- March 5, 2020
- Investor Education
Stockbrokers are trusted to handle the accounts of investors in order to generate returns. However, many stockbrokers engage in scams in order to further their own financial interests, without regard for the impact these investments will ultimately have on the investor.
The securities industry is complex, which provides unscrupulous stockbrokers the perfect opportunity to take advantage of their clients in a number of different ways. Below, we go into greater detail about some of the most common types of stockbroker scams so you have a better idea of what to look out for in your securities portfolio.
Misrepresentation
One of the most common types of stockbroker scams is misrepresentation. Every time a transaction is made in your accounts, your broker generates commissions. For this reason, it is in their best interests to get you to make trades and other transactions.
Stockbrokers will frequently go so far as to mislead you or omit facts about the investment to get you to agree to the trade. Maybe the stockbroker has inflated the financial security of the company in question; or, perhaps they failed to disclose the risks of this particular investment when they made the recommendation.
The best way to protect yourself from misrepresentation is to do your own research before authorizing any transactions through your accounts.
Unauthorized Trading
Unauthorized trading is another common scam that often happens to investors who don’t pay close attention to the transactions in their accounts. Basically, if your stockbroker did not get your permission to make or purchase a trade, then they are guilty of unauthorized trading.
However, this is only true in cases where you are in a non-discretionary agreement. This means that the stockbroker must get your permission prior to making trades in your accounts. If your account is discretionary, stockbrokers have the right to trade within your account without prior authorization.
Unsuitability
Making unsuitable recommendations is one of the most frequently seen types of stockbroker misconduct. Suitable trades are those that align with the goals of your securities portfolio. Say, for example, that you told your stockbroker to invest in lower-risk trades. If they then turned around and purchased a series of junk bonds, this would not be considered a suitable trade.
Or if you are in your sixties and were recommended to invest in an annuity, this would also likely not be suitable, as annuities do not generate returns for decades, and penalize you for withdrawing money before the account has matured.
Contact a Stockbroker Misconduct Lawyer
If you have been a victim of misrepresentation, unauthorized trading, unsuitability, or another type of stockbroker scam, reach out to a qualified stockbroker misconduct lawyer at Wolper Law Firm. We may be able to assist you with recovering your losses through FINRA arbitration.
Call at 800.931.8452 or complete the online contact form below to schedule a free, no-obligation consultation.
Attorney Matthew Wolper
Matt 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]