Most stockbrokers are in the business because they love what they do and they want to help people make wise decisions that turn a profit. Unfortunately, some brokers take advantage of their clients and use them for personal fraudulent financial gain.
Stockbroker fraud is a serious crime that doesn’t go unpunished in the United States. For example, the FBI and SEC recently nailed two men who fraudulently obtained over $15 million by scamming elderly people through an elaborate scheme. According to the FBI, the two men acquired millions of shares in small companies for as low as one ten-thousandth of a cent ($0.000001) and hid their ownership stakes by funneling them through offshore shells in Malta.
Many fraud cases end in lawsuits with convictions. Stockbroker fraud attorneys know exactly how to prove a broker has been defrauding their clients and the courts don’t take this crime lightly.
Is your broker taking advantage of you? Should you seek legal counsel? If you suspect your stockbroker might be taking advantage of you, here are 6 signs that indicate it might be time to lawyer up.
1. You’re seeing IRA and retirement losses while your broker is earning commissions
IRA fraud is common. If your IRA and other retirement accounts are experiencing losses while your broker is earning big commissions, that’s a sign that something is wrong.
If you suspect something is wrong with your IRA or retirement accounts, contact a stockbroker fraud attorney to discuss your situation. You might have a case. In the meantime, consider switching to self-directed IRAs. Self-directed IRAs are usually invested in real estate, precious metals, and private mortgages and stocks.
One word of caution, however, is to avoid self-directed IRAs that invest in cryptocurrencies. Cryptocurrencies are extremely volatile, but also open the door for more fraud since self-directed IRAs lack transparency. According to CNBC, cryptocurrency is a $100 billion market and a target for fraudsters.
2. Unauthorized trades
Stockbrokers are supposed to get your authorization before conducting a transaction for you. If you have a discretionary trading investment account, your stockbroker has permission to conduct certain trades without direct authorization. However, they must follow a set of specific guidelines. With a non-discretionary account, your broker must get your express authorization prior to each trade.
If your broker is making unauthorized trades, it might be a sign of fraud.
3. Omission of facts (like risks)
Your stockbroker is legally required to give you an honest assessment of each transaction. Omitting information is considered the same as lying. If your broker tells you a transaction is risk-free or doesn’t tell you about the risks, it’s the same thing.
It can be financially damaging to make decisions based on the absence of information.
4. Excessive trades
Since many brokers are paid by commission, they can make more money by making more trades. If your broker is making excessive trades, those trades might have been made for them to earn a commission. Investors don’t make excessive trades; that’s a bad strategy. Even if you win with every excessive trade you can still lose a tremendous amount of money in the long run.
Your broker is supposed to be making sensible trades according to a sound trading strategy. Anything excessive is suspect.
5. Undisclosed conflict of interest
Your broker is required to inform you of any conflict of interest that exists when telling you about investment opportunities. You have a legal right to make an informed decision. Say your broker tells you to invest in company XYZ and you invest $50,000. It’s considered fraud if your broker owns a major piece of that company and failed to disclose this fact when recommending the investment opportunity.
Negligence always seems to be at the forefront of legal cases and stockbroker fraud is no exception. If your broker’s negligence costs you money, you might have a case against them.
Your broker is not being paid just to make trades. They’re supposed to help manage your investment portfolio to mitigate losses and dodge avoidable risks.
What to do if you suspect stockbroker fraud
If you suspect your stockbroker is committing fraud against you, the first thing you should do is contact a lawyer. An experienced lawyer will assess your case and let you know if you should pursue a lawsuit.
The other thing you can do is file a complaint online through the National Stock Exchange’s service called Nice Plus to warn other people. Just be ready to provide supporting documents and make sure you speak to a lawyer before filing the complaint.