Stockbroker Fraud and Misconduct Lawyer


People place a great deal of trust in their stockbroker or financial advisor, especially when they are trusting the broker to give them advice and recommendations. While stockbrokers act as agents and advisors, they are also in the business to make money.

The individual stockbroker wants a large payday, and they work for a company that also chases outsize profits. The profit motive often comes into conflict with the duties that stockbrokers owe to their clients and their compliance with securities laws and regulations.

Stockbroker misconduct is far more prevalent than you think. One study found that 7.8% of current and former stockbrokers have some type of potential misconduct disclosures, including:

  • Customer complaints
  • Awards
  • Settlements

These statistics just cover the instances in which customers learned that they were defrauded or harmed and took action. Other brokers can get away with their actions completely when they take advantage of unsuspecting customers, who may never know why they lost money. It is up to the customer to learn what happened and take action against the broker to recover what they lost.

The investment fraud law firm of Rikard & Protopapas can represent you when you are seeking repayment and compensation for stockbroker misconduct. We can identify what went wrong and what rules the broker may have violated.

Stock brokers must follow a detailed set of rules in their daily business. At the top of the pyramid are federal securities laws. Not only can brokers be subject to civil action for breaking the law, but they can also go to jail. Then, stockbrokers must follow state securities laws and rules from a self-regulatory organization, such as the Financial Industry Regulatory Authority (FINRA). It is FINRA rules that often provide the basis for successful legal actions against stockbrokers and the company that employs them.

Types of Broker Fraud and Misconduct We Handle

Violations of suitability rules

FINRA imposes strict requirements on which products brokers can recommend to their customers. The broker must make a determination that the product is suitable for the customer, regardless of whether it is a security.

There are three different levels of suitability analysis that the broker must perform before each recommendation:

  • The representative must determine that the specific security is suitable for the customer based on their own investment profile.
  • The representative must have a reasonable basis to believe that the security is suitable for some customers.
  • The transaction must not be excessive for the customer in light of their own investment profile.

Failure to supervise claims

Not only does the individual representative have the obligation to follow the rules, but their employer has a responsibility to supervise them. The company must have a system in place that is designed to ensure compliance with applicable securities laws and regulations.

The broker-dealer can be liable for failure to supervise if the following apply:

  • A violation of securities laws or regulations.
  • An association between the representative who violated the rules and the broker-dealer.
  • Supervisory jurisdiction over the representative.
  • The failure to reasonably supervise the representative who violated the rules or regulations.

Note that the obligation is to reasonably supervise the representative. The broker-dealer is not automatically liable when a representative breaks the rules. However, they would need to show that they followed their own policies and procedures in supervising the representative.

Failure to disclose material information

A representative has a legal requirement to disclose material information that affects the security before selling an interest in it. When the representative says nothing, it is a sales practice violation, since they have an affirmative obligation to disclose. Investors often rely on their financial advisor or broker for guidance about which security to purchase.

Presumably, the broker has done due diligence on the security before they have recommended it. The broker should disclose the material risks inherent in purchasing the security. They should also disclose any costs that are related to the transaction. A failure to disclose is every bit as bad as an affirmative misstatement because the broker has a duty to speak. SEC rules also consider the failure to disclose a material fact to be fraud if other circumstances apply.

Misrepresentations about securities

There are two rules that apply to misrepresentations of material facts in connection with the sale of a security:

  • FINRA Rule 2020 prohibits a member from effecting “any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance.”
  • SEC Rule 10b-5 makes it wrongful to “[t]o make any untrue statement of a material fact or to omit to state a material fact…in connection with the purchase or sale of any security.”

For purposes of these rules, a statement is material if a reasonable investor would have relied on it in deciding whether to purchase or sell the security.

Misrepresentation can cover a number of circumstances. For example, the broker could make overly optimistic projections for the stock and provide them to the investor. They could make a misstatement about the fees charged.

A broker could also be liable for negligent misrepresentation. They may simply not know what they need to tell you, and they may make a misstatement as a result.

Stockbroker Fraud Lawyers With Experience in FINRA Arbitration

The terms of the brokerage agreement that you signed require that you take your stockbroker misconduct case to arbitration. That is usually your exclusive remedy. The attorneys at Rikard & Protopapas have extensive experience in the FINRA arbitration process and in state and federal courts.

Contact a Stockbroker Fraud and Misconduct Lawyer Today

It is very hard to take on Wall Street on your own. Broker-dealers field complaints all the time, and they are devoted to protecting their own interests. You need a knowledgeable attorney to represent you as you seek to get back what you lost because of your broker’s misconduct.

If something seems wrong, there is no risk to you to ask a lawyer to review the situation. You can reach us for a free consultation by sending a message online or by calling us today at (803)-805-7546. We work to get you compensation in any way possible.



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