Spinning: Investment firms and investment bankers sometimes allocate shares of an initial public offering (IPO) to insiders, usually corporate officers or others influential in steering business their way. The insiders then have an opportunity to profit by the jump in the price that often occurs during the first day or two of trading. This illegal practice, called spinning, also enables insiders to manipulate the price.
The nature of this crime is such that investors are unaware that they have been cheated. If you read that the SEC or some other government agency has brought action against someone for spinning a security you invested in, investigate the case and take appropriate action.
Mutual-Fund Switching: Mutual funds are considered good long-term investments, but from time to time, things change and it is advantageous for an investor to swap shares in one mutual fund for those in another. Since many mutual-fund companies have a host of funds with different investment objectives, they often allow investors to swap funds within their group without additional charges. But the broker doesn't make as much on a swap as would be made by switching to a fund managed by another company. A broker switching a customer for that reason is guilty of mutual-fund switching.
Insider Trading: The law requires stockbrokers and investment firms to be upfront and transparent. In the real world, those closest to the action get information that would give them an unfair advantage if they were to act on it.
Front Running: In volatile markets brokers trading the same stock as their customers have opportunities to gain at the expense of their investors by buying low from or selling high to their customers.
Breach of Fiduciary Duty: The law imposes upon stockbrokers and investment firms a fiduciary duty to handle all transactions with impeccable honesty. Any violation is illegal, and could adversely effect their clients.
Good Faith and Fair Dealing: Brokers and investment firms must not use their size, specialized knowledge, and other resources to gain advantage over their customers. This new and developing legal principle, called the obligation of good faith and fair dealing has not yet been well defined, but several of its elements have.
It begins with full disclosure. The investor has a right to know about kickbacks, payments, favors, or any other thing else that might influence the broker.
Secondly, the broker and firm must not use legal technicalities and lack of sophistication on the part of its customer to gain an unfair advantage over the customer.
Finally, the broker and firm must warn the customer whenever it appears that the customer is going to take some ill-advised action that would put the customer in a weakened position with the broker or firm.