Watch Out For Stockbroker Fraud

If you own a significant amount of stock, then you are probably dealing with a stockbroker regularly. In most cases, stockbrokers are ethical and honest, but a small minority might be tempted to defraud their clients for financial gain. Watch out for the following scams that could cause harm you financially.

Churning

Does your broker constantly recommend that you make numerous small trades? This sometimes happens when a broker who is working on a commission and makes a small profit on each trade he completes, succumbs to the temptation to increase his commissions by enacting an excessive number of trades.

Be suspicious if your broker advises adopting this type of trading strategy, called churning, rather than a "buy and hold" strategy. The latter is almost always a better long-term plan for the average person.

Unauthorized Trade

If you see any transactions on your brokerage account that you do not remember telling your broker to make, then it's possible the broker is using your account fraudulently for financial gain. Have the broker explain why a trade was made if you do not recall giving them permission to do so.

Related to unauthorized trading is not enacting authorized trades. Your broker is legally required to make trades you request in a timely manner. If they do not, this could be a case of fraud.

Suitability

A non-profit organization called the Financial Industry Regulatory Authority (known as FINRA) was created to enforce high standards on stockbrokers. One of the regulations it has enacted is called the Suitability Rule. This rule is in place to make certain that brokers do not take advantage of clients by recommending investments that are not appropriate for them.

For example, a risky investment, such as a futures option, might be appropriate for a wealthy middle-aged executive who does not mind risking their money on a speculative gamble. The same investment, however, would not be appropriate for an elderly person who has a limited income.

If a broker is advising you to purchase stocks that are not suitable to your financial circumstances, this could be a sign of fraud. The broker might be receiving a payment to push certain stocks and could be doing so for their own personal profit, regardless of whether the transactions are appropriate for you.

If you suspect that your broker is committing fraud, you need expert advice to deal with the situation. Check out a website like http://www.carterwestlaw.com for more information and assistance. 

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