My stock broker made trades on my account without getting my approval first. Is this considered unauthorized trading?

Question:  I just found out that my stock broker made trades in my account without consulting me first.  If I never told him it was okay to make the trade, would the actions of my broker be considered unauthorized trading?  What are my options now?

Response: Generally speaking, if a stock broker makes transactions in your account without your knowledge and consent, that broker may very well be liable for unauthorized trading.  The main issue in situations like these is determining what kind of account you had with that broker.  There are many different types of brokerage accounts, some of which are subject to unauthorized trading rules, and some which are not.  In order to qualify as an unauthorized trade, the account must have been non-discretionary.  Essentially, a non-discretionary account means that your broker must get prior consent before effecting any transactions in securities.  If your account was non-discretionary and your broker traded without your permission, he likely violated a number of securities laws.

However, if your account was a discretionary brokerage account, your broker may have been within his rights to trade in your account, even without your knowledge.  Your first resource should be your Client Agreement that you signed when the brokerage account was established.  This document should outline all of the permissions and authority given to your broker to act on your behalf.  If the terms give your broker the right to use his own discretion to make trades in your account, you have given prior consent and the broker will probably not be liable for unauthorized trading.

Your options at this point really depend on whether your broker was authorized to use his own discretion when making trades in your account.  If your broker was authorized, he is probably not liable for unauthorized trading.  If he was not authorized by the Client Agreement or by your order, you can file a complaint on the Securities & Exchange Commission website or on the FINRA website.  If you do choose to file a claim, you should do so as soon as you realize that the unauthorized trading occurred.  If you wait too long, you run the risk of “ratifying” the trade if you see the discrepancy on your holdings statements and do not file a claim until many months or years have gone by.  If you suspect wrongdoing, you act as quickly as possible.

Additional Resources:

Answered by D. Nicole Rosen

Disclaimer: This site does not provide legal advice and users of this site should not interpret any of the information presented here as legal advice. The information provided merely conveys general information related to commonly asked legal questions. We are not a law firm and the employees responding to questions are not acting as your legal attorney. You should ultimately consult with a Lawyer for your case.

NOLODRUPAL-web1:DRU1.6.12.2.20161011.41205