Financial Markets Lure Compulsive Gamblers Fast Turnover, Speculative Nature Of Commodity And Option Trading Provides Perfect Setting For Problem Gambling

Judah Harris used to see himself as an unlucky investor but says he now realizes he was simply a compulsive gambler, one who placed bets with stockbrokers rather than at casino gaming tables or horse tracks.

Harris tells about lying to his friends, family and employers so he could spend the day in a broker’s office, watching the stock market. Often, he says, he would “double up” his investments late in the day, just as hooked horse players do on the last race.

Having run through more than $600,000 in bad bets on the big board and gone through bankruptcy, the 60-year-old attorney wants other stock market players to be forewarned.

“A gambling casino is more forthcoming than most stockbrokers,” Harris says. “At least the casinos say openly what you’re doing is gambling.”

Harris once lost $60,000 in one day in a frantic binge of option trading. He says brokers never urged him to slow down, beyond having him sign the required form stating that options are a risky investment.

He hit bottom two years ago. “I was called into my employer’s office and told I’d been seen in a brokerage house during work time. I had lost jobs in the past - and most of two inheritances - because of problems related to gambling.”

He saved his job by agreeing to join Gamblers Anonymous and get professional counseling.

That’s when he met Dr. Marvin Steinberg, a psychiatrist who heads the Connecticut Council on Compulsive Gambling. In the past year, Harris and Steinberg have traveled around the country, talking with counseling groups about problem gambling in the stock market.

Steinberg recently sent a questionnaire to Connecticut stockbrokers, asking whether they and their clients ever use the market to gamble irresponsibly. He got replies from 57 brokers.

Steinberg said his findings have led him to believe brokers tend to have more severe gambling problems than do their clients. “Many brokers who have been targeted as ‘bad’ or ‘rogue’ brokers are unrecognized problem gamblers,” he said.

Paul Ashe, president of the National Council on Compulsive Gambling, says his organization, which includes groups in 22 states, last year received more than 18,000 telephone calls from problem gamblers. Many had lost all their money in the stock market.

“One man who came to me later committed suicide because of stock market losses,” said Ashe, who serves as executive director of the Florida Council on Compulsive Gambling.

A former investment banker, Ashe says the fast turnover and speculative nature of commodity and option trading provides a perfect setting for problem gambling.

Chris Anderson, executive director of the Illinois Council on Problem & Compulsive Gambling, is himself a former stockbroker who gambled recklessly in the market.

“I lost my family and my home,” he says. “I know a lot of stockbrokers who are problem gamblers, especially those who are floor traders in the options market here in Chicago.”

Anderson said the investment industry cringes whenever gambling is linked with the stock market.

“There’s complete denial,” he said, “but all you have to do is pick up a newspaper and read about the recent tremendous losses bond funds have suffered in connection with the derivatives market. All they were doing, in this case, was betting on which way interest rates would go; if that isn’t gambling, what is it?”

The nation’s stockbrokers and brokerage houses are scrutinized by the National Association of Security Dealers, a self-regulatory organization that includes 5,300 firms and 490,000 brokers.

In 1993, the NASD levied $33 million in fines against its members, ordered restitution of almost $11 million to maligned investors, expelled 41 firms and barred 404 stockbrokers.

But Ashe and Steinberg say the industry, while it regulates illegal and unethical activity, doesn’t do enough to discourage self-destructive investors like Judah Harris.

In retrospect, Harris says, he has only himself to blame for his compulsive investing.

“I used to think people who played the horses were idiots. I considered myself to be an investor, and felt I was operating on a high plane, higher than my job, even. But I know now that it was selfdelusion.”