What types of misconduct should I watch out for?

What types of misconduct should I watch out for?

by | Jul 10, 2020 | Firm News

Investing in the stock market or into individual accounts is a calculated risk that many people can make quite a bit of money from. Like anything, however, it takes practice to become a skilled investor or trader. Many people find it much easier to have professionals handle their accounts and execute trades on their behalf. If you are new to investing, however, you may not know what signs of misconduct to look out for when broker-dealers are handling your accounts. 

This article explains several different types of abuse to be aware of that may result in litigation. 

Prohibited practices by broker-dealers 

According to FindLaw, investing is heavily regulated to prevent abuse by broker-dealers. The following list includes some of the prohibited practices to know about so you can identify them if they occur. 

  • Misappropriation happens when a broker sells your investment accounts and retains the profits for him or herself.  
  • Churning is a practice where a broker attempts to inflate his or her commissions by employing an excessive amount of trades.  
  • Unsuitability refers to the practice of brokers giving investment advice that is not in line with your goals or objectives. For example, if a broker advises you to invest in a risky stock when you are explicitly risk-averse.  
  • Unauthorized trading occurs when a broker executes trades without your permission.  
  • Misrepresentations and omissions refer to the practice of brokers giving out false information or attempting to hide the truth from investors.  

Your rights as an investor 

Investment firms and brokers must provide you with correct information and engage in honest practices. If you are a victim of unethical trading practices, you have the right to file a claim. A judge may award damages for money lost as a result of bad trading practices.