Unauthorized Trading
Sometimes, a customer may be surprised to discover specific trades made in his account that the stockbroker had not previously discussed. This constitutes unauthorized trading, which is a type of securities violation. Sometimes, a broker may call the customer after the fact and say he has just placed a particular trade in the account. The mere fact that the broker informed the customer of the trade afterward does not make that trading acceptable. However, if the customer indicates his acceptance of the trade, that may be considered ratifying the broker’s act.
Excessive trading/Churning
Suppose a broker is constantly buying and selling in the account. In that case, this may be evidence of a securities violation called churning, which means engaging in excessive trading to generate commissions for the broker. Such activity constitutes another form of broker-dealer fraud. Even if the broker constantly calls the customer before placing the trades, this activity is still improper, where the broker is abusing the account for his selfish purposes. If you ever find yourself in such a situation, a broker misconduct attorney can evaluate your case and inform you of available options.
Unsuitable Investments & Misrepresentations
Sometimes, a customer will complain that the broker said something was a very safe investment, but the customer later discovered it was risky. This is a common securities violation. Customers rely upon the recommendations of stockbrokers, and failure to adequately disclose the risk is a misrepresentation or material omission. Unfortunately, many investors do not discover the truth in such cases until after they have incurred substantial losses and then realize that the investment was not so safe in the first place. But this should be distinguished from an experienced, wealthy investor who wants to speculate with a portion of his portfolio, understands the risk, is willing to take the risk, and can afford the risk. This is not a securities violation. A broker misconduct attorney can advise you on whether a broker pushed an investment in which you, as an investor, could not have been aware of the risk.
“Selling Away”
Selling away is a form of broker-dealer fraud in which a broker or financial advisor solicits you to purchase securities not held or offered by the brokerage firm. As a general rule, such activities are a violation of securities regulations. Typically, when a broker is “selling away,” the investments are in the form of private placements or other non-public investments, and often, these are investments in which the broker has some pecuniary interest. Such an investment is generally a securities violation because the brokerage firm has not researched the risks of the investment or approved the investment for sale to its clients, and the broker is selling the investment without the knowledge of his employer. Nonetheless, a broker-dealer can be held liable for a financial advisor’s “selling away” for failing to supervise its employees and protect its clients adequately. A broker misconduct attorney can evaluate whether the broker-dealer could not manage its employees sufficiently.
Insider Information
Sometimes, a broker may say that he has information from specific sources inside the company which is not available to the public. When this type of securities violation occurs, a broker may indicate that the stock will go up based upon such information and urge the customer to invest on what he may describe as a “hot tip.” This may constitute trading on “insider information,” which is prohibited by law and is a form of broker-dealer fraud. The line between permissible tips, research department analysis, and insider information may not be apparent in all cases.
“Guaranteed sure winner”
Another common securities violation occurs when a stockbroker promises that the stock will go up and that the investment is a “guaranteed sure winner.” Most experienced investors realize that there are no guarantees in the stock market and that brokers may be prone to a certain degree of exaggeration or puffery in their salesmanship. However, although there is no black-and-white line, when a stockbroker’s overly aggressive sales tactics go too far, and the customer relies upon his representations, such statements may constitute a securities violation. A broker misconduct attorney can review the sales tactics used by the broker and determine if fraud likely occurred.
Ineptitude or Malpractice?
Occasionally, it may seem that a particular broker just does not know what he is doing, and it can call into question whether an investor is subject to broker-dealer fraud or incompetence. This may include executing trades, following instructions, or general portfolio performance. Brokers are held to specific securities industry standards and must pass various examinations to be licensed and avoid violations. Failure to maintain a certain level of competence in managing an account may constitute negligence or a form of broker malpractice. However, the mere poor performance of a portfolio is not a legal cause of action on its own. In such cases, it’s wise to consult a broker misconduct attorney before taking action.
Sold too soon
Sometimes, one will hear the complaint that a broker recommended that the customer sell a particular investment after it had just gone up a little and that after the stock was sold, it doubled in price. The customer may question whether a securities violation occurred. “Just look at how much more I would have made if I had held onto that stock” is a common lament. Although the broker’s advice may look bad in retrospect, the fact that the customer did not make as much profit on the trade as he might have absent the broker’s advice may just be sour grapes and not broker-deal fraud. It is undoubtedly not a securities violation if the customer has sufficient expertise to evaluate the investment and decide when to sell, which the broker did not force upon him in any event. One can imagine the reaction of such a customer if the broker had not advised him to sell at that point, and then the stock would have gone down. A claim may not be based purely on hindsight. It speaks to the importance of consulting with a broker misconduct attorney before taking action.
Margin Problems
Many securities violation claims arise from problems when a portfolio is on margin, i.e., trading with money borrowed from the brokerage firm. A customer may complain that the broker put the account on margin without prior authorization. More frequently, however, the problem is not that the account was put on margin without prior permission but that the broker put the account on margin without explaining the risks and difficulties associated with margin trading, thus constituting a securities violation. Since a margin account involves trading with borrowed funds, unique risks are associated with a margin that must be explained to a customer immediately if the broker hopes to avoid committing broker-dealer fraud. When a customer receives “margin calls” that he does not understand or is shocked to discover that positions in his account are being liquidated due to margin maintenance requirements, it may reflect that he never understood the margin correctly from the outset. Therefore, he did not knowingly consent to use the margin in his account.
Limited Partnerships
A common securities violation claim with limited partnership investments relates to the value of the investment. Frequently, such investments are not listed on any public exchange and are intended to be long-term investments. Some brokers may continue to reassure customers yearly about the value of such limited partnership investments. Still, after many years, the customer suddenly discovers that the investment is worthless or has declined dramatically. This situation raises complex problems of statutes of limitations and eligibility relating to the timeliness with which securities violation claims must be filed. In general, one should act quickly upon discovering a problem before the clock runs out and legal action may be barred.
Complaints to Supervisor
After repeated, fruitless complaints to the broker about specific improper activity, customers sometimes finally complain to the broker’s supervisor or the branch office manager. Occasionally, this will resolve the problem, but sometimes those securities violation complaints will also be ignored, to the frustration of the unhappy customer. But even more maddening is the “comfort letter” that customers may receive from a brokerage firm even after making a complaint. A letter sent by a brokerage firm to a customer to confirm that the customer is satisfied with the trading in the account should not be ignored. Such a letter may later be used as evidence against the customer to show that he was confident with how the account was being handled and that he did not notify the firm of any problems.
Investment Losses?
Contact our National Securities Fraud Attorneys
Frequently Asked Questions
If you suspect your broker has engaged in any type of wrongdoing, be sure to document any irregularities or suspicious activities. Additionally, gather any communications between you and your broker, including emails and letters. Once you have all of the relevant documentation of misconduct, contact a securities fraud attorney and set up a consultation.
Yes, there is a time limit for filing broker misconduct claims. As soon as you suspect misconduct on the part of your broker, begin documenting any irregularities and contact a securities attorney as quickly as possible.
You can put two preventative measures in place to reduce the risk of being subjected to broker fraud. For one, educating yourself on different types of investments is essential. This will help you understand the risks associated with other investment products. It is also critical to routinely check your account statements and communications with your broker for any unusual activity.
Cases
- Cetera Advisors
- Edward Jones & Co. LP
- FSC Securities
- Corporation
- Geneos Wealth Management
- H. Beck, Inc.
- Janney Montgomery Scott
- LPL Financial
- Madison Avenue Securities
- Merrill Lynch, Pierce, Fenner & Smith
- Mesirow Financial Services, Inc.
- Morgan Stanley & Co.
- Northern Trust Securities
- Oppenheimer
- Raymond James & Associates, Inc.
- UBS
- Wells Fargo
- Western International Securities
- First Allied
- National Securities Corp.
- Independent Financial Group
- JP Turner
- Arete Wealth
- Centaurus Financial
- Ausdal Financial
- Woodbury Financial
- Royal Alliance
- Girard Securities
- Titan Securities
- Lincoln Financial
- Investacorp
