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Investment Law Frequently Asked Questions

When can I recover from my broker?

Normally, an investor can recover when a stockbroker commits a sales practice violation. Churning, suitability, unauthorized trading and misrepresentation are the most common violations.

What is churning?

Churning occurs when a broker exercises control over your account (i.e. you rely on his advice to buy and sell), excessive trading takes place and the broker puts his own interest of generating commission for himself in front of your interest.
Factors of control include:

• Identity, age, education, intelligence, and investment and business experience of the customer;
• Relationship of the broker and customer;
• Customer's sophistication of the market;
• Regularity of discussions between the broker and customer;
• Whether the customer authorized the trades; and
• Who made the recommendations for the trades.

Regarding excessive trading, courts and arbitration panels generally look at some type of turnover rate, which indicates the account's trading volume in relation to its size.

What is an unsuitable investment?

An unsuitable investment is when the broker knows or should have known that the investment is in appropriate for you. The broker must consider your investment objectives, background and your financial situation in recommending an investment.

Can the branch manager be liable?

A branch manager has a duty to supervise his brokers. The branch manager must have safeguards instituted to protect customers from rogue brokers. If the branch manager does not properly supervise his brokers he may be liable to the customer under the "failure to supervise" doctrine.

What should I do if I think my broker committed a violation?

If you are under the impression that your broker has committed some type of violation, the first thing you should do is contact an experienced securities attorney.

About the Author:

David Harrison, Esq. David Harrison is a founding partner in the law firm of Spivak & Harrison. Mr. Harrison served as in-house counsel to the brokerage firm Morgan Stanley Dean Witter where he resolved allegations regarding stockbroker wrongdoing. Mr. Harrison was formerly series seven licensed when he worked as a broker at Shearson Lehman Brothers. Mr. Harrison concentrates in the areas of stockbroker fraud and securities litigation. Mr. Harrison can be reached at (310) 772-2274 or http://www.shlawyers.com.

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