Different Ways to Investigate Broker Fraud

Broker Fraud

The article deals with identifying misconduct and broker fraud. It contains some steps or points which should be kept in mind to avoid being victimised. Apart from broker fraud, it also deals with the fraud investigation and its objective. 

Read the full article provided below on fraud broker checks. 

Have you been the victim of misconduct or broker fraud? 

With the tumble or fall in the value of the investment portfolio, the traders generally come across the doubt whether their broker or brokerage firm has given them proper advice or not. 

Most traders lack the knowledge and expertise required to detect broker fraud or misconduct by the brokerage firm. There are various things which one can carry out if he/she doubts broker fraud and also there are multiple resources which help to turn to for legal representation or answers. 

Misconduct from the broker side cannot always be prevented. Still, there are certain things that traders can do to mitigate the chance of significant investment losses because of unethical broker behaviour or fraud. 

Most common types of broker frauds 

Some common types of broker frauds which traders generally face are listed below: 

Outright Theft or Conversion of Funds

One of the most blatant and worst types of broker fraud is outright theft. In this type of broker fraud, the broker will make use of their privileged position to intentionally misappropriate or steal the funds indirectly or directly from the sufferer trading account. It can happen in various ways; generally, brokers use tricky tactics to hide their scam. It is observed that generally disabled and elderly traders are at large risk of falling into this trap. It is because many of them do not understand their account statements. 

Unauthorised Trading

The broker requires your permission before they can carry a transaction on your account. As an obvious rule, this permission can come in two ways. 

  • First, you might have signed for a discretionary trading account. It is a type of account sign as an agreement that provides your broker to proceed with particular types of trade on your account, without any requirement for your permission for each such transaction. 
  • Second, you might have opened a non-discretionary brokerage account. It is a type of account for which your broker is legally bound or forbidden for carrying any transaction without your permission for the particular trade. 

Misrepresentation or Omission of Material Facts

It is the legal and personal duty of your broker to provide an honest evaluation of any proposed transactions. Beyond the ban on outright lying, other types of false tricks are also regarded as fraud. You have full right to make a decision if in case your broker omits any crucial facts or misleads any trading or investment opportunity. 

Lack of Diversification

It is one of the famous sayings in the world of investing: One must never keep all his eggs in a single basket. As per the saying in the case of investment in securities, one requires a larger number of distinct sacks or baskets. An impressive and managed portfolio is the structure that allows the trader to receive the best possible opportunity for a decent profit or return at the same time trying to keep your risk low and at a satisfactory level. 

A broker has to help his customer in maintaining a well-diversified portfolio that mitigates his risk and exposure. If someone loses his money due to over-concentrated of his funds by a broker, he should immediately look for the legal profession. 

Unsuitable Investment Recommendations

It is the professional responsibility of your broker to examine and carefully conduct an assessment of the trader’s individual situation. It is essential because investment opportunities vary for different types of traders. In addition to this, he must construct the compressive risk report of all securities which fit nicely in a trader’s profile. 

Suppose your broker forces you into an inappropriate investment, whether it is because the trade is too complicated or too risky. In that case, an individual has a legal right to take full compensation for any losses. 

Failure to Disclose a Personal Conflict of Interest

Consider a case when your broker asks you and gives you a tip to invest in an opportunity. Just because you trust the broker, you agree to spend a substantial amount into the stock. But, suddenly you come to know that the broker had a significant ownership stake in the firm in which you are planning to invest, and he has not mentioned this detail to you. 

The situation discussed above is illegal. Brokers owe a fiduciary responsibility to their clients. In this, brokers are legally obliged to disclose all the essential details to their client so that they can proceed with an informed decision. Failure to reveal the related conflict of interest is illegal.

Front Running of Transactions

It is the professional duty of your broker to get you the available price of the order you wish to put for trade. The final thing your broker must do is to take a better amount for themselves, leaving you to pay the surged costs. 

Front running takes place when your broker puts his order first for receiving a better price for themselves. He does such despite knowing that you have requested the order before him. After the price has surged, they place in your order, leaving you to pay a higher net amount. 

Negligent Portfolio Management

Finally, the case arises when the broker commits scam by negligence, costing their clients a massive amount of capital in the process. Brokerage firms and brokers sell trading services to clients, generally by promoting the firm’s competence and professional abilities. As regulated and registered specialists, brokers are needed to pursue their functions and duties with a particular minimum level of skill. 

Top 7 measures which trader can take for fraud investigation 

Carefully investigate the background of the broker 

Background data, as well as regulation certificates about all the brokers and brokerage firms, is listed on the official website of the particular broker. One must go through these dates deeply before starting. Avoid those brokers which are not regulated by any central financial authority. Besides, check the information: 

1) Regarding the number of complaints filed against the broker 

2) Whether the firm has been suspended or fined at any point. 

3) Amount paid by the firm to resolve the complaints. 

Finish and review new trading account forms accurately 

When a trader decides to open the trading account with the brokerage firm, they are needed to fill different forms, such as forms which state the customer’s investment objectives, net worth, income, risk tolerance. Decisions of brokers entirely lie on these documents for estimating if the particular investment is suitable for the trader of not. If in case you claim for the inappropriate investment, then these documents will serve as essential support for your legal base. It is the reason why traders should review these documents vigilantly to ensure that the data given is accurate. One should also keep in mind not to sign any blank form and never allow the broker to fill it on your behalf. 

Review trade confirmations and account statements promptly

Traders should carefully review monthly account statements and trade confirmations as soon as they are completed and received. Never rely on account summaries made by the broker. A close review of these confirmations and statements can identify broker fraud, excessive trading and unauthorised trading. 

Understand the real motive of a “happiness” letter

Many firms give a letter to a customer generally known as a “happiness” letter in case the brokerage firm’s repost unveils questionable account activity. The aim of this letter is to notify the customer to reach the branch manager with any problem, without clearly declaring that their transaction account may involve controversial broker conduct. 

Always remember the purpose of this letter- a warning signal that you may have been the sufferer of broker fraud or misconduct. Contact and inform the branch manager of your risk tolerance and investment objectives. Also, ask him whether there has been any account activity which is contrary to your trader profile. If the manager recognises the problem, request him to make the required changes to solve the problem. 

Check for excessive trading or Churning

Generally, brokers are paid on commission. By this kind of fee structure, a brokerage firm makes more money in fees by proceeding more overall trades. The frequent trading can quickly fill the pockets of a broker; it is a terrifying technique for any trader. 

Excessive trading is one of the worst things which any retail trader can continue with his/her account. If a trader trades too regularly, he could gain on every single trade and still lose a massive amount of capital overall. Brokers are astute, and they know this fact very well. 

It is the legal duty of every broker to guarantee that they are suggesting sensible trades which fit well a more comprehensive trading strategy. Remember, if your chosen broker is trading in your account just to surge their profit or fees they are doing fraud and you must take the legal action against them to come over for your losses. 

Address Questionable activity instantly 

Delays in reaching a branch manager or a broker about the problems related to the account can lead to falling in the possibility of making a successful claim for broker fraud and broker misconduct. If you doubt any questionable activity, instantly address issues with branch managers and brokers. You can also present your concerns in writing. 

Close the account 

Last, but surely not least, if you figure out brokerage firm misconduct, move ahead by closing your trading account. Find the new broker and take the advice of a professional securities fraud lawyer. 

Investment fraud investigation 

Investment fraud investigations are carried for traders who believe their funds or capital may be at any risk in an illegal or illegitimate offering, and for sufferers trying financial recovery from corrupt or collapsed schemes. 

Goals of an investment fraud investigation 

The key aims of an investment fraud investigation are to assist in recovering the missing funds, properly check what really happened and the responsible factor for this. 

Broker fraud, investment fraud and securities fraud are deceitful acts in which traders are convinced to enter trade contracts, or sell and purchase securities, depending on the misleading or false information. Most investment scams guarantee high returns with low risk. These offerings may come to traders by telephone, emails, fake foreign firms and unregulated brokers. They generally exert force on traders by saying that this opportunity will disappear shortly, leaving no proper time for the trader to think of the fake offer presented by them. These types of fraud schemes generally result in massive financial losses. 

The range of an investment fraud investigation will usually include:

1) Fraud Examination: A proper analysis is carried to assure whether their proof of securities fraud or broker fraud or investment fraud is real or fake. They also make full documentation of the extent of losses and the nature of the offer. After this, the identification of the responsible party is carried out. 

2) Comprehensive Due Diligence: They carry out a thorough investigation of the background of the responsible individual and its firms for identifying their professional credential, criminal history and various other related facts such as any past involvement of the person with similar broker frauds. 

3) Financial Recovery and Asset Search: Locates accounts and assets to assist with post-judgement collection and restitution. 

4) Coordination with financial authorities: If the person responsible for investment fraud offers to give back the trader’s funds, the authorities like counsel, legal, regulatory authorities and law enforcement can coordinate in the judgement of investigation. 

The Bottom line 

While trading in the financial market one should be vigilant towards the various broker fraud because these frauds play with your hard-earned money and eventually leaves you in the worst situation  

The article has presented different kinds of fraud that generally traders face along with several measures to deal with such kinds of broker fraud.

Remember if you are an informed trader, you will never face such a thing. This awareness will come from reading and building a strong foundation on every concept of the financial market, whether it is the selection of brokers or trading strategies. One such trustworthy, well-regulated broker providing the best services with expert assistance is TradeATF. Visit the broker site for more details. 

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