Broker misconduct is a phrase used to describe any manner in which a client has been betrayed by his or her broker. In order to protect clients, the Securities and Exchange Commission has created strict guidelines in regards to broker’s treatment of a client. Essentially, brokers are responsible for ensuring that client’s investments are properly evaluated, are suitable for the client and necessary information is disclosed.
The most common forms of broker misconduct reported include:
- Failure to Protect Profits – When an account sees significant profits, the broker must adjust the strategy to help protect the earnings.
- Churning / Excessive Trading – Brokers’ fees are often billed on a per-transaction basis. Churning indicates that a broker is conducted transactions merely to boost fees.
- Failure to Follow Client’s Instructions- As a representative of a client’s portfolio, brokers have to follow requests and instructions from their clients. They cannot make decisions countering clients’ requests without approval.
- Unauthorized Trading – Brokers must have the clients’ permission, either verbal or written, to perform a transaction.
- Margin Abuse – Due to the nature of margin accounts, clients take on high levels of risk, with nearly no risk to the brokers. It is important to ensure your broker is not conducting margin fraud by abusing your account to generate higher commissions or by subjecting your account to unnecessary and inappropriate risk.
- Negligence – This is an umbrella term that covers any apparent lack of diligence on handling an account.
If you, or somebody you know has lost money in an investment due to broker misconduct, please contact the securities attorneys at Ludin Law to learn how we can help you recover you investment.