What Are Your Rights if You Lost Money on an Unsolicited Trade?

If you work with a stockbroker, one of your main reasons for doing so is probably so that you can rely on your broker’s trading advice. Stockbrokers watch the market constantly, and they have the insights and tools needed to make informed predictions about how stocks and other securities are going to perform.

Or, at least they should.

Unfortunately, not all stockbrokers have the qualifications to advise their customers effectively. As is the case in any profession, some stockbrokers are much better at their jobs than others. Also, just like other professions, some stockbrokers hold themselves to higher standards than others as well.

In addition to making informed recommendations, stockbrokers should also make trading recommendations with their customers’ best interests in mind. But they don’t always do this, either. Sometimes, stockbrokers will recommend trades (which are referred to as “solicited trades”) with the goal of generating fees and commissions—regardless of the risk and financial consequences for their customers.

Pursuing a Claim Against Your Stockbroker: Solicited vs. Unsolicited Trades

When stockbrokers make solicited trades with a conflict of interest or without performing their due diligence, investors will often have clear grounds to pursue claims in FINRA arbitration. Stockbrokers have a duty to put their customers’ interests first, and they also have a duty to make suitable investment recommendations. But what happens when you lose money on an unsolicited trade? If you ask your stockbroker to execute a trade and the trade doesn’t pan out as you’d hoped, what are your legal rights?

Understanding Your Options After Losing Money on an Unsolicited Trade

If you chose an investment on your own, it may be difficult to hold your stockbroker accountable. Even if your broker executed the trade, if he or she did so at your request, your broker generally isn’t going to be liable for any losses you incur.

But this assumes that your broker executed the trade as you requested it. Even in scenarios involving unsolicited trades, investors can still pursue FINRA arbitration claims in some cases. For example, you may have grounds to file a claim if:

• Your Broker Did Not Timely Execute the Unsolicited Trade – When investing, timing can be everything. If you asked your stockbroker to execute a trade and your broker did not do so in a timely manner, your investment losses could be your broker’s fault. In this scenario, you may have a strong claim for broker negligence.
• Your Broker Engaged in Front-Running – If your stockbroker liked your trade, he or she may have wanted to get in on the action. If your stockbroker executed a trade on his or her own account (or on another customer’s account) before executing your trade, your broker may be liable for front-running. This is a form of broker misconduct for which customers can—and should—seek financial damages in FINRA arbitration.

These are just two examples. While the majority of unsolicited trades may not give rise to claims for broker negligence or misconduct, brokers can—and do—do the wrong thing in a variety of different ways. As a result, if you have any reason to believe that your broker may be responsible for the losses you suffered on an unsolicited trade, you should consult with a lawyer about the options you have available.

Was the Trade Actually Unsolicited?

Another important factor to consider when faced with trading losses is whether the trade was actually unsolicited. Consider this statement from FINRA:

“FINRA has found that firms maintain varying levels of documentation for demonstrating eligibility for the unsolicited customer order exception and, in some cases, have been unable to produce any proof that a quote in fact represented a customer’s unsolicited order or indication of interest.”

In other words, what FINRA is saying is that while brokerage firms will often claim that their customers’ trades were unsolicited, in many instances, this isn’t actually the case.

Under FINRA’s Rules and federal securities laws, brokerage firms are required to maintain extensive documentation in relation to their customers’ accounts. It is also strongly in brokerage firms’ best interests to thoroughly document unsolicited trades, as the grounds for investors to pursue claims related to unsolicited trades are relatively limited in comparison to those for solicited trades. So, if a firm does not have clear documentation that a trade was unsolicited, this raises (or should raise) serious questions about the nature of the trade.

There is also a very real possibility that a stockbroker will mislabel a solicited trade as unsolicited in an effort to avoid liability for a bad investment recommendation.

If your broker recommended a trade in any capacity, the trade qualifies as solicited. The fact that you asked your broker to make a trade after receiving a recommendation does not make it an unsolicited trade. In the event that your broker mischaracterized a trade, there should be adequate documentation available to show that this is the case, and an experienced lawyer should be able to help you obtain this documentation and establish a claim for fraud.

Pursuing a Claim Against Your Stockbroker: Next Steps

If you believe that you may have a claim against your stockbroker—whether for a solicited or unsolicited trade—your next step is to consult with a lawyer. To prepare for your initial consultation, you should gather as much documentation as possible. This includes copies of your account statements reflecting the trade and your losses, as well as all relevant communications between you and your broker.

Discuss Your Stockbroker Fraud Claim with a Lawyer at Zamansky LLC

Are you entitled to financial compensation for your investment losses? If so, we can do what it takes to hold your broker and brokerage firm accountable. To discuss your claim with an experienced lawyer at Zamansky LLC in confidence, call 212-742-1414 or request a complimentary initial consultation online today.