Stock Frauds: What to Do If You Suspect Your Broker of Misconduct

You trusted your stockbroker with your hard-earned money. And it seemed like a great arrangement…at first. Now, you’re worried that your stockbroker is committing fraud with your investments. You’re not alone. In 2017, 66,873 cases of securities fraud and theft were reported to the United States Sentencing Commission. If you think your broker is committing stock frauds, don’t waste time. Read on to find out how to protect your money.

Contact the Brokerage Firm and Branch Manager

Before you do anything else, you need to contact your brokerage firm immediately. This is for two reasons:

To maximize the potential for recovery of any losses
To make sure you have the complete picture

Obviously, there’s always the chance that a questionable transaction only looks questionable until you have the complete picture, which is why you need to discuss it with your broker and brokerage firm right away. If you aren’t satisfied with the answers you receive, you should immediately ask to speak to a branch manager. Regardless, any problems you notice should be addressed immediately, as there are statutes of limitations that apply to certain claims, and delays may prevent you from being legally able to bring a claim at all.

Know the Difference Between Losses and Fraud

For this reason, it’s important to understand the difference between reasonable market losses and stockbroker fraud. As any investor knows, the stock market fluctuates all the time. Because of this, it’s easier for shady brokers to pass off fraudulent investment as normal market losses. The key is to establish negligence on the part of your broker.

When You Have a Legal Case After Stock Market Losses

So, how do you know if you have a legal case after market losses? Take a look at the investments your broker is making. For example, is your broker making investments that are unsuitable for you based on your risk preference, financial goals, and interests? Did they pressure you into an investment you didn’t want? You may also have a case if your broker completed any trades you did not authorize. You have complete discretionary authority, and the only time a broker can make a trade on your behalf is if you have given detailed permission allowing them to do so. In addition, if your broker omitted any information about a trade or misrepresented facts or figures which later resulted in a loss, you have a case. Remember, you have discretionary authority, so if your broker is misrepresenting information to pressure you into a trade, they’re committing fraud.

Know How to Spot Fraud

That said, it’s important that you’re able to spot fraud when it does occur. Otherwise, your broker could carry on indefinitely and you’d never know. There are several different types of fraud a stockbroker can commit, and you should be able to recognize the red flags that indicate these practices.

Types of Fraud

Most people have heard of investment frauds like Ponzi schemes, either from the news, TV or movies. But there are many different types of fraud your stockbroker can commit beyond the basic Ponzi scheme. For example, there’s churning, which is when a broker trades excessively on a client’s behalf in order to generate commissions. This is usually indicated by frequent buying and selling of securities that do little to benefit the client. There’s also the short and distort scam, which is the inverse of a pump and dump scheme. In a short and distort, investors will short a stock and then spread rumors to drive the price of that stock down. If you spot any questionable transactions, do some research on different types of investment scams and see if one rings true for your broker.

Assemble the Right Documents

If you have spotted what seems to be stock frauds and you haven’t gotten any kind of reasonable explanation from your broker, you need to start assembling your case as soon as you talk to the brokerage firm. This begins by collecting evidence. In a stock fraud case, this typically means collecting the necessary documents that would prove fraud, which can include:

Notes of discussions with your broker
Copies of correspondence with your broker and their firm
Account statements
Confirmations of transactions
Any written materials your broker provided you
Any research material you received from your broker

If it seems relevant, put it together with the other documents, and keep any new documents that come in after you spot the fraud as well.

Speak With an Attorney

From there, you need to take all of those documents to an attorney. Even if you’re a lawyer yourself, it helps to have a levelheaded third party handle your case to ensure all the essential details are covered in your claim. It’s vital that you find a lawyer with experience in stockbroker fraud, who knows the ins and outs of securities law. More than that, it should be a lawyer you’re comfortable working with long term. Remember, they’re going to spend a lot of time digging into your personal financial information. If you don’t feel comfortable enough to be honest, they won’t be able to help you.

Keep the Case Between You and Your Lawyer

Finally, once you start working with a lawyer, you’ll need to do several things to help your lawyer keep the case on track. One of the most vital is keeping the details of the case between you and your attorney. Attorney-client privilege doesn’t just exist to protect you. It exists to help your lawyer do a better job of protecting you. Remember the phrase, “Anything you say can and will be used against you in a court of law…”? That applies here. Let your attorney do the talking for you.

Are You the Victim of Stock Frauds?

If you are the victim of stock frauds, you’re going through a frightening time. You thought your money was secure, only to find that someone with all of your financial details has been misusing your money on the stock market. Don’t waste time. You need a lawyer that will fight to get your money back. That’s where we come in. We’re a law firm experienced in stockbroker misconduct, and we’re ready to help. If you have any questions or would like to set up a free case review, use our contact page to get in touch.

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