Many people trust financial advisors and brokers to manage their finances with honesty and integrity. Unfortunately, there are instances of broker misconduct every year. Clients and the public generally are empowered and encouraged to report wrongdoing by brokers. Read on to learn more about reporting unauthorized trading.
Unauthorized Trading and FINRA
When you decide to entrust your finances to a financial advisor or broker, your broker will explain the scope of his or her authority to act on your behalf. While an advisor can suggest certain transactions or strategies, a broker cannot execute a transaction without your permission or authority. These sorts of transactions are known generally as "unauthorized trading."
There are some exceptions to the unauthorized trading rule. For example, if you have a margin account that falls below your firm's requirements, a broker can sometimes sell your securities without consulting you first. It's a good idea to read your margin agreement carefully to understand the situations in which your broker can act without your express authorization.
All brokerage firms and financial advisors are overseen by the Financial Industry Regulatory Authority ("FINRA"), a not-for-profit, self-regulating agency authorized by Congress. FINRA is responsible for writing and enforcing rules that govern the broker-dealer industry. Several FINRA rules prohibit unauthorized trading. For example, FINRA Rule 2010 requires that brokers "observe high standards of commercial honor and just and equitable principles of trade." This "catch-all" ethical rule authorizes FINRA to punish unethical broker behavior, including unauthorized trading. More specifically, unauthorized trading is prohibited by FINRA Rule 2510, which states that brokers can't make transactions from discretionary accounts without prior written client authorization.
Investigating and Reporting Unauthorized Trading
If you suspect that unauthorized trading has occurred, an important first step is to speak with your broker about the issue. It is your broker's responsibility to provide you with an explanation of any suspect transactions. If your broker's explanation is unsatisfactory, consider contacting the brokerage firm's branch manager or compliance department to discuss the issue further. It's also a good idea to memorialize your concerns in the form of a letter, and to retain a copy of this letter along with any correspondence from the firm for your own records.
After you have taken these steps, if you don't believe that the matter has been adequately resolved, you can make an official report of unauthorized trading and other misconduct to the U.S. Securities and Exchange Commission ("SEC"). The SEC has an online complaint form available to the public through its website that can be used for this purpose.
In addition to unauthorized trading, you can use the SEC's online portal to report other types of improper broker activities, including:
Another option available to you if you suspect unauthorized trading or other misconduct is to make a report directly to the FINRA Investor Complaint Center. The FINRA Complaint Program will investigate your complaint, and FINRA has the authority to take disciplinary action against brokers or firms, including issuing sanctions.
Get Legal Help with Your Securities Case
If you suspect authorized trading or other broker misconduct, in addition to making official reports to regulatory agencies, you may want to consider speaking with an attorney. A lawyer can help you understand the full scope of your legal remedies to address unauthorized trading. FindLaw can help you find an experienced securities law attorney in your area.
Contact a securities lawyer to assist with any issues related to securities laws and financial instruments.