• Herbert E. Pounds Jr., P.C.
  • Attorney at Law
  • 17890 Blanco Road, Suite 100
  • San Antonio, TX 78232-1031
  • Phone: (210) 492-7627
  • Fax: (210) 492-2915
  • Email:moc.ecitsujrotsevni@breH

Examples of Stockbroker Misconduct

(Please, click on title for explaination.)

Unsuitability

The broker has a duty to recommend only suitable investments to the customer, based on that particular customer's facts and circumstances. Suitable investments are those investments that take into account the investor's age, income, and risk tolerance. The broker must understand the risk which an investor can assume, prior investment experience, and the tax consequences of the investment. In the event that the broker makes unsuitable investment recommendations, the broker and the brokerage firm may be liable to the customer for losses associated with such unsuitable investments. Close Window

Misrepresentation

The broker must be honest with the customer. In the event that the broker misrepresents material facts or fails to disclose material facts to the customer in the sale of investments, the broker and his firm may be liable for losses. Close Window

Negligence

A broker owes the customer a duty of "reasonable care" in the handling of the account. If the broker falls below this standard, then there may be a claim for negligence. Your broker should have explained to you the risks associated with your investments. If this was not done, you may have a claim. Close Window

Breach of Fiduciary Duty/Control

If the broker has discretionary control over your account, giving him the freedom to make investments without consulting you, he may have a fiduciary duty to you. A fiduciary duty imposes much stricter liability and responsibility upon the broker. Close Window

Lack of Diversification

When an investment portfolio is over concentrated in any individual investment or type of investment, then the risk of loss is increased should that investment decrease in value. The broker has a duty to explain to the customer the risk associated with over concentration. If losses occur, you may have a claim. Close Window

Unauthorized Trading

When the customer has losses on transactions made without prior approval, the broker may be liable for such losses. However, the investor must report such unauthorized transactions to the brokerage firm upon discovery of the transactions, usually through the examination of monthly statements or confirmations. Close Window

Churning & Commissions

When the broker engages in excessive trading in order to generate commissions in an account, you may have a churning violation. Usually, churning is evident when there is little or no reason for trades other than generating commission income to the broker. Close Window

Margin Abuse

When you are borrowing in your account from the brokerage firm to make further trades, the broker must thoroughly explain the risks of margin, which could result in the liquidation of your account and massive losses in order to meet margin requirements. Close Window

Misrepresentation

The broker must be honest with the customer. In the event that the broker misrepresents material facts or fails to disclose material facts to the customer in the sale of investments, the broker and his firm may be liable for losses. Close Window

Selling Away

When the broker sells the customer an "investment" outside the investment products offered by the brokerage firm, you may have a selling away case. These cases usually involve investments in private limited partnerships, privately held companies, promissory notes, and real estate. In order to hold the brokerage firm liable, you must usually show a lack of supervision. Close Window

Unregistered Broker

Brokers and brokerage firms must be registered to sell securities to residents of the particular state under the Blue Sky Laws of most states. If the broker is not registered to sell a security in a particular state, the customer who bought such a security may have a claim against that broker and brokerage firm for their non compliance with the registration regulations. Close Window

Fraudulent Analyst Reports

Conflicts of interest between investment banking and financial analysts have caused many customers to lose large sums of money because they have relied on the analyst reports to either purchase securities or to hold onto them. Close Window

Forgeries and Fraud

Unscrupulous stockbrokers sometime forge your name on account documents, especially documents used to open accounts and to authorize the use of margin or option activities. In some cases, the broker has the customer sign blank documents; then completes the documents later with phony information in order to justify riskier investments. Close Window

Pyramid and Ponzi Schemes

In the usual Ponzi scheme, the investor is promised a huge return on their money over a short period of time. There may be “guaranteed” rates of return that are double or triple what is available in the legitimate market. The schemers behind the Ponzi scheme may go to great lengths to make the program look like a legitimate multi-level marketing program. But despite their claims to have legitimate products or services to sell, these schemers simply use money coming in from new recruits to pay off early stage investors. Eventually the pyramid will collapse. Usually the Ponzi schemes get large, the new investors are harder to recruit to pay the promised return to earlier investors, and many people lose their money. Close Window

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