Stockbrokers and financial professionals owe their clients a fiduciary duty to act at all times in their best interests and not to engage in conduct designed to enrich themselves at the direct expense of their client.  The federal securities laws, as well as securities industry rules and regulations, are designed to protect investors against any materially false and misleading statements, or omissions, made to them in connection with the offer and/or sale of a securities investment. 

Stockbroker misconduct and investment fraud takes many forms, including: (1) unsuitable investment recommendations, (2) churning or excessive trading, (3) unauthorized trading, and (4) selling away.  Click on the links to learn more about these particular forms of stockbroker misconduct.  Also, read an article Mr. Chase authored on this topic – click here.

Unsuitable Investment Recommendations

Both the federal securities laws and securities industry rules require investment professionals to make only suitable and appropriate investment recommendations to their clients.  To determine whether a recommendation is suitable, the customer’s age, income, net worth, risk tolerance, education, prior investment experience and investment objectives are taken into account.  A stockbroker is required to have a reasonable basis for his recommendations and must “know his customer” before rendering financial advice.   
           
Investment professionals have the duty to ensure that any speculative or risky investment is suitable for the client, and that the client fully understands and is willing to undertake the risks associated with the investment. A classic example of an unsuitable investment recommendation is where the stockbroker places the proverbial elderly and unsophisticated widow -- who requires steady monthly income -- into high-risk, speculative investments, such as technology stocks on margin or illiquid private placements or limited partnerships. Another example of unsuitability is where the stockbroker recommends a portfolio that is concentrated in just one or two individual stocks, or in just one sector (i.e., technology), or engages in a highly risk trading strategy, often involving the use of margin and/or options.  This over-concentration dramatically increases the risk of loss and denies the investor the benefit of diversification where risk is mitigated by being spread over several asset classes. The stockbroker's unsuitable investment recommendation may be driven by his own financial self-interest (in some cases the sale of speculative equity investments may generate a higher commission payout than a more appropriate, conservative one), or may be the result of simple negligence, where the stockbroker fell in love with a particular stock or sector and failed to exercise reasonable care.

An unsuitable investment recommendation is a form of stockbroker fraud and misconduct and is actionable under the law. 
           
Contact us today if you believe your stockbroker or other financial professional made an unsuitable investment recommendation as you may be entitled to recover your losses.

Churning or Excessive Trading

Churning occurs when a stockbroker engages in excessive trading in an account he controls for the purpose of generating commissions. If the stockbroker is consistently buying, selling and then re-purchasing securities in your account on a short-term basis, generating substantial commissions in the process, and there does not appear to be any benefit derived by you, the stockbroker may be churning the account. There are various ways to prove that the trading is excessive, including the use of certain ratios that measure the amount and frequency of the trading, as well as other ratios that measure the cost of the trading relative to the equity in the account.
           
Churning has been described as: "A particularly vicious and fraudulent course of conduct . . . deserving of the severest condemnation. Its very nature brands it as one of the most injurious types of fraud possible. Its perpetrators prey on unwary and inexperienced investors." Newsom v. Dean Witter Reynolds, Inc., 558 So.2d 1076 (Fla. 1st DCA 1990).
           
Contact us today if you believe your stockbroker or other financial professional churned or excessively traded your account as you may be entitled to recover your losses. 

Unauthorized Trading

With minor exception, before a stockbroker can place a trade in your account, he must have your express permission and consent.  This is true unless the stockbroker has previously been provided with written authority allowing him to exercise his discretion in determining what securities to purchase and sell, and when. In the event your stockbroker has purchased and sold securities without your prior knowledge and consent, he may have violated securities industry rules and may be liable for the losses resulting from those unauthorized trades.

Contact us today if you believe your stockbroker or other financial professional engaged in unauthorized trading in your account as you may be entitled to recover your losses.

Selling Away

If your stockbroker recommends that you purchase an investment not being sold through the brokerage house, your broker is engaged in conduct known as “selling away.”  This is a violation of the securities laws and regulations.  Commonly, the investments offered are in the form of promissory notes or private placements.  

Contact us today if your stockbroker solicited the sale of an investment away from the brokerage firm as you may be entitled to recover your losses.