law 4

How to Protect Yourself Against Stock Broker Fraud

If you have been a victim of stockbroker fraud, you may want to contact a brokerage misconduct attorney for help. Although many such cases are reported each year, you might not be eligible to receive compensation for the losses you’ve sustained unless you’ve been involved in the fraud yourself. Attorneys can offer legitimacy and weight to your claims. They understand the rules and regulations of brokerage firms and have the necessary knowledge to go up against brokerage companies.

Unauthorized trading is a form of investment fraud

If you believe you have been a victim of investment fraud, you may be entitled to compensation from the broker who has engaged in unauthorized trading. You can obtain such compensation by filing a claim with FINRA or suing the broker in court. To prevent this type of fraud, investors should check their account statements regularly and trade confirmations, which show details of every trade, including the date, commission, mark-up, and price at which an investment was purchased or sold.

If you suspect that you were the victim of unauthorized trading, contact an attorney immediately. Oftentimes, investment advisors will mark unauthorized trades as “unsolicited” to appear as though the trade came from the investor. However, this is a tricky legal case. Brokerage firms may argue that a client is ratifying unauthorized trades by not objecting. A good strategy is to review your account statements every month and report any unauthorized transactions immediately.

Churning is a form of investment fraud

Churning is an act by which brokers enrich themselves at the expense of their clients by trading their accounts for commissions. This act is against Federal and industry laws requiring brokers to act in the best interest of their clients. In addition, churning is a violation of a FINRA rule that states brokers must recommend only trades that are appropriate for their clients. The following are some tips to protect yourself against churning.

Avoid excessive trading. Excessive trading is one of the most common signs of churning. While trading generates commissions for the broker, it provides little or no benefit to the investor. Brokers also churn life insurance policies, annuities, and mutual funds. Churning is often referred to as “twisting” because the broker is the only one to benefit.

Conversion of funds is a violation of FINRA Rule 2150

FINRA is the nongovernmental regulator of the securities industry. Its goal is to protect investors’ interests and the integrity of the securities markets by ensuring that brokers and other securities professionals follow high standards of commercial honor. Among other things, FINRA regulates how broker-dealers conduct their business and what they can and cannot do. Here are some of the most common violations of Rule 2150.

A stockbroker can commit this crime by using a customer’s money to fund their own investment activities. FINRA Rule 2150 addresses conversion of funds, theft, and the use of customer funds. The rule also addresses broker guarantees, as well as guarantees that brokers must use customer funds prudently. The FINRA Enforcement Division is looking for any broker who converts customer funds.

Penalties for broker fraud

There have been many famous cases involving stockbrokers stealing money from investors. While these cases are not common, they do happen frequently. It is important to be aware of these crimes and know the legal penalties for stockbrokers. These crimes have consequences for both investors and companies. You can protect yourself by investigating these types of violations. Here are some examples of stockbroker fraud:

Outright theft: Stockbrokers can use their privileged position to misappropriate funds from trading accounts. This can occur in several ways, including by destroying the financial statements and accounts of victims. Many stockbrokers also employ sophisticated tactics in order to hide their fraudulent activities. In some cases, the broker will even evade prosecution by saying they did not do something wrong. Penalties for stockbroker fraud vary according to the severity of the fraud.

Avoiding stock broker scams

The first step in avoiding stock broker scams is to check out the firm’s background and credentials. Any broker who is not registered with the SEC or the Securities Investor Protection Corporation (SIPC) is probably not a legitimate company. Aside from being registered with the SEC, brokers must also be members of the SIPC. Both organizations are great sources of information on stocks, so check out their websites. They will provide you with all the information you need to make a sound decision.

Be wary of unscrupulous stock brokers who use cold calling to approach you. They might use technology to hide their location. They may also describe nonexistent contracts, partnerships, and patents. These are all red flags of fraudulent investment schemes. Also, penny stockbrokers will often spend weeks or months winning your trust before going for the hard sell. You should never sign any documents from a penny stock broker until you are certain the company is legitimate.

About The Author

Scroll to Top