Stock Broker Fraud: FAQ

You put a lot of trust in your stockbroker or financial adviser. Brokers can have access to your stocks, bonds, and investments. You trust your broker to make sound decisions and act in your best interests. Unfortunately, a stockbroker can violate your trust and cause you to suffer severe financial loss.

This article answers frequently asked questions (FAQs) about stockbroker fraud. If you have other questions about securities laws and investment losses, speak to a lawyer with experience fighting stockbroker fraud.

What Is Stockbroker Fraud?

Stockbroker fraud is theft or securities fraud committed by a stockbroker, financial advisor, or financial services professional. Securities fraud generally involves making misrepresentations in buying, selling, or trading stocks. Stockbroker fraud can also involve embezzlement or theft of customer money or property. If you are a victim of stockbroker fraud, you may be able to file a lawsuit to recover your losses.

What Are Examples of Stockbroker Fraud?

There are many opportunities for a dishonest stockbroker to commit fraud. If a stockbroker takes your property or makes misrepresentations for their own benefit, they may be guilty of fraud. Examples of securities fraud include:

• Embezzlement
• Ponzi scheme
• Insider trading
• Altering financial records
• Unauthorized trading
• Misappropriation of funds
• Recommending unsuitable investments

What Is a Breach of Fiduciary Duty?

Your stockbroker has a fiduciary duty to place your financial interests over their own. It means that the stockbroker should make the best investment decisions for your particular needs.

A breach of fiduciary duty is when the stockbroker puts the investment firm’s interests before your own. An example of this is churning. Churning involves making excessive trades for the purpose of gaining commissions.

Some stock brokers collect fees on every trade they make on your account. Churning can cost investors additional fees so the broker can make more money in sales commissions. Churning is illegal and violates the broker’s fiduciary duty to investors.

How Are a Stockbroker’s Regulated?

The Securities and Exchange Commission (SEC) regulates most federal securities laws. Stockbrokers are also regulated by the Financial Industry Regulatory Authority (FINRA). If you have a complaint or allegation of investment fraud, you can report your concerns to the SEC and FINRA.

These agencies review each complaint. If the agency finds possible fraud or scams, it can further investigate the stock fraud allegations. The SEC and FINRA protect the integrity of the markets and make sure investors feel confident in investing.

How Can You Tell if You Are a Victim of Stock Fraud?

The stock market can be volatile. Just because a recommended stock loses value does not mean the broker committed fraud. However, if the loss in your investment account was caused by fraudulent investment advice—it may be fraud.

It can be challenging to know if you lost money because of the market or fraudulent activity. Stockbrokers can be creative in hiding fraud and misappropriated funds. If you want to know if your broker committed fraud, talk to a stockbroker fraud attorney for legal advice.

What Is Securities Arbitration?

Almost all brokerage firms have arbitration agreements as part of their customer agreements. These arbitration clauses require the investor to go through mandatory arbitration to resolve disputes. The U.S. Supreme Court has ruled that these arbitration clauses are enforceable in brokerage agreements.

Arbitration claims are a private alternative dispute resolution process. Generally, three arbitrators are appointed to decide a case’s merits. One of the arbitrators is associated with a National Association of Securities Dealers (NASD) member. The purpose of having an industry representative on the panel is to ensure expertise. These arbitrators have the experience necessary to understand financial transactions and practices.

The other two panel members are typically businesspersons. This could include lawyers, accountants, investors, or retired judges. These members have an interest in securities or dispute resolution. In arbitration, legal counsel can represent you. You can present evidence through testimony and documents. Arbitration is similar to a court proceeding but can be much faster and less expensive.

How Can an Attorney Help After Stock Broker Fraud?

This article provides an overview of stockbroker fraud. For more specific answers to your questions, talk to a stockbroker fraud attorney.

A securities fraud attorney understands local securities law and regulations. They can explain your legal options and help you file a lawsuit. An attorney can also represent you during arbitration. Contact a stockbroker fraud lawyer to understand how you can recover compensation in a stockbroker fraud lawsuit.