The United States Securities and Exchange Commission’s main goal is to protect investors and maintain fair and efficient markets. It’s important, as an investor, to understand the most common types of broker fraud. They are:
According to the Securities and Exchange Commission, churning is the practice of excessive buying and selling of stocks and other securities with the chief goal of generating commissions for the broker, rather than profits for the client. In other words, churning is a breach of the fiduciary duty that brokers owe to their clients. It can also be hidden by a skilled (and shady) broker by holding low performing investments while selling profitable ones to make it appear that your portfolio is performing well overall. However, you’ll eventually be left with a portfolio filled with poorly performing securities and out a lot of money in commissions.
As part of their duty to clients, brokers’ recommendations are required to be in line with the client’s investment goals and their tolerance (or aversion) to risk. Unsuitability can be one of the more difficult types of broker fraud to prove, but keep in mind that a broker has the responsibility to learn as much as possible about their clients’ investment strategies and their risk tolerance; and to act accordingly. Any broker can pick the wrong stock, but there needs to be a reasonable basis for any recommendation that they make.
Naturally, brokers need to have permission from their clients to perform any securities transaction. However, many investors give their broker a “trading authorization,” which is essentially a limited power of attorney which allows them to make trades without the express authorization of their client. This can be something of a gray area, but if you suspect that your broker has engaged in unauthorized trading on your account, contact a broker fraud attorney immediately.
Brokers are prohibited from making false or misleading statements to their clients, including failure to disclose important facts about investments. These may the level of risk involved in a transaction, fees which may have to be paid and the potential return on an investment. However, this protection doesn’t apply unless the broker knowingly made a false claim and intended that their client will rely on this information or failure to disclose.
If you suspect that you may have been a victim of securities fraud, get in touch with Robert Robles at 405-232-7980 as soon as possible. He can discuss your case with you and if fraud has occurred, he’ll work with you to recover your losses.