Securities Lawyer Asserting Investors’ Rights in New York and Nationwide
There are several things that brokers and financial advisors are prohibited from doing while acting in a professional capacity, including making unauthorized trades. Unauthorized trading is barred by federal rules and regulations, and it may constitute fraud. If you believe that your broker or financial advisor engaged in unauthorized trading to your detriment, it is vital to meet with an experienced securities litigation attorney to discuss whether you may be able to recover damages. New York securities lawyer Irwin Weltz at Weltz Law can assess your accounts to help you determine if you have adequate evidence of unauthorized trading to pursue a claim against your broker or financial advisor. Weltz Law will assist investors who suffered losses due to unauthorized trading in the pursuit of damages in arbitration hearings and in litigation in state and federal courts. We represent clients in securities cases in New York and throughout the country.
Rules Regarding Trades
The Financial Industry Regulatory Authority (FINRA) is an independent agency that sets forth rules that are imposed on brokers and brokerage firms. FINRA Rule 3260 prohibits a broker from exercising discretionary power over an investor’s account unless the investor has given the broker written authorization to do so. Absent written authorization to make discretionary trades, a broker must discuss a trade with his or her client and obtain the client’s consent prior to conducting any trades. Rule 3260 also requires brokerage firms to approve any discretionary accounts and review an account at regular intervals to ensure that the transactions are not excessive.
FINRA Rule 4512 requires brokers to keep a record of anyone who has discretionary authority over an account to avoid unauthorized trading. Furthermore, FINRA Rule 2020 and Securities Exchange Commission (SEC) Rule 10b-5 bar brokers from conducting any transactions by fraudulent, deceptive, or manipulative means. Unauthorized trading is considered a violation of these rules, due to its fraudulent nature.
When Trading Without Consent is Permitted
The rules regarding securities transactions require brokers to obtain a client’s authorization prior to making a trade in a non-discretionary account. A failure to obtain consent before making a trade constitutes unauthorized trading. In addition to discretionary accounts, there are some exceptions to the rule that consent is required for each transaction, such as margin accounts and managed accounts. In these types of accounts, the investor must still provide the broker with written authorization to make trades without his or her consent.
Proving That Unauthorized Trading Occurred
To determine whether a broker engaged in unauthorized trading, the arbitrator or court evaluating the case will assess whether an investor had knowledge of a trade and consented to the trade, whether the broker controlled the account, and which transactions occurred. If the evidence establishes that trades were made without an investor’s consent, the investor may be able to recover damages, including the actual losses caused by the prohibited trading and any market gains from which the investor would have benefited if not for the trade. Investors harmed by unauthorized trading may also be able to pursue a negligent supervision claim against the brokerage firm that employed the broker, as well as fraud, negligence, and misrepresentation claims against the broker. If your broker conducted trades without your consent, you should speak with a skilled securities litigation attorney regarding the facts of your case and your options for seeking damages.