Signs of Stockbroker Fraud

After doing all due diligence and finding a great financial planner to help you reach your financial goals you begin to have a feeling that something isn’t right. We have all heard about the massive fraud and Ponzi scheme that Bernie Madoff pulled off. Defrauding many rich and famous people. He was able to operate his fraud over many years if not decades. Below are a few Signs of Stockbroker Fraud that you will want store in your memory and be aware of.

First off let’s get something straight. Hopefully you are using a fiduciary CFP. Someone sworn to represent your best interests. A fiduciary CFP working under regulatory oversight. We shouldn’t ever have stockbroker fraud to deal with.

By doing their job of making you more money they are entitled to earn a living. They get paid by charging fair fees for their service. A very high percentage of stockbrokers are honestly doing their jobs. But like any other profession there will always be a small percentage of people who will turn to the dark-side. It’s best to always be vigilant when it comes to your invested nest-egg. Always be aware that stockbroker fraud exists and what to look out for.

Nobody cares more about your portfolio than you do. Listen carefully to what your planner/stockbroker says and ask questions if you have them. Never allow there to be misunderstandings.

Profits and losses, all part of investment risk

There are always investment cycles of profit and losses. When there is loss it hurts. But it isn’t automatically a sign of stockbroker fraud. You may even find minor clerical errors on your investment accounts. Small errors that are easily fixed and are just classified as mistakes. Not fraud.

What we must lookout for is anything that makes us feel that ethical standards were or are being crossed. That is the difference between normal losses or clerical errors and outright stockbroker fraud.

Stockbroker Fraud is when your broker has tossed aside your best interest for theirs. There are signs of stockbroker fraud that seem pretty obvious that things are not on the up and up. Then other things that are more subtle that need your attention to recognize.

Here are some signs of stockbroker fraud

Your Broker and/or Firm is Unlicensed or Unregistered

All investment advisers, stock brokers, and brokerage firms must be licensed and registered to sell securities. Even the securities being sold to you must be registered per state and federal guidelines. If they aren’t you have trouble.

Establishing Illegal Accounts

Taking client money and putting it in the brokers own investment account or opening a false account is a sign of stockbroker fraud. Making a recommendation to you to set up an account using a different address than your home of office is a sign of stockbroker fraud. Adding a few lies to your investment account application is also a sign of stockbroker fraud.


This occurs when misleading information is given or important facts are withheld that falsely guided your investment decision.

Examples: Not fully advising you of sales-related compensation, investment risks, or other investing facts.

If your stockbroker tells you any of the following –

  • They have inside or secret information.
  • Explains that they have a new investment scheme nobody else knows about.
  • They have guaranteed high returns.

If it sounds too good to be true then run because it is most likely stockbroker fraud.

Excessive Trading

Excessive trading (aka Churning) in your account to pursue quick profits may be stockbroker fraud. Has the same stock been bought and sold multiple times? If your stockbroker is paid on commission then increased transaction frequency means increased commission checks.

Untimely Order Execution

By law stockbrokers must execute all of your orders promptly. They cannot refuse to do so. Delay or refusal can be considered stockbroker fraud.

Making Unauthorized Trades

If you have not given your stockbroker discretionary authority or expressed and detailed permission to act on your behalf. Then all purchases must be agreed upon by you before any purchase is made.

Investment over-concentration

If your money was invested in only one type of security, a couple of stocks, in a single industry or market sector instead of reducing investment risk through diversifying and you experienced loses. Then it may be considered stockbroker fraud.

Making Unsuitable Investments

Your trusted financial planning stockbroker is to invest for you based on your risk tolerance and financial goals before recommending investments. Only investments suitable to your specific situation and where you are in life are to be recommended.

Fraudulent Acts

Funds cannot be withdrawn from your account without first having your prior written authorization. Also, requests that securities or liquid funds be delivered to an account have to be completed within a reasonable time-frame.

Anything like misappropriation of funds, forgery, and selling nonexistent securities are examples of fraudulent activity and probable stockbroker fraud.

What to do if you find Signs of Stockbroker Fraud.

IF your planner/broker is part of a legitimate investment firm then immediately write a formal complaint. Then send it to your stockbroker. If that fails any acceptable action. Then also send it to the branch manager. That is the first step. From what I have researched it usually gets results unless the entire firm is corrupt.

It usually works because nobody wants you to take the next steps. The next steps of contacting regulators for help. It starts by contacting your State Securities Regulator and/or the Securities and Exchange Commission. It’s there where you report your suspicions of potential fraudulent activity.

You can file investment fraud complaints with the following agencies.

Doing so will bring down the regulatory and legal hammer if your issue is not getting resolved by your stockbroker or their firm.

State Securities Regulator:
Securities and Exchange Commission (SEC):
Financial Industry Regulatory Authority (FINRA):
Federal Bureau of Investigation (FBI):
Better Business Bureau:

District Attorney’s Consumer Protection Unit: Look for your local unit.

In Closing

Any violation of fiduciary responsibility against an investor by a stockbroker is fraud.

Anytime a stockbroker puts their interest above their clients constitutes fraudulent activity.

Financial Planners and Stockbrokers are trained, tested and licensed. They are governed by strict rules of conduct. Most do so but every once in a while we will hear about a bad apple. Someone who took the dark-side route to enrich themselves through fraudulent activity.

Some will be so good at their deceit that you may never see any signs of stockbroker fraud. For instance a Ponzi scheme. One that sends very realistic looking statements every month. If you see fraud then report it because you are probably not the only one. You may also want to consult with an attorney who specializes in investment fraud.

Here is to hoping none of us ever has to experience investment fraud or spot any of the Signs of Stockbroker Fraud.

Save pagePDF pageEmail pagePrint page