Stockbroker Fraud: What Constitutes a Breach of Fiduciary Duty?

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Losses in investing are normal and do not necessarily indicate cases of fraud. Stockbroker fraud occurs when stockbrokers or investors put their interests before those of their clients. If you think that you have been the victim of fraudulent stockbroker activity that resulted in investment losses, you should contact the U.S. Securities and Exchange Commission or an attorney specializing in securities litigation as soon as possible.

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A securities litigation attorney will investigate if your stockbroker breached their professional obligations to you. There are several common types of stockbroker fraud:

Unauthorized Trading

Stockbrokers are obligated to keep clients informed about each completed transaction. The only time a stockbroker can act without your consent is if you have granted discretionary authority or other detailed permission to your stockbroker to transact on your behalf.

If you have a non-discretionary account, your stockbroker must obtain your approval before each transaction and make full and complete disclosures.If your stockbroker has acted on your behalf without keeping you informed of transactions, you may want to contact a securities litigation attorney about possible stockbroker fraud.

Unsuitable Investments

Stockbrokers must consider the financial situation of their clients before making investments. If, for example, you are an elderly widow on a fixed income, a broker must take this information into consideration and not overcommit your resources to high-risk investments. Your stockbroker must consider your risk tolerance, financial needs, and investment goals before making investment recommendations. A stockbroker must make suggestions suitable to your specific situation. If you think that you were pressured into unsuitable investments, you may have been a victim of stockbroker fraud.

Omission or Misrepresentation of Facts

Stockbrokers must explain the potential risks of their recommended trading strategies. If a stockbroker does not adequately disclose material facts about their suggested trades or if they withhold relevant information to the investment decision, they are breaching their fiduciary duty. A poor investment recommendation is not stockbroker fraud, but withholding or misrepresenting material information is. The best way to determine if your stockbroker has distorted information is to speak with a securities litigation attorney.

Over-Concentration of Investments

Stockbrokers are required to act sensibly to protect customer interests. Part of protecting customer interests usually involves diversifying stock portfolios. A red flag for potential stockbroker fraud is if your broker recommends that you place all of your investments into one type of security or into one specific sector of the market, such as pharmaceuticals.

Excessive Trading

If you have a discretionary account with your stockbroker and you notice excessive trading within your account or that the same stock has been bought and sold multiple times in a short period of time, then your stockbroker may have been involved in churning. Churning is an illegal activity that occurs when a stockbroker does not pursue your investment goals but instead excessively trades stock for their own quick profit. Churning is a form of stockbroker fraud.

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