Stock
Broker Fraud
Investing in the stock market is becoming more popular
than ever. With the introduction of online trading, lower commissions per
trade, and a decrease in corporate sponsored retirement plans, more people are
turning towards purchasing individual company stocks and mutual funds.
However, with any investment comes a natural risk to the
lender. Some risks are inherent to the type of investment, however, some can
be avoided. One of the greatest risks, other than the company that you've
recently invested in going bankrupt, is Stock Broker Fraud. Yes, those guys
that intimately handle your money on a daily basis may not always be on the
up-and-up.
Here are some of the more popular Stock Broker Fraud
scams:
Churning - The excess buying, selling,
trading of stock in order to generate a higher rate of commissions. Most
brokers work on a fee-per-transaction basis. So, the more trades they make for
you, the more money they make for themselves.
Unauthorized Trading - This type of fraud
occurs when your broker makes trades without your permission. Unless you have
given your broker, or your brokers firm, specific permission to make trades on
you behalf through written discretionary authority or power-of-attorney, the
broker is not authorized to make trades on your behalf without consulting you
first. Again, this is typically done in an attempt to drive up commissions.
Failure to Execute Order - Similar to
Unauthorized Trading, failing to carry out your specified trades is also a
severe form of Stock Broker Fraud. Brokers are not allowed to ignore,
disregard, or delay your order in any fashion.
Unsuitability - A good broker should
understand the needs of their clients in regards to financial position, future
needs, personal desires, ethics and invest accordingly. Purchasing stocks that
may be too risky, practice shady bookkeeping, violate their clients moral
beliefs, etc. is a contradiction to the brokers obligation to represent their
client accordingly.
Over Concentration - Investing too heavily
in any specific industry or economic sector can create an unbalanced portfolio
for their client. Part of the broker's responsibilities is to ensure that
their client's portfolio is properly diversified in a variety of different
investments. Investing too heavily in one area could turn catastrophic should
that industry take a down-turn.
High Pressure Selling - Some brokers will
stoop to using high pressure sales tactics to encourage you to invest in
'house stocks', or investments where they may get a kick-back or higher
commission percentage. Brokers must disclose any known risks regarding stocks
they represent and may not make any guarantees regarding a stocks performance.
Illegal Accounts - A broker cannot create
and/or place money into fraudulent or non-authorized accounts. Additionally,
clients money should never be placed into their personal accounts.
