Broker Fraud

The current depressed economy has prompted many people with a bit of extra savings to invest in the stock market without having any idea of how these investments work and what a stock broker does. Naïve investors, and there are thousands, are at the mercy of the broker. They depend upon the broker's honesty and competence and are ripe pickings for dishonest stock brokers or investment advisors.

Stock broker fraud is unlawful. Essentially, an advisor who commits fraud has neglected his fiduciary duty to the client and is liable to be sued for this transgression.

What Is Broker Fraud?

Broker fraud occurs when a stock broker knowingly:

  • Misrepresents his credentials
  • Perpetrates theft
  • Lies about someone's investment
  • Deceives his clients
  • "Churns" stocks to increase commissions
  • Performs unauthorized transactions
  • Makes unsuitable investments for clients
  • Virtually steals money from clients

These types of deceit can be committed by anyone representing him or herself as a specialist in the securities industry. These may include stockbrokers and financial planners.


Any misrepresentation of the facts of an investment or its suitability for an investor can be the basis for a lawsuit against a dishonest investment representative. One of the most common misleading actions is to downplay or neglect to explain the risks of an investment . The investor must make an informed decision regarding the investment. If an investor loses money as a result of the broker misrepresenting the facts or omitting important facts, the investor has grounds to sue the broker.

Other examples of wrongdoing include:

  • An investment advisor should diversify the client's portfolio to minimize losses in any one segment. If the broker were to put all of his or her client's investments in only one area, and the client loses money because of lack of diversifications, the client could have grounds to sue the advisor.
  • Churning means to overtrade stocks to increase commissions. But, this is dishonest and violates a broker's fiduciary duty to the client. If a broker does not execute trades at a client's request, this often can be the basis for a lawsuit if the client loses money.
  • Failure to supervise can also be the basis for an investor suing a brokerage firm. The firm is responsible for the actions of the broker and must supervise their activity to fulfill the firm's duty.
  • When a broker makes a trade without a client's written authorization, this violates securities law and is subject to a lawsuit. Discretionary accounts, however, allow investment advisors to make trades without the investor's consent for individual trades.
  • If a stock broker encourages a naïve investor to put money into a risky margin account and the investor does not understand the high risk of this type of investing, the broker is committing fraud and may be liable for compensating the investor.

Contact an Attorney about Broker Fraud

Investing in stocks takes a certain amount of sophistication and knowledge about financial markets and trading in them. Hundreds of innocent investors are vulnerable to fraud committed by greedy irresponsible investors. If you have questions about your investments and an advisor's actions, contact our attorneys today. We represent individuals who believe they've lost money due to broker fraud.