What Is Stockbroker Misconduct?

Our Seasoned Brokerage Firm Arbitration Attorneys Are Here To Help Recover Investor Losses when Stockbroker misconduct is Suspected

There are different kinds of broker misconduct that can be committed by registered representatives and/or their broker-dealers. There is, of course, the most egregious kind, which is when a financial advisor purposely commits stockbroker fraud by running an investment scam or misappropriating investors’ funds by theft. These are crimes that should be prosecuted. However, criminal fraud charges don’t always lead to recovery of investor losses for victims. The same can be said for the outcomes of civil cases filed by the US Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), or a state securities regulator against a broker-dealer.

For over 30 years, Shepherd Smith Edwards and Kantas (investorlawyers.com) has been fighting for investors pursuing damages from their broker-dealers and financial advisors. With savvy FINRA lawyers representing you, filing your own broker misconduct against your brokerage firm can increase your chances for a full, or even partial, financial recovery.

Common Types of Broker Misconduct That May Be Grounds for a FINRA Lawsuit

Unsuitability: This is the term used for when a financial advisor recommends a financial product or trading strategy that is not appropriate for a customer given their investor profile. Unsuitability is one of the most common reasons cited by customers seeking to recoup damages for their investment losses. Oftentimes, these financial losses could have been avoided if only their broker had recommended financial products that were more appropriate for the client’s age, financial goals, risk tolerance level, or investing experience.

Overconcentration: Also known as “concentration” or a “failure to diversify,” this can happen when a financial advisor invests a client in too much of one particular kind of financial product or a segment of the market to the point that it exposes the latter to an excessive degree of risk should the investment fail. For example, investors whose portfolio were overconcentrated with oil and gas investments suffered more losses than they should have at the start of the COVID-19 pandemic because their financial advisor did not diversify their accounts with enough other kinds of investments.

Misrepresentations and omissions: This is when a broker provides a customer with materially misleading or false information or doesn’t provide them with key facts that may have impacted whether or not they would have decided to invest. Misrepresentations can be made verbally by a financial advisor to a customer or in writing through misleading statements found in an investment’s marketing collateral. Omissions can also refer to when a broker fails to disclose that they have a conflict of interest as it relates to a product that they are recommending to a customer.

Churning: Also referred to as excessive trading, this typically involves a financial advisor executing too many trades in a customer’s account not because it is in the investor’s best interests but because the broker will earn the broker more fees and commissions.

Breach of fiduciary duty: Your financial advisor is a “fiduciary” to you and has a legal obligation to act in good faith while making sure they have no conflicts of interest that could violate that duty. Making unsuitable investment recommendations, misrepresentations and omissions, churning, or recommending financial products with risks that even they don’t fully understand are all examples of a broker breaching their financial obligation to you.

Best interest violations: In 2019, the SEC adopted Regulation Best Interest, which sets a higher bar for broker-dealers and their financial advisors when selling securities to customers. Previously, brokers only needed reasonable grounds for believing that an investment was suitable for an investor before making the recommendation. With Reg BI, brokerage firms must be able to show that the investment recommendation was, in fact, in the best interest of the customer.

Broker negligence: Engaging in stockbroker misconduct that causes customers to suffer investment losses is negligence. A broker-dealer failing to properly supervise their financial advisors’ activities in client accounts is also negligence, as is not conducting the proper due diligence that would have allowed the firm to detect that the financial product they recommended was part of an investment scam.

Why File a FINRA Lawsuit Against Your Broker-Dealer?

You may be able to hold your broker-dealer liable for their broker’s misconduct even if the firm was not aware of their actions. To do this, you must file your own investor loss claim and sue them in FINRA arbitration.

This is the formal alternative to litigation that you consented to when you signed the agreement to work with your broker-dealer. Although less costly, complex, and faster than going to court, it is still important that you hire knowledgeable FINRA lawyers who understand the arbitration process and know how to build a solid and convincing securities fraud lawsuit on your behalf.

You want a securities arbitration law firm that has the experience and resources to go after brokerage firms and hold them accountable for your losses. Over the years, Shepherd Smith Edwards and Kantas has represented thousands of investors and recouped many millions of dollars on their behalf.

What Is The First Step You Should Take To Protect Yourself Following Possible Stockbroker Misconduct?

Do NOT try to resolve this directly with your brokerage firm as they likely will be looking to protect themselves from liability. Contact our stockbroker misconduct law firm at (800) 259-9010 today to request your free, no-obligation case assessment.