Stockbroker fraud is more common than you think. It’s one of the main reasons small investors lose money in financial markets. While most brokers are honest and hardworking, you should always pay close attention to what your broker is doing and to how that impacts your investments. Unfortunately, many victims of stockbroker fraud aren’t aware of it until after they’ve lost a lot of money.
Our lawyers have recovered millions of dollars for victims of broker fraud. We have lawyers dedicated to recovering investment losses for clients.
The duty of your broker is to protect your investments. When a broker puts personal gain ahead of your financial well-being, it’s called fraud. There are seven red flags that could mean a broker is taking advantage of your trust.
Common Symptoms Of Stockbroker Fraud
- Lack Of Diversity: Have you lost money because your broker put most of your money into one market sector? This is called over-concentration, and it’s a risky way to invest. Risk reduction is minimized by diversifying a portfolio over many market sectors and a variety of financial products like stocks, bonds and real estate. A broker who puts all your money into just one or two stocks, or who buys stocks in only one sector, could be committing fraud.
- Inappropriate or Unsuitable Investments: Brokers are required to make investments that reflect the incomes, risk factors, and financial goals of their clients. If your broker has pressured you to make risky purchases, failed to advise you about risk, withheld or given misleading information, pushed you to make major changes in your portfolio, suggested stocks that are rapidly losing value, or asked you to invest more than you can afford, it could all mean fraud.
- Illegal Activities: Has your broker encouraged you to buy stock based on “insider information,” or claimed that an investment is a “sure thing?” Has your broker tried to sell you “hot issues” like IPO stocks prior to the release date? Have you been sold nonexistent stocks? Has your broker encouraged you to give false information on an investment application? Have you been asked to transfer funds into a broker’s personal account, or has your broker withdrawn money from your account without prior consent?
- Operating With No License: All brokers, investment advisers, and brokerage firms must be registered to sell securities and licensed according to federal and state regulations.
- Not Following Orders: A broker is bound by law to execute all your orders right away. If a stockbroker delays following orders, refuses to follow orders, or doesn’t follow orders at all, it’s fraudulent.
- Unauthorized Trading: A broker cannot cannot trade stocks or purchase financial products without your prior consent. The only exceptions to this rule occur when you’ve: (1) given your broker discretionary authority over your account, or (2) provided expressed, detailed permission. If your brokerage statements show unfamiliar transactions, unauthorized trading may have occurred.
- Churning: This happens when a broker makes excessive trades on your account with the same stock or a certain group of stocks This can constitute fraud even if you’ve provided discretionary authority. An excess of trades, especially those that do nothing for your bottom line, might indicate that your broker is making trades on your account just to earn more commission. A broker might also switch excessively between mutual funds only to generate extra commission.
If you are concerned about whether a stockbroker has acted against your interests, you should contact a securities fraud attorney immediately to investigate the matter. Our attorneys will review your portfolio free of charge, and we can advise you about your options. If there’s evidence of stockbroker fraud, we can help you build a strong case that may recover your losses.