Unauthorized trading is exactly what it sounds like: your broker buys or sells securities in your account without your consent. It violates FINRA rules, SEC regulations, and basic trust. Yet it happens more often than most investors realize.
Your Advisor Cannot Trade Without Your Permission
This guide explains what unauthorized trading looks like, how to detect it, and what to do about it.
What Counts as Unauthorized Trading
Few situations qualify clearly:
- Trades you never discussed — Your broker executes a buy or sell you did not request and were not informed about
- Trades after you declined — You said no, but the broker proceeded anyway
- Exceeding discretion — Your broker has limited discretion and trades beyond its scope
- Forged or altered orders — Someone signed your name or changed your instructions
The exception: if you granted written discretionary authority, your broker can trade without prior approval on each trade — but every trade must still align with your stated investment objectives.
How to Detect Unauthorized Trading
Review your account statements and trade confirmations every month. Look for:
- Trades you do not remember discussing
- Securities you did not authorize
- Unusual trading volume or frequency
- Buy orders when you expected sells, or vice versa
- Confirmations for trades you never received
If you notice anything unexpected, call your advisor immediately. Ask for an explanation. If the explanation does not satisfy you, escalate.
The Difference Between Unauthorized Trading and Churning
Unauthorized trading and churning are related but distinct violations. Unauthorized trading means trades without your consent. Churning means excessive trading — even authorized trades can be churning if the volume serves the broker’s commissions rather than your investment goals.
Both violations can exist in the same account. An advisor who trades without permission may also be churning your account.
Your Legal Rights
Federal securities law and FINRA rules protect you from unauthorized trading:
- FINRA Rule 3260 — Requires discretionary authority to be in writing and limits its scope
- SEC Rule 10b-5 — Prohibits fraud in connection with the purchase or sale of securities
- Common law fraud — Unauthorized trading can constitute common law fraud, giving rise to additional claims
Brokers and their firms can be held liable for unauthorized trades. The firm is responsible for supervising its brokers, and failure to prevent unauthorized trading is itself a violation.
What to Do If You Discover Unauthorized Trades
Step 1: Notify Your Firm Immediately
Call your broker and their supervisor. Send a written complaint to the firm’s compliance department. Keep copies of everything. Time matters — the sooner you report, the stronger your position.
Step 2: File a FINRA Complaint
File a formal complaint with FINRA. This creates a public record and may trigger an investigation. Your complaint appears on the broker’s BrokerCheck report, protecting other investors.
Step 3: Check the Advisor’s Record
Search BrokerCheck to see if other investors have reported similar problems. Patterns of unauthorized trading complaints are a significant red flag.
Step 4: Consider Arbitration
For financial losses caused by unauthorized trading, FINRA arbitration is your primary remedy. Most account agreements require it. Document your losses carefully — the difference between your account value before and after the unauthorized trades.
Step 5: Contact a Securities Attorney
Unauthorized trading cases are straightforward to prove if you have records. A securities attorney can help you build a strong case and often works on contingency. Haselkorn and Thibaut provides free consultations at 1-888-885-7162.
Prevention Checklist
- Never grant discretionary authority unless you fully trust your advisor and understand the scope
- Read every trade confirmation — not just your monthly statement
- Set up online access so you can check positions daily
- Require your advisor to confirm every trade via email before execution
- Document every conversation about your account in writing
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