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Common Types of Stockbroker Misconduct

  • The investment world and financial markets can be complex. Even the most experienced investor can find the stock market complicated. For this reason, many investors will rely on their financial advisors and stockbrokers to guide them in their investments. Some investors even give their brokers discretionary authority to make transactions without their consent. 

    But some stockbrokers take advantage of their investors to further their own financial gain. They know that they may be able to get away with certain acts as long as they don’t cause you serious investment losses. It often isn’t until an investor suffers massive losses that they realize the extent that they have been defrauded. 

    Stockbroker misconduct can take many forms. You can learn more about some of the more common types by reading on. And when you’re ready to get justice and hold your broker accountable for their misconduct, you can contact an experienced investment fraud lawyer.

    Churning (Excessive Trading)

    In many cases, every time your broker makes a trade in your accounts, they generate a commission. Many scheming stockbrokers will churn their investors’ accounts to pad their own wallets. Churning, also known as excessive trading, occurs when a stockbroker makes multiple trades in an investor’s accounts without their permission. It is highly unethical and illegal. 

    If your stockbroker cost you money due to churning, you may be able to pursue an arbitration complaint against them with the Financial Industry Regulatory Authority (FINRA). Here, you could be awarded full restitution for your related stock losses. 

    Unsuitable Recommendations 

    Your stockbroker has a duty to make investment recommendations that align with the goals described in your investment portfolio. Your broker has an obligation to do their due diligence when making an investment suggestion. 

    If they fail to do so, or make recommendations that otherwise are not a good fit for your portfolio, the investment could be considered unsuitable. When a broker makes an unsuitable recommendation, they can be ordered to repay investors for their losses in FINRA arbitration. 

    Lack of Portfolio Diversification 

    Have you ever heard the phrase, “Don’t put all your eggs in one basket”? Think of a lack of portfolio diversification as putting all of your eggs in one basket. Your stockbroker should have ensured that your portfolio was diversified—that you didn’t put your entire investment into one stock, bond, industry, or other investment opportunity. 

    An over-concentrated investment portfolio increases your risk of suffering substantial investment losses. Your stockbroker should know this and prevent it from happening. When they don’t, they could be held accountable for any investment losses their client suffers due to the broker’s own negligence.

    Contact an Investment Fraud Attorney

    If you have been a victim of stockbroker misconduct and are interested in exploring your legal options, an investment fraud lawyer at Wolper Law Firm could help you pursue recovery of your investment losses. 

    Schedule a free, no-obligation consultation when you call our office at 800-931-8452. Or visit our website, where you can complete our convenient contact form, and we will reach out to you to discuss the specific details of your case.