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How to Avoid Financial Loss From Unauthorized Trading

In most instances, your stockbroker is required to obtain your permission before making a purchase or sale in your investment account. When your broker does not get your authorization and goes ahead and makes a transaction anyway, you may have an unauthorized trading claim.

Unauthorized trading is defined by the Financial Industry Regulatory Authority (FINRA), as “the purchase or sale of securities in a customer’s account without the customer’s prior knowledge and authorization.” The broker must have your express authorization before making any trades on your account. However, even if you gave your broker authorization, this authority cannot be misused or exceeded, by making unsuitable trades or trades. This type of broker misconduct can lead to financial loss and your broker may be liable.

There are some things you can do to reduce the likelihood of unauthorized trading in your account. These tips are mentioned on FINRA’s website and include:

  1. Be sure to repeat instructions to your broker to confirm that he or she understands the transaction.
  2. Maintain notes of all conversations with your broker.
  3. Review your monthly account statements and any confirmations you receive in the mail regarding investments that were made on your behalf. You should keep these documents for future reference.
  4. Report any unauthorized transaction immediately. Contact the branch manager at your broker’s firm and send a registered letter to the compliance department. If you wait too long, it may impact your claim against your broker.

Learn more about broker prior authorization by watching the video below.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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