SEC: Investors Would Have Needed Up to 406% Returns to Cover Brokers’ Fraudulent Transaction Costs


Many investment fraud scams involve fees and transaction costs that are designed to allow brokers and advisors to profit at their customers’ expense. But, in most cases, these fees and costs are disguised or limited in such a way that the relationship still seems worthwhile to individual investors.

In one recent case, however, the Securities and Exchange Commission (SEC) is accusing two brokers of going above and beyond to take advantage of their clients – many of whom were reportedly at or near the age of retirement. According to the SEC’s Complaint against one of the brokers, investors would have need to “achieve annual returns of approximately 21% to 406% just to pay for the transaction costs associated with [the broker’s] trading strategy.”

A Textbook Case of Investment Fraud Targeting Aging Investors

Other sections of the SEC’s Complaint read like the pages of a textbook on fraudulent investment practices. For example, in order to deceive investors into taking on risky investment strategies and to rake in transaction fees without investors’ consent, the broker allegedly engaged in fraudulent practices and committed sales practice violations including:

  • Recommending investment strategies that were unsuitable in light of investors’ “financial needs, investment objectives, risk tolerance, and other circumstances.”
  • Executing trades in investors’ portfolios without obtaining their approval; and, in many cases, without even discussing the proposed transactions.
  • Making false and misleading statements regarding his trading strategy and the fees and costs it would generate.
  • Engaging in a series of frequent trades designed to generate commissions without generating returns for investors.
  • Assuring investors that we would “employ a profitable trading strategy on their behalf.”

The SEC’s Complaint alleges that these and other practices generated $935,000 in unlawful transaction fees for the broker while costing investors approximately $881,000. The SEC is targeting another broker in the matter as well; and together, these brokers are alleged to have collected approximately $4.6 million in improper commissions while leaving investors with approximately $3.6 million in fraudulent losses.

As noted in the SEC’s Press Release announcing the charges, these cases follow several similar cases over the past two years, and the risk of broker fraud has prompted the SEC to issue an Investor Alert warning about the specific type of account “churning” allegedly used to generate millions of dollars in profits for these brokers. We have recently discussed several other cases of broker fraud as well, as well as several instances of brokers targeting senior investors.

Learn more about account churning and the risks of investment fraud for retirement investors:

Speak With a Financial Fraud Lawyer at Zamansky, LLC

If you are concerned that your broker or investment advisor may be making trades at your expense, we can help. Zamansky, LLC is a team of experienced financial fraud lawyers who represent individual investors who have been defrauded by their investment professionals. To speak with an attorney about your situation in confidence, please call 212-742-1414 or request a free consultation online today.