One of the first steps you must take in evaluating your case is to prepare the damage calculations. The style of statement you use will depend upon the type of claim you will be filing. This section contains four samples of profit and loss statements which are commonly used in calculating damages in simplified arbitration cases. Because simplified arbitrations are limited to claims of $25,000.00 and under, these statements are usually very short and basic versions of damage calculations.

Sample 1: This schedule sets forth simple trading losses over a short period of time. Note that the first two transactions which resulted in gains are listed. If they were omitted, the respondents would justifiably argue that you are "cherry picking" by complaining only about those transactions which resulted in losses. Where suitability is an issue and all of the transactions are similar in nature, it may be difficult to argue that only the losing trades were unsuitable, but there is law that supports this theory.

Sample 2: Sample two demonstrates the purchase of two funds which paid cash dividends and distributed capital gains. This case assumes that the broker represented specific returns to the client and failed to advise her that the principal value of the funds could decline. The most accurate method of determining damages in this case is to calculate the "out-of-pocket" losses by figuring the principal losses then adding back all distributions. To the out-of-pocket losses, add the return that was represented by the broker over the holding period to establish the total loss.

Sample 3: This schedule is sorted by security for purposes of demonstrating churning in the account. The holding periods are easily identified and the gain or loss is shown by security. The turnover ratio is calculated at the bottom of the schedule by dividing the purchases by the average net equity. In order to arrive at the annualized turnover rate, take the total amount of purchases, ($667,289) and divide by the number of months of activity (9), then multiply by 12 to show the purchases on an annualized basis, ($889,718), then divide that number by the average equity in the account ($82,357).

Sample 4: This schedule is also sorted by security and demonstrates the effect of failure to follow a 7% stop loss order. The % Change in Price column shows the degree to which the losses exceeded the 7%. Actual gains and losses are recorded as are losses which would have been incurred had the 7% limit been followed. The last column demonstrates the results that would have been achieved had the client's stop loss instructions been followed.

When preparing damage calculations, it is imperative that you have complete records on the account. Make sure you have monthly statements, not just confirmations. If there are partnerships or funds involved, determine whether distributions were made that were not reflected on the monthly account statements. Attach the relevant monthly statements and/or confirmation statements as exhibits to the Statement of Claim. You may be confronted with "open positions" when preparing damage calculations, particularly where liquidity is a problem. If the security is quoted, you can use the most recent valuation carried on the monthly account statement or obtain the information from a daily financial publication. The danger, of course, is that the price may continue to fluctuate and, as long as the position is open, the damages will change with the market price.

More common in open position valuations problems is the difficulty encountered in trying to establish a market price for partnership units. The valuation on the monthly account statements may be at cost, with a footnote disclaimer. There are secondary markets for many partnership units and the best method of valuing these open positions is to request a quote from one of the agencies dealing in these secondary markets. Some of the companies we have found most helpful are:

Liquidity Fund (800) 227-4688, Chicago Partnership Board (800) 272-6273, Cuyler & Associates (800) 274-9991.

These companies may be able to provide a per unit valuation for limited partnership units, based upon the last recorded sale. When preparing damage calculations where open position valuations are an issue, use the quoted open position valuation as of the date received and indicate the source of the quote.

An open position valuation will take the place of a "sold" entry in the schedule and will demonstrate unrealized profits or losses. Again, because this is a simplified arbitration, it is important that you show the source of the valuation on an open position valuation and, if possible, attach a printed copy of the quotation provided by the source.

Return on investment can be included in a damage schedule, but should always be based upon some reasonable measure of return. For example, in a case involving a suitability claim, you may demonstrate the results which would have achieved had the funds been properly invested. Don't pick a number out of the air. If you were the victim of a boiler room operation selling penny stocks when, in fact, you should have had your funds invested in Certificates of Deposit, use a published rate schedule for CD's from a recognized bank. Rates of return may also be based upon Treasury Bill rates, the Consumer Price Index, The Dow Jones Averages Index and the Standard and Poor's 500 Index. All of these figures are published and can be substantiated. In simplified cases, it is more likely that you will be using CD, T-Bill or CPI rates, rather than the indexes.

Be sure to set forth your damage calculations in a clear, concise manner which will be easy for the arbitrator to review. Provide all back-up documentation, including confirmation slips, monthly account statements, evidence of distributions and substantiation for any rate of return you are requesting.