5 Most Common Types of Stockbroker Misconduct

Recognizing Stockbroker Misconduct and Wrongdoing

If you sustain investment losses because of a stockbroker’s recommendations you may wonder whether you are entitled to compensation. When a broker engages in misconduct by violating a securities law or regulation, you may be able to recover your losses through mediation, arbitration, or litigation.

At Meyer Wilson, we represent investors who have suffered financial losses related to stockbroker misconduct. Our lawyers have helped thousands of investors nationwide recover over $350,000,000. If you believe your stockbroker or other financial professional engaged in negligence or wrongdoing, contact our office at (614) 532-4576 to schedule a free, no-obligation consultation. 

Here are 5 common forms of stockbroker misconduct that you need to know about:

Failure to Make Recommendations in an Investor’s Best Interests

The Financial Industry Regulatory Authority (FINRA) regulates broker-dealers and their representatives. Stockbrokers and their brokerage firms are required to follow the standards of care in the securities industry. 

The SEC’s Regulation Best Interest (Reg BI) under the Securities Exchange Act of 1934 establishes a “best interest” standard of conduct for brokers when they make a recommendation to a customer of any securities transaction or investment strategy involving securities. That means that a broker has to make recommendations to their customers that are in their best interest, mitigating conflicts of interest, and taking into account their customers’ investment profiles. 

A customer’s investment profile may include their:

• Age
• Other investments
• Financial situation and needs
• Tax status
• Investment objectives
• Investment experience
• Investment time horizon
• Risk tolerance
• Liquidity needs

Failure to conduct reasonable diligence to ensure that an investment recommendation is in a client’s best interest based on their investment needs and wants falls below the standard of care in the securities industry.  This claims is one of the most common customer disputes filed against stockbrokers.

Misrepresentations or Omissions

Making material misrepresentations or failing to disclose important facts is prohibited. 

As noted by FINRA, material misrepresentations or omissions may include failing to disclose:

• The risks of investing in a security;
• The charges or fees associated with the product;
• The company’s financial information; and
• Technical or analytical information (i.e. bond ratings)

If you were not fully informed of all the risks associated with a particular investment, you might have a claim for stockbroker misconduct. It is important to discuss your case with an attorney to determine if you are eligible for compensation. 

Excessive Trading or “Churning”

Excessive trading or churning is illegal and unethical. A stockbroker may not sell securities solely in an effort to generate commissions. In many cases, when a broker engages in excessive trading, they also violate several other securities laws since they are failing to act in the best interests of the client. 

Unauthorized Trading

In addition to excessive trading, a broker may unlawfully engage in unauthorized trading. Unauthorized trading occurs when a stockbroker trades securities on your behalf without your consent or permission.

If you suffered losses related to unauthorized trading, you should consult with an attorney. You may be able to file a FINRA arbitration claim or have other legal options to recover losses. Depending on the situation you may also have a case against the brokerage for failure to supervise. 

Overconcentration

Finally, if your broker failed to diversify assets in your portfolio you may have a case based on overconcentration. A stockbroker has a duty to ensure that all or a significant portion of your portfolio is not based in a single product or sector. Failure to do so may result in catastrophic losses.

Suffered Investment Losses Due to Broker Misconduct?

If you sustained losses related to stockbroker misconduct, contact our office at (614) 532-4576 to schedule an investor claim case evaluation. All consultations are free and confidential.