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— In the 1940s, there was a satirical radio quiz show in which panelists were stumped by questions such as, "Who is buried in Grant's tomb?" That show ennobled the words, "It pays to be ignorant." Sixty years later, the words are ringing true on Wall Street.

That is to say, if you want to win an arbitration against a brokerage firm that sold you unsuitable stocks or junk bonds that crashed, it pays to be ignorant. If an arbitration panel feels you're smart or well-educated, it is likely to rule that the brokerage house can get away with dumping garbage in your portfolio. You should have known better -- even if your field of expertise is metaphysics, not the stock market.

Consider Dagmar and Jeffrey Barnouw of Del Mar. She is a professor of German and comparative literature at the University of Southern California; he is a professor of English and comparative literature at the University of Texas. They were long-term customers of Paine Webber, now UBS Financial Services.

In early 2000, just as the long, frothy bull market was about to peak and plunge into one of history's worst bear markets, the Barnouws, on the advice of their broker, loaded up on volatile technology stocks, all touted by Paine Webber analysts. The Barnouws lost $660,000. One of their stocks plunged 99.76 percent -- about as ugly a wipeout as you can suffer.

While the Barnouws were on sabbaticals, traveling extensively in Europe and not in contact with their broker, their stocks tanked. Their broker asked them why they didn't use "stop-loss orders," that is, put in an order for a stock to be sold automatically if it fell to a certain price.

"We did not even know about stop-loss orders," says Jeffrey Barnouw. He says he has "some sophistication" about certain areas of the stock market, "but my ignorance is nonetheless pervasive."

The Barnouws went into arbitration late last year against the brokerage firm. The professors appeared to have an advantage. Several months earlier, ten major U.S. brokerage firms, including UBS Financial Services, had agreed to pay a collective $1.4 billion to settle regulators' charges that their stock-market analysts had issued overly glowing research reports on companies so that the firms could get cut in on investment-banking fees handed out by the companies.

Also, there had been several state actions against UBS Financial. The firm admitted in the arbitration that four analysts who had recommended stocks purchased by the Barnouws were actually paid by the investment-banking side of the business -- in theory, a breach of ethics. Those analysts worked on 10 of the 13 stocks in question in the arbitration.

But the Barnouws lost and were forced to pay fat fees. Among many things, the arbitration panel ruled that "The Barnouws were sophisticated investors. Both were professors," says Eileen L. McGeever, the Carlsbad attorney who represented them. "Regardless of what the analysts said or their brokers said," the Barnouws, despite their rudimentary knowledge of the stock market, supposedly "had the moxie to sell if they found it necessary."

In essence, the arbitration panel "said we were far too intelligent to trust brokers and advisers," says Jeffrey Barnouw. UBS Financial refused comment.

A client of San Diego attorney Eric Benink had 90 percent of his portfolio in one stock. "It skyrocketed, then plummeted, but the broker never told him it was a good idea to diversify," says Benink. The brokerage firm's defense was that the investor had been in the market a long time and had a master's degree, although it was not in business administration. "The mediator sided with the defendant, saying the investor was sophisticated," and the case was settled for a small amount.

By contrast, in June, San Diego attorney Erwin J. Shustak won a judgment for the estate of the late Joyce Douglas, who had been declared mentally incompetent because of advanced Alzheimer's disease. Her daughter, Laura Mitikas, who had "virtually no experience with investments or brokerage firms," says Shustak, entrusted her mother's account of $1.45 million to a broker at Morgan Stanley Dean Witter.

The broker sold the conservative stocks in the account and bought low-quality tech stocks, junk bonds, and the firm's own mutual funds, according to the complaint. In less than three years, almost half the value of the portfolio evaporated. Also, the broker urged the daughter to borrow against the account, argued Shustak. The firm countered that its broker warned Mitikas about excessive spending and that she actually initiated the loans against the account. In this case, the arbitration panel awarded Mitikas $750,000. Ignorance was an excuse. But Morgan Stanley plans to proceed against her for causing the losses.

A most interesting case will go to arbitration in January of next year. It revolves around the stock of a San Diego company, e.Digital, which has a history of boasting about revolutionary products on the horizon. But time after time, the stock runs up, the products don't materialize, and the stock plunges again -- sometimes after insiders have dumped shares. The company is a chronic money loser, has a $69 million cumulative deficit, and admits that its ability to continue operations is in substantial doubt.

Nonetheless, Louis Barinaga, a retired dentist in Vancouver, Washington, somehow managed to have 95 percent of his retirement portfolio in e.Digital stock, which is now selling for around 20 cents a share. Barinaga is "a classic pigeon," say his attorneys, and was vulnerable to the pitch of the broker pushing e.Digital. Barinaga is going into arbitration against the Portland, Oregon, brokerage that got him to buy the stock and insisted he not sell it after it soared.

As e.Digital stock cratered, the broker there repeatedly told Barinaga not to sell because his sales would accelerate the plunge, according to the complaint.

UBS Financial is also named in this complaint. It was borrowing Barinaga's e.Digital stock so that its customers could short it or bet it would go down. (Short sellers borrow stock, sell it, and hope to return the borrowed stock when the price is cheaper.) But Barinaga was not told UBS Financial clients were shorting the stock, according to the complaint.

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