Let’s say that you’ve been a cautious investor and mindful of all the “do-nots.”  But, still, something about your account doesn’t look right. Something seems to be amiss, but you can’t put your finger on it.  Here are some things to look for.  Keep in mind that most investor claims involve one or more of these stockbroker abuses:

Unsuitable Recommendations. Your broker has a responsibility to recommend investments based on your stated needs and goals, and to follow your instructions. If you don’t want to make risky investments, they shouldn’t be recommended to you. For example, elderly people living on fixed incomes shouldn’t have a lot of their money put into risky stocks, limited partnerships, or investments that don’t provide ready access to funds in case of an emergency.

Unauthorized Trading. A stockbroker is not allowed to buy or sell securities on your behalf without your prior authorization. Neither is he or she allowed to purchase more or less of the securities you ordered. For example, when you order 1,000 shares of stock and your stockbroker purchases 1,100 shares.

Churning. This involves trading an account excessively for the purpose of generating commissions for the broker.

Unauthorized Accounts. This is when the stockbroker opens margin, options or other accounts that you have not requested. This activity often involves forgery or misrepresentations about the nature of such accounts.

Misrepresentation and Omissions. The stockbroker must truthfully disclose all material information, including the risks of the investments he or she is recommending. Concealing the true risk or failing to disclose important information (i.e., the company has not earned a profit in the past three quarters) are examples of misrepresentation, and/or omission.

Theft or Unauthorized Account Transfers.  Theft and conversion occur more often than you might expect, and may be very difficult to detect.

To discover if your broker has engaged in these or other unethical practices, you should:

Examine your monthly statements for unauthorized transactions, excessive trading, or a sudden drop in value.

Seek the professional assistance of an attorney or accountant whenever you’re in doubt about transactions in your account.


What Not to Do

What to Do Next