What Are Common Examples of Broker Misconduct?

Common examples of broker misconduct include recommending investments that are too risky for a client’s needs, making trades without permission, and hiding important information about an investment. Broker misconduct refers to actions by a financial advisor or stockbroker that violate rules, laws, or ethical standards meant to protect investors. 

These actions can lead to serious financial losses. Investors trust brokers to act in their best interests, and when that trust is broken, it may be possible to hold the broker or their firm legally responsible. If you have concerns about your broker’s actions, consult an investment fraud lawyer.

Unauthorized Trading

Unauthorized trading happens when a broker buys or sells investments in your account without your permission. If you haven’t given written permission for your broker to make decisions on their own (called “discretionary authority”), then every trade must be approved by you first.

The broker must contact you, explain the trade, and get your clear “yes” before moving forward. When a broker makes trades without doing that, they are breaking the rules and violating your trust.

Excessive Trading

Excessive trading, also called churning, is when a broker makes too many trades in your account just to earn more commissions. These trades may not be in your best interest and often lead to unnecessary fees, taxes, and losses.

If you’re an older investor who relies on your savings, excessive trading can quickly reduce the value of your investment account. A trusted broker should focus on helping your money grow safely, not making frequent trades that benefit them more than you. 

If your account shows a high number of trades that you didn’t ask for or don’t understand, it could be a warning sign of churning.

Misrepresentation or Omission of Material Facts

Misrepresentation or omission of material facts happens when a broker gives false information (or leaves out important details) about an investment. This can include exaggerating the potential return, hiding the risks, or failing to tell you about fees and conflicts of interest.

For example, a broker might say an investment is “safe” when it’s actually high-risk, or they may not tell you that they earn a bonus for selling it. Senior investors are especially vulnerable to this kind of misconduct, as it can lead to unexpected losses or decisions based on incomplete facts.

Unsuitable Investment Recommendations

Unsuitable investment recommendations are a common example of broker misconduct that happens when a broker suggests investments that don’t match your financial goals, risk tolerance, or personal situation. Brokers are required to understand your needs and only recommend investments that are right for you.

For example, an 80-year-old retired teacher with limited income and no investing experience tells her broker she wants safe investments that protect her savings. Instead, the broker puts her money into high-risk oil and gas partnerships and speculative penny stocks.

These investments are extremely risky and not appropriate for someone in her situation. When the investments lose value, she suffers significant financial losses. This is a clear case of an unsuitable investment recommendation.

Failure to Diversify

Failure to diversify is broker misconduct because brokers have a duty to manage your investments in a way that spreads risk. Diversification means not putting all your money into one type of investment, industry, or company.

When a broker concentrates your portfolio in just a few stocks or sectors (especially risky ones), they increase your chances of big losses if those investments perform poorly. If a broker fails to diversify your portfolio and you lose money as a result, it may be considered negligence or misconduct.

Forgery or Falsifying Documents

Forgery or falsifying documents is considered a white collar crime. It means the broker signs your name without permission or changes important papers to make it look like you agreed to something you didn’t. This can include fake signatures, altered contracts, or false records.

This behavior is illegal and breaks your trust because it puts your money and personal information at risk. If a broker does this, they can face legal penalties, and you may have the right to take action to protect your investments.

Insider Trading

Insider trading by a broker means using secret, important information about a company before it’s made public to buy or sell that company’s stock. This gives the broker an unfair advantage and is illegal.

For example, if a broker knows that a company is about to announce big profits and buys shares before the news is public, that’s insider trading. It hurts regular investors because the broker is using hidden information to make money unfairly.

Front Running

Front running happens when a broker places orders for their own account or a favored client ahead of your large order, knowing your trade could affect the price. This allows the broker to make a profit at your expense by taking advantage of the price changes caused by your trade.

Call Meyer Wilson Werning if You Suspect Broker Misconduct

If you have experienced investment losses exceeding $100,000 because of improper actions by a stockbroker, financial advisor, or investment firm, our dedicated team of investment and securities fraud attorneys is ready to assist you. Since 1999, we have successfully recovered more than $350 million for our clients.

Recognized by U.S. News as one of The Best Lawyers in America®, our firm is led by highly respected trial lawyers experienced in handling complicated financial disputes.

We will thoroughly examine your case, pursue compensation through arbitration, and ensure those responsible are held accountable.

Don’t wait; contact Meyer Wilson Werning today to safeguard your financial future and seek the justice you deserve.