Protecting Investments From Broker Fraud
Sep 21, 2018
Fort Lauderdale, FL (Law Firm Newswire) September 21, 2018 – Investor advocates at The Wolper Law Firm identify the top 12 danger areas for broker fraud and advise on how to protect against broker malfeasance.
With the Dow Jones Industrial Average comfortably above 25,000 and U.S. investors riding the longest bull market in this country’s history, the topic of broker fraud is likely far from most investors’ minds.
That could be a mistake, according to Matt Wolper, an investor advocate and principal attorney at The Wolper Law Firm in Plantation, Florida. “Bull markets and swelling portfolios can paper over a wide variety of broker misconduct,” Wolper cautions.
Broker fraud occurs whenever an investment broker puts their interests ahead of the investor’s interests. Broker fraud can be committed regardless of the market’s direction or the fortunes of any individual investor. In good times and bad, investors should be vigilant against the following dangerous broker practices. If any of these activities are occurring, it could be a sign that the broker is unlawfully profiting at the investor’s expense:
1.Churning – Excessive buying, selling of securities by a broker for the purpose of generating commissions without regard to the investor’s objectives.
2.Unsuitable investments – Broker recommendations that are unrealistic given the investor’s liquidity, immediate needs and long-term plans.
3.Over-concentration – Too many of the investor’s holdings are in a single investment, or class of investments, or market sector.
4.Misrepresentation – A false statement by the broker about a material aspect of an investment, or a failure to provide the investor with important information about an investment.
5.Theft – Broker steals money from an investor’s account, borrows investor’s money without repayment, or sells a non-existent security and retains the investor’s purchase funds.
6.Self-dealing – A catch-all term for conduct in which the broker puts their own financial interest ahead of the financial interest of the investor.
7.Failure to Execute – Broker fails to execute investor’s buy/sell orders in a timely fashion, causing the investor to lose value of financial opportunity or limit losses.
8.Institutionalized brokerage fraud – A form of misrepresentation, institutionalized brokerage fraud occurs when a broker recommends an investment without informing the investor that the broker is receiving a sales commission on sales of the investment.
9.Unauthorized trading – Any buying or selling that occurs without the investor’s authorization in writing.
10.Unlicensed brokers – Securities sold by persons who are not registered/licensed to sell securities in locality.
11.Failure to apply mutual fund breakpoints – Sales fees are often reduced for volume buyers. If fees for purchasing a particular mutual fund fall from five percent to four percent for sales over $10,000, a broker should not recommend an investment of $9,900 without informing the investor of the $10,000 breakpoint.
12.Breach of fiduciary duty – Investment advisors are legally obligated to put their investor-client’s interests above their own. Brokers, on the other hand, are held to a lower legal duty called “suitability,” which means that a broker’s recommendations must be consistent with the best interests of the underlying customer. Violation of either standard can create legal liability.
Defensive strategies for investors
While the broker-investor relationship unavoidably involves a certain measure of trust in the broker’s judgment and honesty, there are several things that investors can do to minimize the chance that they will fall victim to broker fraud.
Here are four good practices for investors to follow when dealing with brokers:
1.Conduct a thorough investigation. Nearly every broker and brokerage firm is registered with the Financial Industry Regulatory Authority (FINRA). FINRA’s free BrokerCheck web service provides a host of information about brokers, including legal actions against them and customer complaints.
2.Regularly review all financial statements. Whether getting financial statements on paper or online, it is a good idea to stay in the loop on all transactions affecting all accounts. Immediately flag any unrecognized or ununderstood transactions.
3.Become an educated investor. Take the time to understand the industries being investing in, the risks and benefits of the chosen financial instruments and how each investment advances the overall investing objectives.
4.Insure against catastrophe. Invest with brokerages that belong to the Securities Investor Protection Corporation (SIPC). Much the same way that the Federal Deposit Insurance Corporation (FDIC) insures customer deposits in the event of a bank failure, SIPC protects customer accounts up to $500,000 for securities and cash.
Contact the broker fraud lawyers at the Wolper Law Firm for a free consultation today. The Wolper Law Firm is a client-focused law firm devoted to recovering investment losses on behalf of aggrieved investors. The firm represents investors nationwide in federal and state courts, as well as before arbitration panels of the Financial Industry Regulatory Authority (FINRA), American Arbitration Association (AAA) and JAMS.
Wolper Law Firm, P.A.
Fort Lauderdale, FL
1776 N. Pine Island Road
Plantation, FL 33324
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