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What Should I Do if I Suspect Stock Broker Fraud?

Sep 21, 2022 Articles

Stock broker fraud violates Section 10(b) of the 1934 Securities Exchange Act, which prohibits the use of manipulation or deception in the sale of securities. Investors should always carefully review their account statements to assess the performance of the investments recommended by stock brokers and whether there have been unexpected losses in their portfolios. Every year, investors lose billions of dollars to stock broker fraud. Stock brokers who engage in misconduct rely on the fact that their customers will not review their account statements.

Do not leave your financial future in the hands of stock brokers. Empower yourself to recover any lost funds and contact a securities lawyer if you have questions about your investment losses.

What to Do if You Suspect Stock Broker Misconduct

It often takes some investigation before a stock broker’s illegal conduct comes to light. Investors who are victims of a broker’s illegal conduct are not always sure if they have a case for a securities lawyer. Err on the side of caution and take the following steps if you are suspicious of any losses:

Step 1. Document Your Investments and Relationship with Your Broker

Make sure to save all your account statements, as well as any communications with your broker. These supporting documents may help during the discovery phase of a FINRA arbitration case. (Most brokerage firms require clients to recover losses through FINRA arbitration instead of a civil lawsuit.)

Step 2. Contact a Securities Lawyer

If you suspect your broker is engaged in misconduct, you can contact a securities lawyer to evaluate your case for free. Securities lawyers are familiar with the niche regulations and laws that govern the securities industry and will be able to help secure a fair settlement.

For instance, our securities lawyers have successfully argued that an investor should recover their losses, as well as the interest their portfolio would have generated if their account featured lower-risk securities.

Step 3. File Your Statement of Claim

To start the recovery process, a securities attorney will file a statement of claim on your behalf against your broker’s firm. Once they receive the statement, the firm may offer a settlement instead of moving forward with the case. Unfortunately, you cannot trust firms to offer a fair settlement.

What Are the Most Common Types of Stock Broker Fraud?

Investors should be aware of the most common types of investor fraud. These types of fraud result in thousands of FINRA arbitration disputes every year.

  • Stock broker fraud might consist of unsuitable investment recommendations. Unsuitable investments are overly risky financial products that brokers recommend to their clients for the sake of commissions. Riskier financial products often come with a significant payday for the broker.
  • Brokers may also execute unauthorized trades. Your broker is not allowed to make a trade without your approval unless you and your firm have authorized discretionary trading in writing.
  • Commission abuse also takes the form of excessive trading – each trade comes with a small commission for the broker, so brokers have a financial incentive to execute as many trades as possible. Make sure you know how much you pay every year in transaction fees.

Selling away” involves a stock broker selling a security that is not approved by their firm – and therefore not subject to their firm’s supervision. These investments are more likely to come with a conflict of interest. For instance, a stock broker may recommend shares of a company in which they have a financial interest. The investment may simply be too risky for most investors and therefore would never be approved by the firm. Be wary if your broker begins communicating with you via text message or uses a non-firm e-mail.

How to Report Stock Fraud

If you believe your broker engaged in fraud through deceit or some other form of misconduct, you can report them to FINRA using their online portal. In their “Questions You Should Ask Before Filing a Complaint” brochure, FINRA states:
“If you believe that you have been defrauded by a brokerage firm or one of its brokers, FINRA wants to know about it immediately. Often, violations of our rules and the federal securities laws come to light through the receipt and investigation of investor complaints.”

FINRA does not have the manpower to directly supervise every brokerage firm. They rely on investors to scrutinize their portfolios and take action when they notice unexpected losses.

How to Report a Company You Believe Engaged in Stock Fraud

If you are aware of a major securities fraud – like a pyramid scheme or insider trading – you can report the fraud directly to the SEC. Individuals should also file a report with the SEC if they believe a company is offering illegally unregistered securities. In most circumstances, companies are required to register their securities with the SEC and provide accurate and complete information regarding their finances. The SEC keeps whistleblower reports confidential and offers significant awards – often millions of dollars – if a report leads to a conviction.

Who Investigates Stock Broker Misconduct?

The SEC and FINRA are regulators that are responsible for ensuring fair markets. They open investigations into advisory firms, broker-dealers, brokers, and financial advisors who are suspected of fraud. Firms, advisers, and brokers are all required to cooperate with FINRA investigations and provide any requested documents or testimony. If a member of the securities industry refuses to cooperate, they could be banned from the securities industry.

A securities lawyer can also investigate stock broker fraud and help you recover damages caused by misconduct. Once they have information about your investment products and the total losses, they can start digging into the firm’s history and the risks associated with your investment product. Often, securities lawyers have some inside knowledge of the investment product and financial professionals involved.

We Can Help Prove Stock Broker Fraud

Kurta Law has helped investors recover over $100 million in investment losses. Case evaluations are free, and our attorneys only earn a fee if we win your case Contact (877) 600 – 0098 or