There are many different ways a stock broker can separate investors and their money. Here are things to look out for, and ways to deal with fraud.
Every year, investors lose billions through fraud and negligence by stockbrokers and investment firms.
This article explains:
Fraud and Negligence by Stockbrokers and Investment Firms
How to Avoid Being Victimized
Mediation and Arbitration.
These acts are not only perpetrated by stockbrokers, but also financial advisors, account executives, bank trust officers, and numerous other types of people and organizations who sell securities.
Fraud and Negligence by Stockbrokers and Investment Firms
In cases of fraud and negligence, an investor might have a case even if the account makes money. The test is not whether the account made or lost money but whether the investor would have done better had the account been properly handled.
Fraud
There are countless ways for stockbrokers to cheat customers, but a few occur so often that they have names. Here is the list.
Churning or Excessive Trading: Brokers live on commissions; the more trades, the more they make. More often than the industry admits, stockbrokers gin up commissions through excessive trading, called churning: trades made to generate commissions rather than to benefit the investor.
This can occur with both discretionary accounts (those in which the broker may execute trades without prior approval by the investor) and nondiscretionary accounts (those requiring the investor's prior approval). In cases involving nondiscretionary accounts, it occurs when brokers trick their customers into excessive trading. Of course, it may also result from unauthorized trading.
Unauthorized Trading: Brokers sometimes make trades without the investor's knowledge or approval. It may be churning or some other scam.