Stockbroker fraud occurs when an advisor, stockbroker or brokerage firm provides you with inaccurate information or takes other action that benefits the brokerage firm at your expense. All stockbrokers and investment advisors have a duty to exercise care in the advice they give, and act in your best interest. Their professional duty is based on both state and federal securities laws, as well as the Financial Industry Regulatory Authority.
If your stockbroker fails to meet these professional standards of care, you (the investor) can file a claim for arbitration against the broker and possibly his brokerage company. Talk to a stockbroker fraud attorney in your area to discuss filing your claim, and recover the damages you deserve.
Types of Stockbroker Fraud
In recent years, a number of investment fraud cases have made headlines. Brokerages have been charged with insider trading, where they are selling IPO stocks (initial public offerings) at preferential prices to friends and preferred clients. Investment banking firms have withheld unfavorable information about the companies whose stock they are selling so that the public pays a higher price for the stock.
Stockbroker fraud may be committed by an individual or it can occur at a companywide level. This type of fraud can range from multi-million-dollar deals to penny stocks.
Some examples of stockbroker fraud involve unsophisticated investors who are harmed in the following ways:
- Over-concentration: this occurs when your broker recommends that you concentrate your holdings in the securities of a specific company or an industry so that your investments are not sufficiently diversified and you are more susceptible to unfavorable swings in the stock price.
- Misrepresentations or omissions: if your stockbroker does not provide you will all the information you need regarding risk factors, or if he or she makes a material misrepresentation as to the value of a particular security.
- Unsuitability: this occurs when a broker places pressure on you, encouraging you to invest in undesirable stocks which result in significant loss.
- Churning: this is characterized by a large number of transactions, and selling stocks with small gains in order to generate a profit in the form of brokerage fees for the broker and his company. This type of fraud often happens with unsophisticated investors who allow the broker to dictate their investments.
Other forms of stockbroker fraud can include:
- The failure to place an order
- Unauthorized trades
- High-pressure sales
If you would like to speak to a stockbroker fraud attorney in your area, please click here for more information.