What Is Stockbroker Fraud?
No one should have to suffer investment loss due to a broker’s misconduct. Unfortunately, though, numerous investors are victims of stockbroker fraud every day.
Stockbroker fraud occurs when a financial professional or advisor intentionally persuades an investor to make an investment decision based on falsified or exaggerated information. In these situations, the stockbroker or firm puts its own best interests ahead of its clients’.
If an advisor or broker acted negligently, causing financial losses as a result, you must know your rights. Our stockbroker fraud lawyers can help you understand your legal options.
Signs of Stockbroker Fraud
Stockbroker fraud is difficult to spot, but a lawyer can monitor your investment accounts and see the telltale signs of misconduct. If you have reason to believe that your stockbroker committed a form of fraud with your investments, you have the right to file a claim.
Commonly committed violations include:
- Unauthorized transactions
- Unsuitable recommendations
- Overconcentration
- Failure to diversify
- Churning
- Mismanagement of accounts
- Misrepresentations and omissions
Unauthorized Transactions
Imagine you check your investment account and notice some trades or sales you don’t remember approving. This could indicate unauthorized transactions, which means someone moved your money without consulting you first.
In the investment world, brokers must get your okay before making any trades. Keep a close eye on your account and speak up if you notice anything that doesn’t seem right.
Unsuitable Recommendations
Brokers must guide their clients toward appropriate – or suitable – investments, considering risk level, diversity, goals, financial picture, and more. Using this information, stockbrokers are responsible for recommending a profile that works for your current situation. Recommendations that don’t meet the criteria are unsuitable and can cause unnecessary financial loss.
Failure to Diversify & Overconcentration
A crucial factor in stock portfolio management is diversification. Diversifying your investments helps spread your risk threshold, meaning that well-performing investments in particular industries mitigate potential losses from another. However, if a stockbroker overconcentrates your portfolio in too few companies or markets, you risk significant losses from normal market fluctuations.
Churning
Stockbrokers make a living by trading with their clients’ funds. Although each account has parameters based on income, tax needs, and risk tolerance, some brokers take advantage by trading too much for the criteria. The more they trade, the more they earn.
While excessive trading – also called churning – can make money, quite often, it results in loss. In these situations, the stockbroker doesn’t owe you any compensation unless you file a claim. Our churning attorneys can help.
Mismanagement, Misrepresentation, & Omission
Three common types of misconduct include mismanagement, misrepresentation, and omission. Mismanagement occurs when a broker fails to exercise reasonable diligence in handling a client account, leading to loss.
Misrepresentation involves a broker providing false or misleading statements about investments and qualifications, thus providing inaccurate information and exaggerating returns. Omission refers to stockbrokers failing to disclose information to the client, like risk or conflicts of interest that could deter the decision to invest.
Reporting Stock Fraud
If you’ve noticed any of the above violations occur in your investment portfolio, you have options. There are several ways to report stock fraud in the United States, but it’s critical to take action immediately. The quicker you act, the better your chances of achieving justice for your losses.
You can report stockbroker fraud through the following avenues:
- US Securities and Exchange Commission (SEC)
- Applicable state or federal agencies
- Stockbroker fraud lawyers
Like any legal claim, you have a limited period – known as the statute of limitations – to recover. The time allotted can vary depending on the route you take.
If you pursue a claim through the court system, you have five years from the date of the fraudulent act. Those who choose to recover their losses through FINRA arbitration have six years from the date of the fraudulent action.
Whatever route you take, our experienced securities fraud attorneys at Oakes & Fosher, LLC, can help reclaim what’s yours.
