Do You Have a Case Against Your Stock Broker? Ten Ways to Tell

I last weighed in on Eliot Spitzer’s crackdown on the growing scandal surrounding alleged bid-rigging among the giant insurance companies. Now a major news weekly is reporting that Spitzer is considering targeting the securities arbitration process.

Hopefully this will lead to much needed changes in the current system.

For the time being, we are left with the current method of arbitration. Although far from perfect, these proceedings allow thousands of individual investors to recoup much (or at least some) of their hard earned money that can disappear all too quickly at the hands of a shady broker.

Here are some guidelines to consider whether or not you have a case:

• Unsuitable Investments – For example, you tell your broker that you are a conservative investor with a low-risk tolerance but you are put into risky technology stocks.


• Unauthorized Trades –If you notice that buys and sells are occurring in your account without your prior permission or knowledge or any contact from your broker, these trades are unauthorized.


• Risk Profile Change – If you notice that the investment objective or risk profile (“aggressive” “moderate” or “conservative”) on your monthly account statements has changed, without your input. A red flag should go up if you receive documents from your broker which do not reflect your investment objective or profile.


• Fraudulent Stock Research – If you bought stocks relying on stock research which was determined by the SEC and New York Attorney General to be fraudulent (Infospace, ICGE, WorldCom, etc).


• Churning – If your broker is excessively trading or constantly turning over your account, for the purpose of generating sales commissions.


• Fraudulent Statement of Risk – If you have suffered substantial losses in your account and your broker told you that you had a low-risk portfolio.


• Over-concentration- If your account is over-concentrated in stocks and equity mutual funds that are primarily high technology or telecommunications, you have an over-concentrated portfolio. If your broker has not allocated your assets into different classes (stocks, bonds, cash) or diversified your stocks and equity mutual funds into different industry sectors.


• Excessive Use of Margin – If your broker buys stock with margin borrowings that you did not authorize.


• Activity Letters – If your brokerage firm sends you an “activity letter” advising you of large losses, turnover, high commissions, or high margin levels in your account that are not consistent with your instructions to the broker.


• Mutual Fund Switching – If your broker advises you to get out of one mutual fund or variable annuity and into another. Often brokers are pushing proprietary mutual funds which may give them higher compensation and are not necessarily in the client’s best interest.