What to Do If You Suspect Your Broker Engaged in Unauthorized Trading
Under most circ*mstances, a broker or financial advisor cannot trade in your account without your permission. There are very limited exceptions to this rule. Unauthorized trading is a serious offense that can result in liability. In order to prove that your broker engaged in unauthorized trading, it is strongly recommended that you consult with an experienced attorney.
At Meyer Wilson, we represent clients who have suffered financial losses related to investment fraud and stockbroker misconduct. Our experienced attorneys will fight hard to hold brokerages and other financial institutions accountable for their wrongdoing while helping you recover your losses.
Did your broker or financial advisor trade in your account without your permission? Contact our office at (614) 532-4576 for a free consultation.
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614-532-4576 When a Broker Can Make Transactions Without Your Permission
In most cases, a broker or financial advisor will be prohibited from making any trades or transactions within your account without your permission. One of the few exceptions to this rule is if you have a discretionary account.
A discretionary account gives the broker or financial advisor the ability to use their “discretion” in making trades (buying or selling securities) without your prior authorization. Discretionary accounts are somewhat rare and are required to be in writing. The customer agreement you sign will expressly state that the broker has the authorization to make trades without obtaining your permission.
Discretionary vs. Non-Discretionary Account
Because a discretionary account allows a broker or financial advisor to make transactions in a customer’s account without their express authorization, the Financial Industry Regulatory Authority (FINRA) imposes special supervisory requirements.
Additional supervisory requirements include reviewing all discretionary accounts at “frequent intervals.” Discretionary accounts may be more prone to inappropriate trading since they do not require client approval for transactions. Even though an account may be marked “discretionary,” all trades that the broker makes in the account still must be in the client’s best interests.
In non-discretionary accounts, a broker or financial advisor must obtain a client’s permission before making any transactions. Any buying or selling of securities without a client’s authority is considered unauthorized trading and is a direct violation of FINRA Rule 2010.
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614-532-4576 Margin Calls
The other exception to the rule is if the broker or financial advisor was executing a margin call. If you have a margin account where you have borrowed money from your broker to buy a stock, the broker may be able to sell your securities without first obtaining your permission. The account must have fallen below a firm’s maintenance requirement in order for this exception to apply.
Buying investments on margin is risky and may be unsuitable for the average investor. It is vital that you understand all of the potential downfalls and risks of loss before agreeing to trade any investments on margin. However, if you do not have a margin account or a discretionary account, any trading in your account without your permission may be considered investment fraud.
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Suffered Losses Related to Unauthorized Trading? Contact Our Office.
If you have sustained losses related to unauthorized trading on your account, you might be entitled to compensation. Contact our office at (614) 532-4576 for a free, no-obligation consultation. We represent clients nationwide for investment and securities fraud claims. Call now to get started.
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The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from public sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise.
FAQs
Unauthorized trading is a common form of broker misconduct. According to the SEC, unauthorized trades are those made by a broker without the customer's permission or authorization. As a general rule, financial advisors must have a client's permission or authorization to make trades in their investment account.
What is considered unauthorized trading? ›
Unauthorized trading involves the purchase or sale of securities or other assets in a customer's account without the customer's prior knowledge and authorization.
Can a broker sell your stocks without permission? ›
If a stockbroker fails to obtain permission from their client before selling or buying stocks or other securities in their account, they are subject to legal action. Unauthorized trading can leave a broker facing both criminal charges and civil lawsuits.
Are financial advisors allowed to trade? ›
The regulation authority says on its website that "FINRA rules prohibit unauthorized discretionary trading, and doing so is a serious offense." In short, an advisor can make trades without your knowledge if you've given them express permission in writing and their firm has also approved the account.
Are brokers allowed to trade? ›
Brokers may buy and sell stocks as they see fit in a discretionary account, as long as the trades are in line with your investment policy statement and risk preferences. A brokerage may also sell stocks automatically in your margin account to satisfy an unmet margin call.
What is an example of illegal trading? ›
Some examples of illegal wildlife trade are well known, such as the poaching of elephants for ivory and tigers for their skins and bones. However, countless other species are similarly overexploited, from marine turtles to timber trees. Not all wildlife trade is illegal.
What is the illegal way of trading? ›
Insider trading involves the buying or selling of a security, such as a stock or bond, based on material, non-public information about the company in question. Essentially, it occurs when someone with inside information about a company uses this privileged knowledge to make investment decisions.
Can a broker close your account? ›
Generally, either you or your brokerage firm may close your brokerage account at any time. The specific steps you will need to follow to close your account are usually found in the terms and conditions of your brokerage account agreement.
Can a financial advisor buy and sell stocks? ›
However, that does not mean investment advisors and brokers have the right to sell stocks indiscriminately. On the contrary, it is generally unlawful for a stockbroker or financial advisor to sell stocks or other securities without obtaining the investor's permission in advance.
Can my broker lend out my shares to short sellers without asking? ›
The only case where your broker might lend your securities without your knowledge is when you have a margin account and you are actually borrowing money. > brokers cannot lend your shares without a written agreement allowing it.
A financial advisor offers assistance with — or, in some cases, complete management of — your finances. A financial advisor can help you create an emergency fund, start investing, pay off debt, and more. You can find an advisor locally or work with an online advisor or robo-advisor.
What is the difference between a financial advisor and a financial broker? ›
Investment advisers are paid a flat fee or percentage of AUM to advise clients on securities and/or manage portfolios. Brokers are paid commissions to execute trades or buy and sell assets for clients.
Can financial advisors have a side business? ›
Any financial advisor can use a side hustle to help boost their income, career, or business – and you can get started before you even launch your own firm or finish your formal education.
What not to tell a broker? ›
Here are the 7 most important things to not tell your realtor when selling.
- What you think your home is worth. ...
- Your need to sell quickly. ...
- Plans for upgrades before selling. ...
- Non-mandatory legal information about your property. ...
- You're okay with an inflated history of dual agency. ...
- Your lowest acceptable selling price.
Market maker takes trade against you. If you are a winning trader the broker will hedge your positions into the market and only make the spread. If you are a losing trader most brokers take the other side of your trades and keep them on their internal book.
Can someone else trade my brokerage account? ›
An individual can typically grant a third party either limited trading authorization or full trading authorization. Limited trading authorization: This type of authorization allows a broker, financial advisor, or other designated agent to place trades with funds held in an investment account.
What is a trading violation? ›
The settlement of the buy and the subsequent sell don't match, which is a violation. This is also known as a "late sale." Example. On Monday, you buy stock X. To pay for stock X, you sell stock Y on Tuesday or later.
Is it illegal to trade stocks under someone else's name? ›
The short answer is: no. You can't trade stock for someone else. That's illegal unless you're an investment professional. There are a lot of legal requirements to manage other people's money.
How do you prove trading? ›
A copy of your latest accounts or tax return. A copy of an in date public liability or indemnity insurance policy. An invoice for work completed dated within the last three months. An online presence such as a website or social media account.
What are non genuine trades? ›
Abnormal / Non-genuine trades described as: “Instances wherein the buy and sell transactions have been executed in / by the same sets. of parties, on the Exchange, at abnormally high prices differences which are not co-related to the spot / futures price movement in the underlying commodity.
