Stock Broker Misconduct

Stock Broker Misconduct: Make Your Broker Pay

By Dr. Steve Sjuggerud, Advisory Panelist, Investment U
Thursday, April 28, 2005: Issue #432

Louis Stough is a broker who got busted. His customers were in the military. At the time of his indiscretions (2002-03), our troops were fighting a war in Iraq.

The last thing on their minds was their retirements – they trusted Louis to do the right thing, and never even considered the notion of stock broker misconduct. Bad idea Two weeks ago, the NASD suspended him and fined him.

Louis worked for First Command a Texas-based brokerage firm. Quoting the NASD website: “Last December the NASD ordered First Command to pay $12 million dollars in fines and restitution for misleading statements in the sale of Systematic Investment Plans. To date, First Command has issued more than 8,000 restitution checks to affected customers, primarily active duty and retired military personnel.”

Can you believe it? One brokerage firm 8,000 restitution checks. People are getting taken to the cleaners by bad stock brokers for misconduct and unauthorized trading cases every day.

You may not be aware of it. But if you have been – or even think you have been – taken by a stock broker, there are steps you can take to make your broker pay for their misconduct. And today I’ll take a moment to show you how to take action and recover losses and prevent them from happening in the future.

Have You Been Taken to the Cleaners by Stock Broker Misconduct?

According to Bruce Sankin, who is an arbitrator and mediator for the NASD, “In 2004, 91% of investors who knew their rights and first mediated and then arbitrated, recovered part to all of their investment losses.”

So you can get money back. The question is, do you deserve to get lost money back from your stock broker?

In Louis Stough’s case, he committed one of the most popular “sins” – he didn’t disclose the hefty fees he was charging. Other big “sins” are unsuitability, where the stock broker buys investments completely inappropriate for the customer, and unauthorized trading in the account.

Please note: The fact that you lost money is not reason enough to go after your broker. This is not considered misconduct. Investments have risks. The Nasdaq Index (covering thousands of stocks) has lost over 60% of its value since its March 2000 peak. It’s not the stock broker’s fault that the market is down. And brokers are like you and me, in that they’re just making a living and they don’t want to jeopardize their families by breaking the law.

However, if the broker is doing something illegal, like trading in your account against your wishes (and without the “power of attorney” to do so), then you may have a case, and may be able to recoup. Here’s how…

What to Do If You Think You’ve Got a Case

Let me state up front, keep copies of all correspondence, so you don’t have any holes in your story.

The correct path is to complain to the broker in writing about the unauthorized trading (for example). If you don’t receive an answer that you think is satisfactory, ask to contact the Branch Manager. If the Branch Manager can’t satisfy you, then you can contact the NASD. The NASD has a good website with many more details on this at http://www.finra.org/index.htm

You also ought to know your rights as an investor. If you buy a product at a store and it doesn’t work, you know you can return it or exchange it. But what are your rights if you get a bum broker?

A good way to learn them is from Bruce Sankin (http://www.investorsrights.com). Bruce has put together an inexpensive little booklet explaining the whole process.

Bruce also provides an interesting and necessary service, for an hourly fee much less than your lawyer would charge. Bruce will advise you on the strengths and weaknesses of your claim, and the potential monetary value of your case.

Bruce can give you a neutral evaluation of what a brokerage firm might pay a customer in mediation, to eliminate going to the next step of arbitration.

This way, you know your realistic options, at a much cheaper rate, before you go through the expense of hiring an attorney and giving him a retainer of a few thousand dollars.

A NASD Mediator with Over 12 Years of Experience

Bruce is based in South Florida, so I met with him last month while at our Investment U conference. He’s been an arbitrator and mediator for the NASD for over a dozen years. While I haven’t worked with him or known anyone who has, I think the world needs what he does, and I think he knows his business.

If you’ve been taken by a stock broker for misconduct, or if you want to know your rights in advance so you don’t get taken by a broker, you can:

1. Visit the NASD (http://www.finra.org/index.htm)
2. Visit http://www.investorsrights.com and check out Bruce Sankin’s book What All Stock and Mutual Fund Investors Should Know

Then, if you really think you were cheated by a stock broker after reading these, you may want to employ Bruce and see how strong your case really is.

People are getting taken every day by bad brokers. But 91% of people who knew their rights got some or all of their money back in 2004 through mediation or arbitration.

Know your rights, and if appropriate, MAKE THAT BROKER PAY!

Good investing,

Steve

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