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What is Stockbroker Fraud?

Stockbroker Fraud Involves a Range of Misconduct

Stockbroker fraud is an overarching term that encompasses a wide range of misconduct on the part of a brokerage firm or individual broker. This may entail tactics such as unauthorized trading, misrepresentation, pressuring sales tactics and more.

There are a few common types of stockbroker fraud:

  • Omissions or misrepresentation: this occurs when a brokerage firm or broker misrepresents facts or does not disclose facts to an investor, and that client ultimately loses money. This may be considered a breach of fiduciary duty and victims may be able to recover losses.
  • Churning: this occurs when a broker participates in excessive trading for the purpose of generating excess commissions, rather than investing in the best interests of the client.
  • Unsuitability: this occurs when an investment professional recommends an investment or strategy that is not appropriate for the customer based on the investment objectives, risk tolerance and other relevant factors. This can occur when a client does not have the financial ability to take on the risk that may be associated with an investment or strategy, and if that investment does not match those financial needs or if the client is unaware of the risks associated with certain investments.
  • Breach of fiduciary duty: this occurs in a number of different circumstances, but generally revolves around when a financial professional puts their interests ahead of the interests of their client and otherwise does not do what is best for the client..
  • Unauthorized trading claims: this occurs when a broker makes transactions without explicit permission. Churning is often involved with this, where a broker is involved with an excessive amount of trading and does not obtain authority for the trades.
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