Unauthorized Trades


Have You Been a Victim of Unauthorized Trading? A Stock Fraud Attorney Can Help

The Securities Exchange Commission (SEC) defines unauthorized trading as “trades that a broker makes for a customer without the customer’s permission or authorization” and notes that “[t]he major securities industry self-regulatory organizations have rules prohibiting unauthorized transactions.” The Financial Industry Regulatory Authority (FINRA) defines unauthorized trading similarly as the “sale or purchase of securities without the investor’s prior knowledge and authorization.”

There are only limited circumstances where your financial advisor can be authorized to make trades in your account without your explicit permission. For this to be permitted, you must have granted the advisor written “discretion” or “trading authorization” for your account. This written authorization is typically granted using a specific form prepared by the brokerage firm and signed by both the investor and the financial advisor.  When there is no such written authorization, it is improper and illegal for the broker to trade your account without receiving your permission for each and every trade.

Unfortunately, some brokers take it on themselves to “assume discretion” over their clients’ accounts. When they act in this manner, brokers are violating FINRA rules and the law, and they can be liable for any losses that result. If your broker has made unauthorized trades to your account, contact Zamansky LLC to speak with a stock fraud attorney.

In some cases, investors develop a relationship with their brokers where they simply assume that the broker is acting in their best interests and should be trusted to trade on the accounts without explicit discussion of each trade. The investor is lulled into thinking everything is going fine until, often suddenly, they are confronted with evidence that all is not well.

This is a particularly dangerous scenario, and as each stock fraud attorney at our firm can attest, it is all too common.

Hire an Experienced Lawyer for Your Case

The best course of action to avoid this hazardous situation is for every investor to keep the relationship with his or her financial advisor a business relationship. This  is not to say that  the relationship cannot be friendly –  it simply means that professionalism should be the watchword. In a proper broker-investor business relationship, each and every transaction that is entered into should be discussed specifically: No trade should go unmentioned, no matter how well established or pleasant the relationship may be.

FINRA has provided written guidance regarding best practices and how to avoid common investor problems, including being victimized by unauthorized trading. In its discussion of unauthorized trading, FINRA’s guidance explains: “the broker may believe a transaction is in the investor’s best interest but cannot or does not contact the investor, and then makes the trade anyway. Or, the broker attempts to convince the investor of the benefits to the transactions in the hopes that the investor ratifies trades after the fact.” FINRA cautions investors to “[r]emember, brokers generate commissions through executing transactions (sales or purchases). That is why you should pay close attention to activity in your account.”

Investors should timely and carefully review their monthly account statements to be sure that their brokers are not engaged in unauthorized trading. If unauthorized trading has occurred, it is very important to investigate it and register a complaint quickly, so that the firm cannot argue that you accepted or “ratified” the trading through your silence.

If you suspect that your broker is trading your account without your permission, contact an experienced stock fraud lawyer at Zamansky LLC today.  Our firm offers free, initial consultations and we respond to all inquiries within 24 hours.