Evaluating Your Loss In The Stock Market
EVALUATING YOUR LOSS IN THE STOCK MARKET
You have just lost money in the stock market. You kick yourself for not leaving your savings in an IRA or CD. Instead you took a gamble and lost. The stock market, however, is not a casino. What if you lost your money not because of a bad investment, but because of the unscrupulous conduct of your broker - the same broker with whom you placed your trust and financial future? If you lost your money due to your broker’s greed or neglect you may be entitled to get it back.
Brokers are subject to a wide variety of state and federal regulations designed to prevent misconduct. In addition, they are typically subject to membership rules of conduct established by the New York Stock Exchange and the National Association of Securities Dealers. Some common areas of broker abuse are as follows:
Suitability
Before accepting you money, your stockbroker is required to learn what your investment objectives and needs are based on your personal financial situation. Are you willing to take substantial risks, or are conservative low risk investments more suitable for you. It is for example illegal for a stockbroker to engage in speculative trading if you stated your objectives were low risk.
Churning
Churning is defined as excessive trading by a broker in order to earn commissions. Your stockbroker earns a commission with every trade execution whether or not you make money. More trading means more commissions for the broker. Your broker is required to place trades for your benefit not his or her own. Churning an account - even where the customer profits from the trading - is prohibited. If you see a pattern of unnecessary buying and selling in your account, it may be that your account is being churned.
Misrepresentation / Fraud
Obvious cases of misrepresentation or fraud involve affirmative statements by brokers that are false or misleading. It is never appropriate for a broker to guarantee that you will make a profit. In most cases, however, the fraud is one of omission where the broker discusses the benefits of an investment and not the possible risks.
Unauthorized Trading
The most common form of unauthorized trading is when a broker buys or sells a stock with the intent of concealing the trade from the customer. Instances of unauthorized trading can however be more subtle depending on whether your broker has properly documented discretion and authority to decide what stocks to buy and sell in your account. If you believe a buy or sell has been made without your consent, the trade may have been unauthorized.
It is important to remember that people lose money in the stock market every day. However, if your losses were the result of improprieties by your broker, you have legal remedies. This area of the law is complex and requires a qualified securities practitioner. You should contact your family lawyer or your local bar association for a referral.
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