outlier payments were," Davies admits. "I thought I was going to get laughed right out of the courthouse."

But Tenet's only argument -- that the case belonged in federal court -- fell short of impressing the judge, Davies says. A week later, the judge ordered Tenet to pay Davies $5,000 and even tacked on another $38 to cover his filing fees.

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At least one securities attorney, who's worked before as a federal prosecutor, calls Davies' strategy an "ingenious" one for small investors attempting to recover modest sums of money.

"Most corporations would categorize this as a nuisance case and pay the claimant the amount of money being sought in order to get rid of the case," says Christopher J. Bebel, a partner at the Houston law firm of Shepherd Smith & Bebel. "To take a different approach could not be justified under a cost-benefits analysis."

Limit Orders

Still, most securities experts doubt they'll see investors lining up to duke it out with the likes of




El Paso


in front of Judge Judy. For one thing, they say, investors can only recover so much, since small-claims courts generally cap judgments at $5,000. For another, they add, many investors would have no clue how to prepare a complaint on their own behalf.

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Up to now, the strategy has remained widely untested -- except, most notably, by a convicted felon who met with dizzying success. Between 1995 and 1998, Randall Hutchens filed more than 60 lawsuits against public companies, half of them from his jail cell in a San Diego federal prison. Hutchens, who was serving time for tax fraud, accused the companies of violating securities laws and demanded settlements of up to $5,000 to compensate him for his purported stock market losses.

Rather than haul their top executives to a remote California courtroom, at least 17 of those companies agreed to pay Hutchens just to make him go away.

"The defendants ... can't justify the expenditures and time of traveling to another city," Bebel says. "It represents a true dilemma for them."

In the end, Hutchens got nailed by authorities because he never really owned stock in any of the companies he sued. But legitimate investors, willing to do their own paperwork and settle for limited damages, are perfectly entitled to have their day in small-claims court.

Those seeking larger recoveries -- and an expert to prepare their case -- often fare best by skipping litigation against a particular company and instead targeting the brokerage firm that recommended buying the securities. Some wealthy investors and big institutions have found success battling it out with big companies through individual lawsuits. But typical investors generally must resort to class-action complaints that, even if successful, bring about a nickel for every dollar they have lost.

The Ties That Bind

In contrast, investors who target brokerage firms through binding arbitration often wind up with about half their money back -- and, in particularly strong cases, land awards that exceed their total losses. Earlier this year, a retired Rubbermaid employee from rural Ohio snagged a $310,000 award from Merrill Lynch that more than covered his $172,000 in stock market losses and $75,000 in legal fees.

Dozens of Rubbermaid retirees saw their life savings evaporate after a Merrill Lynch broker invested their money in the firm's Internet Strategy fund -- now remembered as the "Internet Tragedy Fund" -- at the top of the


bubble. Jacob Zamansky, a high-profile New York attorney representing those employees, walked away from the recent $310,000 victory with rising confidence that arbitration panels -- often viewed as broker-friendly -- have tilted investors' way.

"I think the arbitration panels are ... turning against the major Wall Street firms," Zamansky says. "They're beginning to see that it's not the customers who wanted to buy these stocks. It was the brokers who were pushing them."

While extremely successful -- landing a settlement or victory around a year after filing most cases -- Zamansky is also very choosy. He turns down nine out of 10 cases, because the best ones are plentiful enough to keep him busy.

Keeping It Simple

But some arbitration attorneys are starting to throw their doors open to investors they would normally turn away. Capitalizing on a "simplified arbitration" procedure -- extended to investors seeking recoveries of $25,000 or less -- securities attorneys are starting to package together dozens of highly similar cases that would be too small to pursue otherwise. They are relying on unprecedented "smoking guns," like some of the incriminating evidence already uncovered by New York Attorney General Eliot Spitzer, to prove basic fraud cases against brokerage firms on behalf of multiple clients who were similarly harmed.

"If you can gather 100 of these cases -- even if they're small -- it suddenly makes sense to spend a couple of weeks gathering information at the courthouse and flying out to Washington for congressional records," says Boyd Page, a senior partner at the Atlanta law firm of Page Gard Smiley & Bishop. "And given the kind of evidence that's out there ... investors have a very good chance of succeeding in simplified arbitration."

Simplified arbitration is designed to be cheaper and quicker than traditional arbitration. There is no expensive hearing or discovery process. Everything is instead handled entirely in writing, and a single arbitrator -- rather than a panel of three -- can render a decision in a matter of months.

Boyd, a co-founder of the Public Investors Arbitration Bar Association, is aggressively gathering simplified arbitration cases for multiple-party filings. And even Hooper & Weiss -- which made its name as a class-action firm -- is turning to mass arbitration in pursuit of higher payouts for individual clients.

But Thomas Ajamie, noted for scoring the largest-ever award from the

New York Stock Exchange

arbitration panel, recommends that investors take a deep breath before diving into big battles with their brokerage firms. He says that sometimes investors can actually settle their disputes with a simple telephone call to their broker's branch manager or compliance department.

"I have seen that work," said Ajamie of Houston's Schirmeister Ajamie law firm. "But I have also seen it not work.

"Firms can try to lowball someone. And I'll say, 'Wait a second. They're offering you $2,500. You lost $300,000, and there was a lot of broker negligence here.'"