According to the Securities Exchange Commission, unauthorized trading includes all trades that a broker makes on behalf of a customer without his or her authorization. There are only some limited circumstances when your financial broker can make trades in your account without having your explicit consent. However, for this to happen, you should have provided your advisor with a written trading authorization for your account.
A written authorization is granted using a unique form prepared by the brokerage firm and it should be signed by both the financial advisor and the investor. If there is no such written form, it’s illegal for the broker to make any trades on your account. Financial advisors who make unauthorized or unsuitable trades can be held liable for any losses that you may sustain.
What You Can Do After Your Broker Makes an Unauthorized Trade
Unfortunately, it can be tough to prove unauthorized trades made several months or years ago on your trading account. The chances of having a successful securities arbitration claim can be especially difficult to get if you decide to wait for too long before you act. Therefore, in case you have reason to suspect that your broker may have made any transaction without your authorization, ensure that you gather important documents and talk to an experienced investment fraud lawyer. The earlier you act, the higher your chances of having a positive outcome.
What to Do if You Learn That Your Broker Has Traded on Your Behalf without Your Permission
- Prove that such a transaction was made.
- Prove that you never authorized for that trade to be made. For instance, you can prove that you never approved the transaction if you were away.
- Prove that the unauthorized trade led to losses.
According to the Financial Industry Regulatory Authority (FINRA), one of the common reasons for illegal trades is when a broker makes a transaction believing that it is in your best interests but couldn’t get hold of you and went ahead to make the trade without your consent. However, even if your broker had the best intentions, the FINRA rules state it’s illegal to make an unauthorized trade. FINRA also states that it is illegal to attempt to convince a client on the benefits of a transaction with the intentions of influencing the investor to authorize such trades.
Because brokers often earn high commissions from the transactions they make, FINRA advises investors that they should be extremely cautious and keep a keen eye on their account activity. You should also carefully read through all confirmations that you receive in your mail to ensure that there are no trades that are made without your permission.
What You Need to Know About Unauthorized Trading Claims
All unauthorized trading cases are handled before the Financial Industry Regulatory Authority in mandatory securities arbitration. This means that there are slim chances that your case will be taken to court. FINRA has rules that dictate all the best practices and how some of the common investor problems can be avoided.
To get compensated you should also show that:
- There was an unauthorized transaction.
- You didn’t authorize your broker to make the trade.
- You suffered financial losses.
Hire a Skilled Broker Fraud Attorney
The best cause of action that you can take to ensure that you avoid as many cases of unauthorized trades as possible is to maintain a business relationship with your broker. This doesn’t mean that your relationship cannot be friendly, but simply implies that you should preserve professionalism above everything else. In a proper financial advisor-investor relationship, all transactions that are entered should be discussed. This means that there is no trade that should go unmentioned despite the good relationship you may have. Therefore, in case your broker has made an unauthorized transaction, it is necessary first to investigate and then register a complaint as quickly as possible before your broker tries to argue that you ratified or accepted the trade that had been made through your silence.
In case you suspect that your broker has made any transaction in your account without your consent, contact an experienced and skilled attorney who has all the resources you may need to make your claim. Not all lawyers are qualified to represent you in such cases.