Wharton School of Finance
Harvard Law School
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Most stockbroker fraud or malpractice involves one or more of the following
types of behavior by the broker:
- Churning. When a brokerís compensation is dependent upon the number
and size of trades in your account, this creates a built-in conflict
between trading only when it is in your best interest and trading in
order to increase his commissions. When this leads to buying and selling
activity in your account done mainly to increase the brokerís income,
you have become a victim of what is called ďchurning.Ē The broker is
using your money to generate income for himself and is not particularly
concerned whether the activity is profitable to you.
- Unsuitable and/or high-risk investments. Your broker has the obligation
to be thoroughly familiar with your situation including your income,
net worth, health, obligations, age, etc. in order to know how to properly
advise you on which securities are appropriate investments for you.
In addition, the type of account (e.g. a retirement account) is important
in advising what securities to purchase. If he fails to fully consider
your situation in recommending investments, he may be liable to you
for recommending unsuitable securities for your purchase. In addition,
if a broker recommends a high-risk stock, he must fully explain the
risks you would be exposed to if you take his advice.
- Unauthorized transactions. Brokers have been known to buy and sell
securities in their customersí accounts without first obtaining agreement
from the customer for the specific purchase or sale. He has violated
the law in such cases if you have not given your broker discretion
over your account in writing.
- Fraud or misrepresentation by your
broker regarding either a security or the type of services to be
rendered to you is a more subtle violation
of his duties than those outlined above. You should expect a licensed
broker-dealer and its financial advisors to render professional services
in connection with your account. If you have been led to expect a
certain level of service, for example by the broker-dealerís advertising,
may have a claim if in fact that level of service has not been given.
One case in which this can arise would be when you have been led
to expect active management of your investments and instead the broker
ignores your account after the initial purchases. Another example
be when a broker recommends a stock with no basis for the recommendation.
This would not be the level of service you were led to expect. Recommendations
should be based upon sound analysis by the broker-dealer.
There are many other situations in which a stockbrokerís interest
might be in conflict with yours and which lead to violations of the
brokerís duty to you. If you suspect that you have been a victim of
an unscrupulous broker, give me a call.
Law Offices of Donald M. Feferman, P.C.
Wells Fargo Tower
615 North Upper Broadway, Suite 650
Corpus Christi, Texas 78401
Voice (361) 883-1830
Facsimile (361) 210-8188
Law Offices of Donald M. Feferman, P.C.:
presented at this site should not be construed to be formal legal advice
nor the formation of a lawyer or attorney client relationship. Any results
set forth here were dependent on the facts of that case and the results
will differ from case to case. Please contact our Corpus Christi, Texas
Stockbroker Fraud and Arbitration Law Firm.