When you execute a brokerage account agreement, your broker is obligated to both follow securities rules and act on your interests only. There are times when the broker may put their own financial interests first.
One instance of potential broker misconduct is when they execute trades in your account that you did not authorize. If the broker does not have discretion in your account, they can do only what you tell them. If they have discretion, they must stick to the exact letter of their authorization.
If you have suffered losses from unauthorized trading, you can take legal action against a broker to recover money. Call the stockbroker fraud attorneys at Rikard & Protopapas if you suspect unauthorized trading and need to recover financially.
FINRA and SEC Rules that Prohibit Unauthorized Trading
There are two different types of brokerage accounts:
- Discretionary brokerage accounts: Where the customer has given the broker the ability to make trading decisions on their behalf.
- Non-discretionary brokerage accounts: Where the customer chooses their own trades, and the broker’s role is to execute the trades.
In a non-discretionary brokerage account, the broker must obtain the customer’s permission and consent for any securities trades. If the broker makes any unauthorized trades, they can be in violation of a number of FINRA and SEC rules, including:
- FINRA Rule 3260, which states that “no member or registered representative shall exercise any discretionary power in a customer’s account unless such customer has given prior written authorization.”
- FINRA Rule 2020, which prohibits the use of manipulative, deceptive or fraudulent devices in connection with securities transactions.
- FINRA Rule 2010, which requires members to observe high standards of commercial honor and just and equitable principles of trade.
- SEC Rule 10b-5, which generally prohibits securities fraud.
Who May Commit Unauthorized Trading in Your Account?
A broker can also commit unauthorized trading in a discretionary account when they execute trades that are not suitable for the investor’s investment profile, or they exceed the scope of their trading authorization.
Usually, it would be your broker who has engaged in unauthorized trading. However, anyone at the brokerage firm can commit this illegal act, including:
- Brokerage assistants who may be trying to prove their worth or cover up for their own mistakes
- Portfolio managers
- Risk managers
- Back office personnel who are trying to extricate the firm from a potentially costly error
Why Your Broker May Have Engaged in Unauthorized Trading
They may have a number of motivations for this illegal practice, including:
- Charging extra commissions and markups that could make them more money.
- Trying to earn your favor and trust, so you will give them more business.
- Parking a transaction in your account when they have another bad trade that they need to move out of their own account.
- Executing the trade in the hope that you will ratify the transaction after the fact and keep the security.
How to Spot Unauthorized Trading in Your Account
As an investor, you should always check the trading confirmations that your broker is required to send you, according to SEC rules. You should review every transaction to make sure that it is either something that you have authorized or consistent with your investment objectives.
If you notice a trade that was unauthorized in any way, you should immediately notify the branch manager of the brokerage in writing. This way, you can get it on the record that you believe that a transaction was unauthorized and hopefully put a stop to any future unauthorized trades.
The broker may respond to your communication by claiming that you gave authorization for the trade in some fashion. Even though discretionary authorizations should be in writing, the broker may claim that you gave verbal permission for a trade. Then, you may find yourself with a loss in your account that your broker refuses to pay.
Can FINRA Arbitration Recover Unauthorized Trading Losses?
You should hire an experienced securities fraud attorney to recover any losses you may have suffered from unauthorized trading. When you sign a brokerage agreement, you gain the legal right to initiate arbitration if you are in a dispute with a broker.
You can present your claim to an arbitrator by filing a Statement of Claim. This form would begin the arbitration process.
You will present your evidence to the arbitrator, who would then issue a ruling in the case. If the arbitrator finds that you lost money because the broker violated FINRA rules, you may be entitled to compensation for your losses. The arbitrator could even order that the broker pay punitive damages in your case.
Why You Need an Attorney for an Unauthorized Trading Claim
The broker may be giving you the runaround when you complain about an unauthorized trade. They may certainly not admit any wrongdoing, or give you any compensation to make you whole. It’s crucial to hire an attorney to deal with your broker in a FINRA arbitration case.
Our lawyers can do the following for you:
- Review the facts of your case to determine whether you have a potential claim in arbitration.
- Draft and prepare your Statement of Claim to file with FINRA.
- Help select the arbitrators for your case.
- Present your evidence to the arbitrators.
- Negotiate a potential settlement with the broker.
FINRA arbitration can be complex, and your broker has likely hired an experienced lawyer themselves. You need a plaintiff attorney who has the knowledge and the track record to get your results.
Contact a Lawyer About Unauthorized Trading Today
At Rikard & Protopapas, we can help you take strong legal action when a broker has abused the trust that you have placed in them. We recognize that, most of all, what you want is to get your money back.
Take the first step to contact a lawyer who can help you begin the legal process. You can contact us today by using our online form or by calling us at (803)-805-7546. We offer free consultations for prospective clients, and you pay us nothing unless you win your case.