Investing your money is one of those smart money moves that everyone praises. However, it doesn’t always pay off. This is aggravating and scary enough when it happens in the normal course of doing business, but it becomes downright illegal when you lose money because your investment broker did something he or she wasn’t supposed to. Yes, there are times when people lose money, not because of bad luck, but because the people they should have been able to trust lead them astray. These are the times when an investment loss should get extra scrutiny.  

Broker Had Undisclosed Conflicts Of Interest

Conflicts of interest are a major focus of the SEC’s National Exam Program. In a 2012 speech, an SEC representative discussed a few ways that conflicts of interest manifest.

The first one mentioned dealt with the sales incentives: brokers can earn a higher commission by selling preferred products. He or she might get 5% for selling one mutual fund, but earn only 2% for selling another mutual fund. This gives them an incentive to sell certain products even it doesn’t fit your situation.

Another type of conflict of interest came from investment advisors inflating the value of positions. This attracts more customers, but also advisors can also overvalue a product that is sold by a business they have a side-deal with. For instance, the SEC investigated a company called Focus Point for inflating the value of certain hedge funds when they recommended them to their clients because they had a revenue-sharing deal with the company that sold the hedge funds.

There Was Stockbroker Misconduct   

There are a number of ways that a stockbroker can misbehave. The most flagrant type of misconduct is refusing to sell a security when you specifically tell them to. This is part of manipulating stock prices, as it artificially lowers the supply of the chosen product.

Another common type of misconduct is called churning. This is when the broker trades your securities more than necessary in order to pad their paycheck. The broker gets paid a commission on every trade regardless of the outcome for you, so there is a strong temptation for them to go trade-crazy until the commissions and fees outweigh any benefit you might get out of the deal.

On a more mundane level, many states require a broker to be licensed to sell securities before they hang out a shingle. The FINRA website says that legitimate brokers will be registered with the SEC, FINRA or the state. You can check out your broker at on the FINRA Brokercheck page to see your broker’s work history.

There Was A Breach In Fiduciary Duty

Brokers are supposed to act in the investors best interest. This is called being a fiduciary. They are supposed to recommend only products that fit your financial goals and that you can afford to risk. They shouldn’t be suggesting that you make risky moves like putting all your money in one stock. They shouldn’t be trying to hide the transaction records or making trades without talking to you.


And there are some stockbrokers who simply lie. This encompasses the Ponzi scheme and other classic scams, but it can also be lying about a product. It is illegal for a broker to make misleading statements about a product or fail to tell you something you need to know about a product while selling it to you. But that doesn’t stop some brokers from doing things such as say that they have ‘confidential information’ that guarantees that buying a certain stock now will double your returns or similarly sketchy things.

Every situation is unique, but if you feel that your broker might have bent the law, you can contact Aiman-Smith & Marcy. We’re a boutique law firm that focuses on employment law, consumer fraud, and class action lawsuits.

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