WHAT IS SECURITIES FRAUD?

Securities Fraud occurs when your rights as an investor have been violated by your registered representative or broker dealer.  Large losses do not necessarily prove broker wrongdoing, thus, losses that are the result of market forces or other considerations should not be considered securities fraud.

HOW DO I KNOW IF I’VE BEEN DEFRAUDED?

Unfortunately, it may be difficult or nearly impossible to tell unless you consult with a professional.  Listed below are just a few of the warning signs for investment fraud:

• Your broker fails to return your calls
• You no longer understand the transactions on your statements
• Your broker tells you to view market news as “entertainment”
• Your broker fails to disclose important information regarding an investment purchase.
• Your broker begins trading in high risk and speculative investments
• You are paying capital gains taxes, despite the fact that your account value is decreasing.
• You find transactions on your account statements that you did not previously authorize.

These are only a few of the warning signs.  If any of these signs are familiar to you, you may wish to immediately seek the advice of an investment fraud professional.

WHAT TYPES OF THINGS CAN’T A BROKER DO?

• A broker cannot make recommendations to a customer for the purchase or sale of a security that is not suitable for his customer, given his customer’s age, financial situation, investment objectives and investment experience.
• A broker may not purchase or sell securities in a customer’s account without first contacting his customer and obtaining specific authorization for the sale or purchase.  An exception to this rule is if the broker has received written discretionary authority to effect transactions in an account, or if the broker was given discretion as to a particular price and time to buy a particular security.
• A broker cannot switch a customer from one mutual fund to another, when there is no legitimate investment purpose to do so.
• A broker may not intentionally misrepresent or fail to disclose material facts concerning an investment.  An example of a material fact would be to accurately present the risks involved in a particular investment, the charges or fees involved to purchase an investment, the company’s financial information and any technical or analytical information, such as bond ratings.
• A broker may not remove funds or securities from a customer’s account without the customer’s prior written authorization.
• A broker may not charge a customer excessive mark-ups, markdowns or commissions on the sale of securities.
• A broker may not guarantee to his or her customer that they will not lose money on particular securities transaction.  The broker may not make specific price predictions, or agree to share in the losses in their customer’s account.
• A broker may not engage in a private securities transaction with one of his or her customers, which may violate any NASD rules.  This is particularly true where such transactions are done without the knowledge and permission of the broker-dealer employing the representative.
• A broker is prohibited form using any manipulative, deceptive or other fraudulent device or contrivance to effect any transaction, or to induce a customer to purchase or sell any security.

This list does not encompass all of the conduct prohibited by the rules of the National Association of Securities Dealers.  If you have questions regarding the conduct of your representative and/or broker-dealer, you are urged to contact a qualified attorney or other trusted professional.  DO NOT contact your broker directly.  For a free evaluation of your case, click on Do I Have a Case?

What Are Some Of The Duties That My Stockbroker Owes To Me As His Customer?

First and foremost, a stockbroker has a duty to treat his customers in a fair manner, which is characterized by high standards of honesty and integrity.  The NASD Rules of Fair Practice impose the following standards upon members of the securities industry:

            “A member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade.”

A broker also owes his customer a duty of loyalty.  Brokers should always place the interest of their customers before their own.  We all know that many (not all) brokers earn their living through commissions on the transactions they execute on behalf of their clients.  Accordingly, this creates a very delicate relationship between the broker’s interest and the interest of their customers.  Frequent trading in a customer’s account should be considered a red flag.  As the broker is required to recommend trades which meet the needs of the customer.  The broker is prohibited from engaging in frequent trading for the purpose of generating commissions for himself.  This activity is known as “churning”.

A broker is required to make recommendations to customers for the purchase or exchange of any security only if he or she has reasonable grounds for believing that the recommendation is suitable for the customer.  This belief must be made upon the basis of the facts disclosed by the customer regarding any other security holdings and after his or her financial situation and needs.

The brokerage firm is required to maintain a “watchful eye” over its’ registered representatives.  The brokerage firm must maintain a system to assure that its brokers are in compliance with all of the relevant securities rules and regulations.  As a result, the brokerage firm can be just as liable as the representative in securities arbitration actions.

Customers should expect to be treated by their broker and brokerage firm in accordance with the high standards imposed upon them by the brokerage securities profession.  A good banker is cognizant of the fact that his client is putting his financial well being in their hands and should act only with the customer’s best interests at heart.

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