While brokers are supposed to make their money by recommending sound investments, some brokers choose to earn a living by making trades that generate fees and commissions without serving the best interests of their clients. The Securities and Exchange Commission (SEC) has warned of these fraudulent practices previously, and it recently issued updated investor guidance in its latest Investor Alert, Excessive Trading at Investors’ Expense.
Unauthorized Trading, Account Churning and Undisclosed Fees
The SEC’s Investor Alert warns of three particular fraudulent broker practices that our attorneys have discussed previously: unauthorized trading, frequent trading (also known as account churning) and undisclosed fees.
- Unauthorized Trading – Under both SEC and Financial Industry Regulatory Authority (FINRA) guidelines, brokers are prohibited from making trades on an investor’s behalf without the investor’s prior knowledge and authorization. Unauthorized trading should be reflected on your account statement (which is one reason why it is important to review your statements regularly), and if you see or suspect unauthorized trading you should speak with an attorney about recovering any fraudulent losses.
- Account Churning – When brokers buy and sell securities, they receive commissions. As a result, the more transactions they execute, the more they stand to make. When brokers execute an excessive amount of trades solely for the purpose of generating commissions, this is known as account churning and it is a form of stock broker fraud.
- Undisclosed and Excessive Fees – Did you know that your account statements do not disclose all of the fees that your broker charges? While it is common practice not to include certain fees on investment account statements, your broker should disclose his or her fees upon request. As noted by the SEC, investors should “[b]e suspicious if the total amount of fees seems high or if one segment of your portfolio consistently generates high fees.”
Keep in mind, these are not the only forms of stock broker fraud. Excessive use of margin, making unsuitable investments, failing to diversify investments and other improper practices can all lead to fraudulent losses as well.
What to Do if You Suspect Broker Fraud
If you suspect that your investment broker may be engaging in fraudulent conduct in order to generate fees or commissions at your expense, it is important that you schedule an appointment with an attorney as soon as possible. You may be able to recoup your losses through securities arbitration with FINRA, and acting quickly could increase your chances of securing a financial recovery. Registered brokers are required to submit to arbitration for investor claims, and working with a lawyer who is experienced in securities arbitration will help maximize your chances of securing just compensation.
Speak with a Securities Arbitration Lawyer at Zamansky LLC
Located on Wall Street in New York City, Zamansky LLC is a team of experienced attorneys who represent investors nationwide in recovering fraudulent investment losses. To find out if you are eligible to seek restitution through securities arbitration, call us at (212) 742-1414 or request a free initial consultation online today.