Before placing an order to buy or sell securities for an investor, a broker or financial advisor must obtain the express permission of that investor. According to securities law, a failure to do so may constitute engaging in unauthorized trading.
If you are an investor whose broker has made a trade in your account without authorization, you may have grounds for a securities arbitration claim to recover any losses.
At Shepherd Smith Edwards and Kantas, our seasoned securities lawyers and investment loss attorneys represent investors whose stockbrokers or financial advisors conducted unauthorized trades. Call us at (866) 931-7628 or contact us online to request your free initial case consultation.
How Much Power of Attorney Does a Broker with Trading Authorization Have? A broker or advisor can obtain trading authorization to purchase and sell securities in a client's account, which allows trades to be placed without contacting the customer first. A securities law firm dictates this as a limited power of attorney, applicable only for placing trades in the account.
While investment advisory firms usually obtain signed forms that allow them to trade for their clients, brokerage firms do not regularly allow brokers to have "discretion" over accounts. That often results in unauthorized trading claims.
Experienced investors know that without written authorization, a broker or financial advisor cannot just place trades for a client without first discussing each order.
However, millions of inexperienced investors have opened accounts in the past decade, including those with little or no background in investing that do not. Many new investors who have rolled over sizable retirement accounts may be unaware of the "rules of the road" at investment firms. That includes those concerning discretionary accounts.
If the client did not give permission for a transaction to be placed, and there was no understanding a trade would be placed, there can be unauthorized trading penalties. The Financial Industry Regulatory Authority (FINRA) prohibits brokers from conducting discretionary trades in their customers' non-discretionary accounts, and the Securities and Exchange Commission (SEC) considers unauthorized trading fraudulent.
It is important to note that even if your broker had good intentions when making a trade without your authorization, if they didn't get your permission first, this is unauthorized trading.
Other Examples of Unauthorized TradingA financial advisor notes down an unauthorized trade as unsolicited, which makes it seem as if the trade was the customer's idea. Making a trade without the client's consent and then attempting to get the latter's permission afterward.
Unfortunately, if the customer didn't complain about the unauthorized trade immediately, some broker-dealers would try to make it seem like the investor had approved the transaction.
How Do You Know If You Have Grounds for an Unauthorized Trading Case?Unauthorized trading claims against a brokerage firm and/or their registered representative are usually brought in FINRA arbitration. As the claimant, you must show that:
An unauthorized trading claim is not the kind of investor fraud dispute you want to pursue without experienced legal help. Unauthorized trading can be tough to prove. The sooner you consult a securities attorney or securities fraud lawyer, the greater your chances of building a solid claim with all necessary evidence to recover your losses.
What are Exceptions to When a Broker Can Make a Trade Without Getting the Investor's Permission First? Discretionary AccountsWhen the customer's account is a discretionary account, unlike a non-discretionary account, this type allows the broker to place trades without getting the client's approval or consent first. However, the investor must have signed a discretionary agreement to document that consent was authorized.
Margin AccountsIn a margin account, a customer can borrow funds from the broker-dealer to purchase securities. In the event the account's value falls under the requirements of the broker-dealer, the firm will have obtained the investor's consent to sell securities when needing to cover the margin balance.
Experienced Securities Fraud LawyersFor over 30 years, SSEK Law Firm has represented thousands of retail investors, retirees, institutional investors, and high-net-worth individual investors in their stockbroker and investment fraud claims. Call our skilled securities fraud attorneys at (866) 931-7628 or contact us online.