When a stockbroker places their own or the brokerage firms interests above the interests of their client, they violate their fiduciary duty and may be guilty of stockbroker fraud.

Investing in anything can be risky. Investment losses are common and usually the result of normal market forces. But when investment losses are the result of wrongful action or stockbroker fraud, those responsible should be held accountable.

Stockbroker fiduciary duty

Stockbrokers and brokerage firms have a fiduciary duty to their clients that includes a responsibility of care, disclosure and loyalty. They have a legal and ethical obligation to put the financial interests of the client ahead of their own. When stockbrokers and brokerage firms violate their fiduciary duty by giving inappropriate or unethical advice, they are engaging in stockbroker fraud.

Stockbroker "fair dealing"

A stockbroker has a fundamental responsibility for fair dealing. The securities industry requires a stockbroker to treat his customer in a fair and honest manner. Stockbroker fraud can be as subtle as giving bad investment advice or recommending risky investments without explaining the risks, or as overtly fraudulent as making trades without your authorization or excessively trading your account.

Stockbroker duties

Securities laws and the rules of self-regulatory organizations such as the National Association of Securities Dealers (NASD) impose the following duties on stockbrokers:

• Fiduciary Duty (The Duty of Loyalty) – Fiduciary duty is the responsibility of care, disclosure and loyalty that a broker/brokerage firm has the obligation to provide to its customers.

• Duty of Disclosure – A stockbroker has a duty to disclose to their customer all material information related to an investment recommendation, including:

  • informing them of clear measures of risk for a specific time period

  • informing them of conflicts of interest in a financial relationship between an investor and his or her broker-dealer or account representative

  • informing them when an investment is inappropriate for their objectives and risk tolerances

• Suitable Recommendations (Know the Customer) - The duty to give suitable recommendations requires that all investment recommendations be consistent with the customer’s financial & tax status, investment objectives, level of understanding and risk tolerance. This obligates a stockbroker to maintain an accurate and up-to-date profile of their clients, including their financial status, investment objectives and risk tolerance. Furthermore, a broker must refrain from making an unsuitable recommendation even if the customer has expressed interest in it or asked for the recommendation.

• Duty to Prevent Financial Suicide - Stockbrokers and other investment professionals have a duty to refuse unsolicited transactions when they are inappropriate or inconsistent with the financial condition of their client. This means that a stockbroker must not automatically do whatever a client asks. And when asked by a client to do something that is inconsistent with their financial condition, the broker has an affirmative duty to refuse, thereby preventing their "financial suicide".

Contact a Stockbroker Fraud Attorney

Stockbroker fraud occurs when a broker recklessly disregards the investment objectives and risk tolerance of his or her client, and engages in behavior that violates their professional duties.

If you have incurred a substantial financial loss because of stockbroker or brokerage firm fraud, a stockbroker fraud attorney can help you understand your options for claiming compensation for your loss.

The experienced attorneys at Arnold & Itkin LLP aggressively represent our clients and can help you in litigation or arbitration of stockbroker or brokerage firm fraud claims.

Contact a securities attorney today for a FREE evaluation of your case by submitting the form at right or by calling toll-free
(866) 222-2606.