Can a Stockbroker Steal Your Money?

5 February, 2024

The answer to whether a stockbroker can steal your money is an emphatic no.

There are times when brokers may outright embezzle your money through theft. More common instances are that brokers find ways to take from you through illegal business practices.

You can take legal action when you have lost money because your broker violated the rules that they must follow. The stockbroker misconduct attorneys at Rikard & Protopapas help investors like you when the broker whom you trusted violated that trust.

Outright Theft by Brokers Is Rare, But it Has Been Known to Happen

There are always times when a broker may take your money through conversion or theft. While these instances are relatively rare, there are always instances in which a registered representative may take money directly out of customer accounts. They could use intricate schemes, such as false account statements that are printed on firm letterhead to disguise the fact that the broker was stealing from the client.

However, most large brokerages have strong enough internal controls that this type of egregious conduct is rare. Although it has been known to happen on occasion, even at some of the most well-known brokerage houses.

Brokers Can and Do Steal From You in Other Ways

More often, brokers take your money through other insidious practices. “Stealing” occurs any time that a broker takes more money from you than they should, even if they are not going into your account and taking the money.

For example, they could sell you a bogus investment, asking you to put money into a company that never existed in the first place.

Churning Is Taking Your Money Through Excessive Trading

A classic example of a broker’s actions that have the same effect as stealing is churning. A broker who has discretionary authority over your account could engage in excessive trading. The trades would have no economic value to you.

The only purpose of the trades would be for the broker to take more and more commissions from your account. There have been some instances in which customers have seen their account balances dwindle to near zero after they discovered that churning was happening.

Illegal Commissions or Markups as Theft

Another example of brokerage practices that are tantamount to stealing is excessive commissions or markups. Here, the broker-dealer’s commissions should be limited by securities laws and FINRA rules.

According to FINRA Rule 212, a broker must buy or sell at a fair price, taking into consideration all relevant circumstances. While 5% is a general guide for an excessive markup, the actual measure of whether a markup is unreasonable depends on specific factors that relate to security. If a broker is selling you shares of Apple, 5% may be an excessive markup.

Taking Your Money Through Unauthorized Trades

Brokers could also make unauthorized trades in your account. Unless you have given the broker discretion, they must obtain written or verbal permission for the trades that they make. A broker may make unauthorized trades under several circumstances. The broker may have made a mistake executing a trade for another customer, and they choose to put the trade in your account and make you own the security.

You Need to Spot Red Flags of Possible Theft or Other Illegal Practices

It is up to you to be vigilant when monitoring your account. The longer the behavior continues unmonitored, the greater your losses. You should check your account statement at least monthly, if not biweekly. You can easily check your account online and even on the go, using your mobile device.

If you notice anything suspicious in your account that looks wrong, you should bring it to the broker’s attention. If you have not gotten a satisfactory answer from the representative, escalate the matter to their supervisor. The firm would need to address your concerns, and they have every reason to, given the risk that they are facing.

When in doubt, you should always ask if you do not understand something that you see or are being told. While the onus is not necessarily on you to prevent fraud, it could make it more difficult for your representative to steal from you or engage in misconduct.

Here are some red flags that your broker may be stealing from you or engaging in conduct that is taking your money:

  • They do not provide you with an account statement, as required by FINRA rules.
  • They do not answer your questions or give you any type of clear response.
  • There are transactions on your account statement that you do not recognize.
  • There are unexplained losses in your investment account.
  • Your investment performance does not match your expectations based on what you knew about your account.

Recovering Money from the Broker for Theft or Other Illegal Practices

The broker would most often be legally responsible for the actions of the registered representative. FINRA rules require a broker to reasonably supervise registered representatives. If the firm failed to follow its policies and procedures in supervising its representatives, the broker could be liable to you in a FINRA arbitration case.

You cannot sue the broker directly, but you can file an arbitration case that leads to financial compensation. Stealing your money breaks any one of several securities laws, and you may be able to get some or all of your money back.

Contact an Investment Loss Attorney Today

If you have lost money due to broker misconduct, the attorneys at Rikard & Protopapas can help you fight to recover it. We know FINRA rules and the process that you must go through to get compensation from your broker. Brokers know us by our reputation, and they will know that you are here to fight. You can speak to one of our lawyers in a free initial consultation when you call us today at (803)-805-7546 or message us through our website.

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