As you know, investing in the stock market can be a risky proposition. Markets and investments can fluctuate, and the majority of investment losses result from such fluctuations, rather than from stock broker fraud or misconduct. However, stock fraud does happen, and you should understand common forms of stock broker misconduct.

If you suffer loss of your savings due to one of the following common forms of stock broker fraud or misconduct, it is not your fault and you may have a right to recover losses.

Unsuitability
Overconcentration
Churning
Unauthorized Trading
Misrepresentation/Omission

Unsuitability: This is perhaps the most common of investor claims. Before making investment recommendations, your broker has an obligation to attempt to learn accurate information about your financial needs. Based upon that information, your broker has an obligation to make only those investment recommendations that are in line with or suitable for your needs. Back to list


Overconcentration: Failure to diversify a client's portfolio can be a form of stock fraud. In order to protect your savings, your broker should vary the types of stock purchased rather than placing all your assets in a small number of stocks or a single economic sector, such as high risk technology stocks. Back to list

Churning: If you notice your broker has bought and sold the same stock two or more times in a month, you may be the victim of excessive trading or churning. Each time a stock is bought or sold, your broker earns a commission, often against your best interests as an investor. Back to list

Unauthorized Trading: This type of fraud occurs when your stock broker makes trades on your account without your prior authorization. Your broker must get your consent before any of your stock is sold or new stock bought. Back to list

Misrepresentation/Omission: Misrepresentation of various forms is seen in many of the cases detailed on this site. This form of stock fraud occurs when your broker intentionally gives you misleading information regarding stocks, such as making guarantees regarding stock performance or failing to accurately disclose a stock's risk.