In most cases, your broker must be specifically authorized in order to buy or sell securities on your behalf. If your broker has made unauthorized trades on your investments, you may be able to recover the losses you’ve suffered.
When is a Trade Unauthorized?
While most trades must be specifically authorized by the account holder, there are some notable exceptions in which your broker has discretionary authority to make trading decisions for you. These include:
- Discretionary accounts. In these cases, you give your broker discretionary authority to make trading decisions on your behalf, without receiving explicit permission for each trade. Discretionary authority is either established explicitly, through mutual agreement with your broker; or as a de facto arrangement, in which you cede authority to your broker implicitly, by establishing a pattern in which you consistently allow him or her to make decisions on your behalf.
- Margin accounts. Margin accounts are accounts in which the brokerage lends you a portion of the purchase price of investments, and you assume the risks associated with those purchases. However, if your broker notices a steep or sudden decline in any of your margin holdings, he or she may sell those securities in order to minimize losses.
Motivations for Unauthorized Trading
There are a number of reasons why your broker may make unauthorized trades on your behalf. In some cases, the motivation is simply to accumulate brokerage fees for the trades. In others, the broker or brokerage firm may have some interest in selling certain securities.
In any case, unless the broker has prior authorization to make decisions on your behalf, he or she must consult with you and obtain permission before making any securities transaction on your account. If your broker has made unauthorized trades—even if you granted permission after the fact—you may be able to recover compensation for the financial damages you’ve suffered as a result.
How to Get Help
If you believe that a broker has made unauthorized trades on your behalf, it is important that you seek the counsel of an experienced securities attorney in your area. Your right to bring a claim and recover your losses may be time-limited, so it is essential that you act quickly in order to retain your legal rights.
Your securities attorney can help you review and analyze your case in detail and help you determine whether you will be able to establish a case for unauthorized trading or other type of securities fraud. If you do have a case, your attorney will then help you gather any documentation and other evidence you need to bring a successful claim.