12 Common Types of Prohibited Stockbroker Conduct
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As reported in InvestmentNews, three Raymond James entities have agreed to pay over $15 million to resolve an investigation by the SEC. The settlement and SEC order focused on Raymond James’s actions in improperly charging certain clients advisory fees when the...read more
The securities industry is regulated, in part, by an organization called the Financial Industry Regulatory Authority (FINRA), which oversees the activities of more than half a million financial professionals and brokerage firms in locations across the U.S. Though not a government agency, FINRA is “authorized by Congress to protect America’s investors by making sure the broker-dealer industry operates fairly and honestly.” To help fulfill this mission, FINRA investigates claims and complaints that are filed by investors against brokers, investment advisors, and other financial professionals. If FINRA finds that wrongdoing occurred, whether due to fraud or sheer negligence, the investor may be awarded compensation. In this article, FINRA arbitration lawyer Dietrich Epperson provides a brief overview of 12 types of stockbroker conduct that are prohibited by FINRA. If you think your stockbroker engaged in misconduct, you should speak with a FINRA attorney about your legal options for getting compensated.
12 Ways Your Stockbroker or Financial Advisor May Have Broken the Law
Stockbrokers, financial advisors, and other FINRA members are prohibited from engaging in any of the following forms of misconduct:
- Buying or selling stocks without first obtaining the investor’s permission. Our unauthorized trades attorneys can help if your broker sold stocks and/or purchased stocks in your account without getting your authorization beforehand.
- Charging excessive markdowns, markups, or commissions to buy or sell stocks or other securities.
- Engaging in a practice called “trading ahead,” in which the broker trades for his or her firm’s account before entering a client’s order to buy or sell at the same price, thereby putting the client at a financial disadvantage. Trading ahead is prohibited not only by FINRA Rule 5320, but also the New York Stock Exchange (NYSE).
- Engaging in manipulation or outright fraud to cause or facilitate the sale or purchase of a security.
- Failing to disclose critical, need-to-know facts about an investment, which is a type of misconduct known as “omission.” Omission occurs when “material,” or significant, facts are intentionally concealed from an investor, such as the fees or level of risk involved in a given investment deal. An omission lawyer from Epperson & Greenidge, P.A. may be able to offer legal assistance if this describes your situation.
- Failing to exercise reasonable care to ensure that a client’s order is executed at the best price available, taking normal market fluctuations into consideration.
- Making an “unsuitable recommendation,” meaning an investment recommendation that is inappropriate for the investor’s age, level of experience, risk-tolerance, investment objectives, or other elements of his or her unique investor profile. Our unsuitable investments attorneys have extensive experience representing investors who were given inappropriate financial recommendations by their brokers and financial advisors.
- Making private transactions, which frequently violate FINRA regulations, especially in cases where the broker’s firm was neither notified of, nor granted authorization for, the transactions to occur.
- Removing securities from the investor’s account without obtaining permission first.
- Selling or buying stocks while the broker has possession of significant (“material”), private information concerning an issuer, such as a government entity, an S or C corporation, or an investment trust.
- Switching a client from one mutual fund to a different mutual fund without having a valid financial reason for making the change.
- Telling clients that they are “guaranteed” to make money and/or avoid financial losses. Similarly, it is also prohibited conduct to tell the client that the broker will share in any losses sustained.
FINRA Arbitration Lawyers Representing Investors and Fraud Victims
If you incurred financial losses because your broker or investment advisor took any of the actions on the list above, or engaged in similar forms of misconduct, you should review your options with an experienced FINRA arbitration lawyer as soon as possible. If you were a victim of securities fraud, a FINRA lawyer may be able to help you recover compensation for your losses by representing you at arbitration, a dispute resolution procedure that FINRA offers for defrauded investors.
Skilled and aggressive representation is essential, because the awarding of damages is contingent upon presenting a robust, evidence-driven case before arbitrators. Moreover, you will be up against a brokerage firm or financial advisor with his or her own attorneys, which makes representing yourself a risky gamble that is almost certain to result in a negative outcome. Put simply, legal representation levels the playing field and increases your likelihood of successfully recovering compensation for your losses.
If you, your husband or wife, or your small business lost money because a broker or investment advisor lied to you, concealed information, made inappropriate financial recommendations, traded without your authorization, improperly switched you to a different mutual fund, charged you excessive fees, or engaged in other prohibited actions, you may be entitled to financial compensation. To learn more about your legal options in a free consultation, contact the law offices of Epperson & Greenidge, P.A. online, or call us today at (877) 445-9261.