Yes, it may be legal for a brokerage to liquidate your account without notice in certain situations, especially with margin accounts or if there are compliance or risk concerns. It is important to understand your brokerage agreement so you know your rights and obligations.
However, brokers cannot act arbitrarily, and their actions must be reasonable, documented, and non-discriminatory. If you suffered investment losses of more than $100,000 due to the misconduct of an investment advisor or financial firm, we may be able to help.
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Can a Broker Liquidate Your Margin Account Without Your Consent?
A margin account allows you to borrow money from your broker to buy securities, using your assets as collateral. If your equity falls below required levels, the broker issues a margin call, asking you to deposit funds or sell assets to cover the shortfall.
To protect itself, the brokerage has the legal right to liquidate your assets without prior notice in certain circumstances if you don’t comply. This is a margin blowout, and it is appropriate in certain circumstances. When you open a margin account, you sign a margin agreement that explicitly grants the broker this authority in certain circumstances.
Brokers do not need to notify you before selling off your positions. And, in most cases, you can’t recover losses from a margin liquidation unless you can show the broker engaged in misconduct.
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Can a Brokerage Liquidate Your Assets in a Discretionary Account?
A discretionary account gives the broker the legal authority to make trades on your behalf without getting your approval for every transaction. You must provide written consent for this arrangement, and brokers who manage discretionary accounts must act in your best interest.
While brokers do have more control over the account, they still cannot legally liquidate your account arbitrarily or in bad faith. Any liquidation must be consistent with the investment strategy you agreed upon or justified by a risk to the account or the brokerage firm, and done in good faith and consistent with prior business practices.Â
What Can You Do if a Brokerage Liquidates Your Account Without Notice?
It can be a shock when your brokerage account is liquidated without notice or your consent. It may or may not be legal, depending on the circumstances.Â
Review Your Brokerage Agreement
Review the agreement you signed when opening the account. This outlines your broker’s rights to liquidate positions. Understanding the exact terms helps you assess whether or not the liquidation violated the contract.
Contact the Brokerage Firm Directly
Reach out to your broker and request a full explanation of why your account was liquidated. Ask for specific details and documentation, such as trade logs or margin calls. Communicate in writing whenever possible to keep a record in case you escalate the issue later.
File a Complaint
If the broker’s explanation seems unfair or incomplete, you can file a formal complaint with regulatory bodies like FINRA, the SEC, or your state securities regulator. These agencies investigate misconduct and can mediate or penalize firms for improper actions.
Consider Arbitration or Legal Action
All brokerage agreements require arbitration for disputes. You can file a claim through the FINRA arbitration process.Â
Gather and Organize Evidence
Compile all relevant documentation, including account statements, communications with the broker, and screenshots of your portfolio before and after liquidation. A clear, chronological timeline supported by evidence strengthens your case.
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Consult a Securities Lawyer
It is legal for a brokerage to liquidate your account without notice in some circumstances, but not always. Whether or not your broker acted appropriately depends on the specifics of your agreement.Â
If you suffered losses of $100,000 or more and suspect broker misconduct, contact our team at Meyer Wilson Werning. We can assess your case during your free consultation and help you file for arbitration or take legal action if appropriate.
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