Stock Broker Misconduct: When Losses are the Result of Fraud

by InvestorLawyers on March 5, 2012

in Churning,Securities Fraud,Suitability,Unauthorized Trading

Sometimes losing money in the stock market and yelling “Fraud!” is a little like smelling smoke and yelling “Fire!” Just as smelling smoke might only mean dinner’s burning, losing money doesn’t always mean stock broker fraud has occurred. It is important for investors to be able to tell the difference between losses resulting from fraud and plain old bad luck. To that end, here are some common types of broker misconduct and tips on how to tell if you’ve been a victim:

Stock Broker Misconduct: When Losses are the Result of Fraud

  1. Unauthorized Trading: Unauthorized trading occurs when a broker makes trades without permission. This is surprisingly common and brokers will often defend their actions by saying that the investor either agreed to the trade or ratified it by raising no objection when they received a confirmation.
  2. Unsuitable Investments: Surprisingly, it is common for brokers to be unable to accurately measure risk. As a result, investors may have a portfolio that is far more risky than is appropriate. Brokers must, by law, take into account the risk tolerance and investment objectives of each client and make suitable recommendations based on those criteria. Unsuitable investments include investments that carry a risk that is not in keeping with the investor’s risk tolerance, as well as inadequate diversification and improper asset allocation. Churning, which generates excessive commissions through excessive trading, is also a form of unsuitable investments. Investors who suspect the trading on their account is excessive will most likely have to consult an investment attorney for an analysis of their portfolio.
  3. Misrepresentations and Omissions: If a broker fails to disclose the inherent risk of an investment or trading strategy, he or she has made misrepresentations and/or omissions. If it can be proven that the investors would have made different investment choices if the misrepresentations and/or omissions hadn’t occurred, they become material and the investor may have a valid securities arbitration claim.
  4. Other Claims: Other forms of broker misconduct that could mean a valid claim for investors include front running, forgery, selling away, order failure and failure to supervise.

If you believe you have been a victim of any of these types of stock broker fraud, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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