The Tell-Tale Signs That You Have Been a Victim of Stock Fraud

Savage Villoch Law, PLLC
19
Nov

While the stock market has been booming in recent years, 84% of stocks are held by 10% of the population. Despite this fact, there are millions of Americans that hold on to stocks and are no less susceptible to stock fraud than anyone else. Stock fraud can hit investors of all types, most especially those that aren’t as well versed in the world of trading.

Here are six signs that you might have been a victim of stock fraud that you need to look out for.

1. Brokers Trading Without Your Authorization

When you hire a broker to handle your trading, you might think you’re handing them the keys to your ship. However, you’re still the one calling the shots unless you tell them otherwise.

Your broker is only supposed to be buying or selling on your command. They need your permission before they act. Sometimes, brokers engage in unauthorized trading and this is when you need to be wary.

Unless you’ve told them explicitly to act by their own discretion, they’re going to be breaching their own industry’s standards. It’s a violation of your rights for any broker to do anything that you didn’t grant them the authority to do.

In the case that they’ve done this, your trades can be voided either by the broker or by a court of law. If you incurred major losses because of this, that money is recovered from your broker. They will pay you back because they took your money and spend it beyond their own fiduciary duty.

2. They Misrepresented Facts

If you’re not spending all day watching the markets for your job, the whole reason you have a broker is to find out information for you. It’s hard to make an intelligent decision about buying or selling a stock unless you have as much information as a stockbroker has. Anyone who trades without that knowledge is basically doing guesswork.

While brokers aren’t always lying, some like to act on their own authority or trust their own judgment more than they judge yours. They might withhold facts or misrepresent something in order to sway your decision about a stock or an investment.

Some brokers will do this maliciously while others will do so out of carelessness. If your broker has done this on purpose, they’re going to be responsible for fraud. When it results in a bad investment, your broker is liable for your loss and will be held responsible by the law.

3. They’re Churning Your Investments

Some brokers take it on themselves to start churning with your investments. They’ll make excessive trades to try to earn a commission. If you’re paying a trader based on commissions, they’ll get paid based on work regardless of how much money you make or lose.

If a broker starts trading excessively, they could be churning in order to get paid, never really trying to get your investments to return very much.

When a broker is given discretion and control over your investments, this can happen. You need to look out for this kind of activity because it takes advantage of your agreement. If you see your broker churning, don’t just get mad and yell at them.

Your broker is committing fraud. You can take your hands off the wheel and leave it in the hands of the courts. You can sue them or you can let the law deal with them on their own.

4. They Ignore Your Instruction

The whole point of your broker taking a cut is that they’re supposed to follow your directions and listen to what you want. If you say that you want to buy or sell a stock, it’s their responsibility to act. Should they fail to do so, your losses become their responsibility.

If you’re losing a lot of money based on decisions your broker made against your instruction, let them know. If they’re acting on their own benefit instead of yours, they need to be reminded of their role.

Pressuring you to keep a stock against your will is unethical. Telling you to sell when you don’t want to sell is also unethical. Your instructions are the directions that guide the ship.

When your broker applies improper pressure that causes an unnecessary loss, your losses are their responsibility.

5. Misappropriation Is Criminal

While it’s rare for a broker to outright lie and steal from you, misappropriation happens. In the rare case that your broker steals from you outright, they are in violation of the law in such a clear way that you don’t have to do anything. If you catch your broker forging your signature or committing identity theft to make trades on your behalf, your first step is to fire them.

Take away their ability to touch another penny that belongs to you. After that, you need to call in a regulatory agency.

Once in a while, a broker will try to run a scheme to take your money. This scheme involves “selling away” your stocks and investments. If your broker is working outside of the brokerage firm they work for, they could be breaking the law.

In some cases, brokers have even been found selling stocks that don’t exist. This is an extreme case but has happened enough for it to be something fraud agencies look for.

If you think your stock broker is committing stock fraud by misappropriating funds, you can hold them accountable.

Stock Fraud Is More Common Than You Think

Any time there’s a disparity between the people who are paying for something and the people who provide the service, there’s room for fraud. Stock fraud is one such instance that could cost you your wealth, your future, and your wellbeing. If you’re not careful, a few instances of stock fraud could upend your whole life.

If you suspect fraud is afoot, follow our guide for what to do next.