Topic: Do I have a claim against my stockbroker?

Question:
My broker made purchases without my consent and will not reverse the trades due to losses. Do I have a claim?

Answer:
You have raised an issue with unauthorized trading. Unauthorized trading occurs when trades are executed in an account without first obtaining the customer’s approval. A discussion and authorization must precede most trades. If the discussion and authorization occurs after the trade, but is still approved by the client, the client can be found to have ratified an unauthorized trade. On the facts presented, you may well have a claim.

Question:
My accountant reviewed my stock portfolio and believes that my investments are unsuitable for me. Now what?

Answer:
Under the suitability rules, your broker must be familiar with your financial situation and have “reasonable grounds” for believing that a recommendation is appropriate. For example, if a client stated that his investment preferences were moderate growth and safety of principal, and the broker recommended investments in high-risk technology stocks or aggressive mutual funds, the customer may have an unsuitability claim.

Question:
My broker makes far too many trades and my commissions are costing me more than I have made. Is this proper?

Answer:
This involves the issue of “churning,” or if your account has been excessively traded. Churning involves excessive trading with stocks purchased or sold to generate commissions and not with the customer’s needs in mind. The customer must rely on the broker to make proper investment related decisions. A turnover analysis and account review is done to determine whether churning or excessive trading has taken place.

Question:
Where are securities claims filed?

Answer:
If you are bringing a claim against a broker, or his/her firm, you will likely be participating in securities arbitration. Brokerage firms include pre-dispute arbitration clauses in their customer agreements. Arbitration is always almost faster and less expensive than litigation.

Most securities arbitration claims are brought before the NASD Dispute Resolution, Inc. An arbitration panel consists of either one or three arbitrators, depending on the amount of the claim. Filing a statement of claim with the NASD along with the appropriate filing fees commences an action. Interestingly, NASD statistics reflect that, from 1997-99, customers were awarded money approximately 60 percent of the time.