LPL Financial unauthorized trading can go unnoticed for months, especially when investors trust their brokers and assume account activity is proper. Even in discretionary accounts, not every trade is automatically authorized, which can raise serious concerns about broker misconduct.

LPL Financial broker fraud can be difficult to recognize when it occurs, but Kurta’s investment fraud lawyers can help. Our securities fraud attorney will examine your case and identify if your broker executed unauthorized trades. A detailed review of your account is necessary to build a FINRA arbitration case for unauthorized trading.

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What is LPL Financial Unauthorized Trading?

Unauthorized trading is prohibited by FINRA Rule 3260, which states that brokers are prohibited from:

“exercis[ing] any discretionary power in a customer’s account unless such customer has given prior written authorization to a stated individual or individuals and the account has been accepted by the member.”

This breaks down into two important points:

Brokers can’t execute trades without your written approval in non-discretionary accounts.
Discretionary accounts must be approved by the firm.

Some brokers try to work around the requirement for written authorization in several ways. Common alternative forms of approval include:

Verbal or implicit authorization
Forging or copying client’s signatures
Acquiring written permission after trade execution

However, you may have a case for unauthorized trading even if you informally agreed to a trade or provided approval after the fact. The details of trade authorizations will become crucial in FINRA arbitration.

If LPL Financial hasn’t approved your account for discretionary trading, your broker cannot exercise their trading discretion.

Can Unauthorized Trading Happen in Discretionary Accounts?

In a discretionary account, your broker has the ability to exercise their trading discretion without seeking out prior authorization from you for each trade.

However, your broker still needs to follow your investment objectives and ensure their recommendations suit your risk tolerance, liquidity needs, and overall financial situation.

In particular, FINRA Rule 3260 prohibits excessive trading in discretionary accounts. Brokers earn a commission on their trades, and may churn an account for their own profit. The trading fees churning generates can wipe out investors’ profits entirely.

Claims of excessive trading in discretionary accounts may intersect with FINRA Rule 2111, which defines and prohibits unsuitable investment recommendations. To learn more about this rule, see our page about suitability.

You may have a case for unauthorized trading even if your account is discretionary.

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LPL Financial Unauthorized Trading and Failure to Supervise

Brokerage firms must create systems of supervision by FINRA Rule 3110. This rule requires firms to monitor trading activity for signs of misconduct, including unsuitable investment recommendations, churning, and unauthorized trading.

If a firm fails to catch suspicious activity or fails to properly address it, arbitrators may find that financial harm resulted from the firm’s failure to supervise.

In addition, FINRA Rule 3260 specifically requires firms to regularly review trading activity in discretionary accounts to check for potentially unsuitable and excessive trading.

Firms may be held liable for failures to detect and respond to unauthorized trading. This is especially true in LPL Financial broker fraud investigations that find patterns of misconduct across multiple accounts.

That being said, arbitration awards and settlements arising from other investors’ claims don’t establish firm liability. Disputes may be resolved without findings of misconduct on the part of the firm.

What is Time and Price Discretion?

There is one type of discretion that FINRA Rule 3260 doesn’t apply to. Brokers have limited discretion to execute your trades at a certain time or when the asset reaches a certain price. However, they only have this leeway during the trading day that you provide the order.

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FINRA Arbitration and Unauthorized Trading Claims

Most often, investors must pursue FINRA arbitration to resolve their claims. Brokerage firm account agreements frequently require investors to agree to arbitration rather than taking disputes to civil court.

Arbitration is a structured process that provides investors with a path to resolution. If your case proceeds to a hearing, it will result in a binding legal agreement between both parties.

Building a Narrative of Misconduct

Proving LPL Financial advisor fraud begins with examining your documentation. Some of the records FINRA arbitrators will consider when evaluating unauthorized trading claims include:

Account statements
Trade authorizations
Investment discussions
Investment goals

Both parties will look closely at when and how authorization was given for trades. For example, forging a client’s signature is always inappropriate, even if the client knew about it and approved the trade.

Establishing strong connections between your evidence will support the narrative that your losses were the result of broker fraud.

Broker Defenses Against Unauthorized Trading

There are three key defenses brokers often present when faced with unauthorized trading claims:

Trades were authorized by client
Trades were appropriate for a pre-discussed strategy
Trades were suitable for the client’s goals

Arbitrators will look closely at the timeline created by the evidence to determine if, when, and how trades were authorized and if your broker’s conduct violated FINRA Rules.

Damages and Settlements from LPL Financial

You may be awarded damages if the arbitrators determine your losses were caused by broker fraud. The firm may also offer a settlement during the arbitration process.

Settlement offers from LPL Financial may occur during the discovery period, as the firm learns more about your evidence, or all the way up to or during the hearing. However, it’s important for investors to know that a settlement offer is not an admission of wrongdoing.

Do You Have an LPL Financial Unauthorized Trading Claim?

If you believe your broker executed unauthorized trades, the first step to recovery is reaching out to a Kurta Law securities fraud attorney. Our team will conduct a structured evaluation of your account to determine if unauthorized trading occurred and discuss your next steps.

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