(Newswire.net — July 20, 2020) — Stockbrokers are required by law to follow various rules and regulations. They have a fiduciary responsibility to those who utilize their services. When a stockbroker violates any laws regulating securities sales, commodities sales as well as broker licensing, the punishment could be severe.
It could result in a stockbroker being the subject of a civil lawsuit as well as the loss of their stockbroker’s license. In some cases, it involves criminal charges. It is important investors speak with a stock loss lawyer if they believe they are the victims of stockbroker fraud.
Normal Investment Losses and Stockbroker Fraud
Simply because a person’s investments lose money does not mean they are the victim of stockbroker fraud. Investment markets fluctuate and experiencing losses is a normal part of the investment experience. A stockbroker isn’t able to stop market risk.
In some cases, mistakes in a person’s stock-brokerage account are not fraud, but the result of a clerical error. These mistakes can be quickly corrected when identified. After normal business mistakes and investment losses, there is a situation where ethical standards are compromised.
This is when a stockbroker puts their interest ahead of their clients. This is the key difference between investment losses and stockbroker fraud. There are certain types of common stockbroker fraud.
Churning
An investor may discover there has been excessive trading in their account. This often involves buying and selling the same stock many times. If a stockbroker is in control of a person’s account, then it is possible churning can occur.
This often happens when a stockbroker is paid by commission. It provides an incentive to increase transaction frequency no matter if it is in their client’s best interest. The more transactions they make, the more they get paid.
Omitting or Misrepresenting Facts
This is when a stockbroker has withheld material facts or provided misleading information that influences an investment decision. All relevant information and a reasonable basis for investing must be disclosed.
When a broker suggests they have inside information or is misleading about potential investment risks or rewards, this is considered fraud.
Inappropriate Variable Annuity or Mutual Fund Sales
Should a stockbroker switch between different types of mutual funds with extreme frequency for no reason other than to earn commissions, it is considered fraud.
It is also possible for a stockbroker to sell Class B shares to clients who qualify to purchase Class A shares. These clients may be best served with no-load equivalents. Annuity sales abuse is widespread and complicated.
Over-Concentration
This happens when a stockbroker’s client experiences excessive losses because most or all of their money is invested in one market sector or one type of security.
This could be investments focused on real estate, technology, and more. A person is a victim if their stockbroker is not diversifying their portfolio and over concentrating their investments.
Unauthorized Trading
This happens when a stockbroker makes purchases for a client’s account they didn’t agree to in advance. There are only two legal situations where a stockbroker can transact trades on behalf of a client.
The first is if they have been granted discretionary authority by the client. The other is when a client gives a stockbroker expressed and detailed permission to conduct a trade. Anything other than these two situations could fall under the umbrella of stockbroker fraud.
Timely Execution
A stockbroker may fail to execute an investment order in a timely manner. A stockbroker is required by law to promptly execute all of a client’s orders. They are not able to legally refuse an order. Not executing an order in a timely manner can be considered fraud.
Any type of stockbroker fraud is a violation of a broker’s fiduciary responsibility to an investor. A broker has a responsibility to always consider what is best for an investor as well as place an investor’s interest ahead of their own.
There are strict rules in place that govern a stockbroker’s conduct. Anyone who believes they’ve been the victim of stockbroker fraud should contact a stock loss lawyer. They will know how to analyze a case and the best way to proceed.