What Are the Most Common Types of Broker Fraud or Negligence?

Stockbroker fraud can take many forms. Whether it is churning, misrepresentation or unauthorized trading, the common denominator among all forms of broker fraud is this: The broker put their own interests ahead of the customer’s interest.

Six leading types of broker fraud are:

  • Unsuitable investments. A 90-year-old person should not be purchasing stock futures. A retiree on a fixed income should not heavily invest in equities. A young person just entering the workforce should not have a portfolio heavily invested in low-return, low-risk investment products. All of the foregoing scenarios describe investments that are not suitable given the investor’s age and risk tolerance.
  • Misrepresentations or omissions. A stockbroker who misrepresents the facts surrounding a proposed investment, or omits facts the investor is entitled to know, has deprived the customer of a fair opportunity to consider the investment. A stockbroker must disclose all of the material facts regarding an investment — including the commission the stockbroker will receive upon sale.
  • Unauthorized trading. A stockbroker may not trade on the customer’s account without the customer’s express permission.
  • Churning. Churning occurs when a stockbroker buys and sells the same investment over and over again, or frequently switches between investment products for no good reason.
  • Unlicensed or unregistered. All stockbrokers and their firms must be licensed to sell securities. Also, every securities investment product must be registered before it can be offered for sale.
  • Negligence. Not all instances of stockbroker misconduct are intentional. In some cases, investors can suffer losses due to broker carelessness. Losses due to broker failures to disclose material information, failures to learn about the customer’s needs and risk tolerance, are all compensable even if caused unintentionally by broker negligence.

Investors who suffer losses as a result of any of these fraudulent or negligent activities are entitled to financial compensation. Complaints can be directed to the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission and the Florida Office of Financial Regulation (Florida residents only). Defrauded investors should additionally retain the services of an experienced broker fraud attorney to help recoup their losses.

Attorney Matthew Wolper

Attorney Matthew WolperMatt Wolper is a trial lawyer who focuses exclusively on securities litigation and arbitration. Mr. Wolper has handled hundreds of securities matters nationwide before the Financial Industry Regulatory Authority (FINRA), American Arbitration Association (“AAA”), JAMS, and in state and federal court. Mr. Wolper has handled and tried cases involving complex financial products and strategies ranging from traditional stocks and bonds to options, margin and other securities-based lending products, closed/open-end mutual funds, structured products, hedge funds, and penny stocks. [Attorney Bio]