Many investors are unaware of the level of regulation of the securities industry and the limits that this places on brokers’ activities. Brokers and their brokerage firms are required to follow the federal and state securities laws, regulations issued by the Securities and Exchange Commission, any self-regulatory organization (the Financial Industry Regulatory Authority a/k/a FINRA), the states, and the rules of the brokerage firm itself.
At times, the broker may appear to be acting in his customer’s best interest, but instead be violating industry rules. Often, the investor does not even know that what the broker is recommending is forbidden by the rules of his industry.
A broker violates these rules when he or she recommends to an investor an investment that is offered by a person or entity not approved by the brokerage firm. The broker will often not tell the customer that the investment is being made outside of the brokerage firm. The broker will claim that the investment is in the investor’s best interest, but it has not been reviewed and approved by the brokerage firm. The brokerage firm has not done any due diligence on the investment, and it is certainly not recommended by the firm. It may well be a legitimate opportunity but it may also be a risky start-up company run by the broker’s family and friends.
Since the brokerage firm does not know about this investment, it cannot adequately supervise the broker’s handling of the customer’s account. It cannot ensure that the investment is suitable for the customer’s investment objectives, financial position, and risk tolerance. The customer’s interests are not being protected. Customers are often entitled to recover their losses on such investments from the broker (for improper selling) and/or the brokerage firm (for failure to take adequate action to prevent the broker from improper selling).
If you have investment losses or problems involving selling away, call the lawyers at Page Perry for experienced representation at (770) 673-0047 or (877) 673-0047 (toll free).