California Broker Misconduct Attorneys
Broker misconduct covers a range of conduct in which a broker-dealer or investment adviser puts their own interests ahead of the client’s: outright theft, unauthorized trades, excessive trading, unsuitable recommendations, selling unapproved products, and abusing margin. The label matters less than the money. What the investor lost, how the broker profited, and what the firm knew or should have known are the questions that drive a recovery.
We represent investors in FINRA arbitration and in California court to recover losses caused by broker misconduct. Where the individual broker cannot satisfy a judgment, we pursue the brokerage firm for failure to supervise under FINRA Rules 3110 and 3120. In most cases, the firm is the more collectible defendant, and the firm’s supervisory failures are often what allowed the broker to cause harm in the first place.
Common Forms of Broker Misconduct
Theft and misappropriation. Unauthorized transfers out of a client account, forged signatures on wiring instructions, fabricated account statements that hide withdrawals, and Ponzi-like schemes where the broker pockets incoming funds. These cases often involve criminal charges running alongside the civil claim.
Unauthorized trading. Trades placed in a non-discretionary account without the client’s approval, or trades outside the scope of a discretionary grant. Even in a discretionary account, the broker has to stay within the client’s stated objectives.
Churning. Excessive trading driven by commissions rather than investment strategy. Churning is measured through turnover rates (how many times the portfolio was bought and sold in a given period) and cost-to-equity ratios (the annual cost of trading as a percentage of the account’s average equity).
Selling away. A broker sells securities that the firm has not approved, often unregistered private placements or promissory notes, in violation of FINRA Rule 3280. The firm can be liable if it should have detected the outside activity.
Unsuitable recommendations. Investments that do not match the client’s age, financial condition, risk tolerance, or objectives. Often driven by commission differentials: non-traded REITs, variable annuities, and private placements pay the broker multiples of what a publicly traded alternative would.
Margin abuse. Using margin without adequate disclosure, exceeding the client’s risk tolerance, or triggering margin calls that force liquidation of positions at the worst possible time.
Holding the Firm Accountable
FINRA Rules 3110 and 3120 require brokerage firms to supervise their registered representatives: maintain written supervisory procedures, monitor trading activity, review customer accounts, and follow up on red flags. When a firm fails to do any of these and its broker harms an investor, the firm itself can be liable for the losses. We routinely name both the broker and the firm as respondents in arbitration, because the firm is usually where the recovery comes from.
FAQs
What is the difference between broker misconduct and losses from market risk?
Market risk is inherent in investing: even suitable, well-managed portfolios can lose value. Broker misconduct involves conduct that violates FINRA rules, the securities laws, or the broker’s duty to the client. Market losses are generally not recoverable. Misconduct losses are. We analyze trading records and account history to separate the two and calculate the portion of the loss caused by the misconduct.
Can I recover money stolen by my broker?
Yes. In FINRA arbitration, you can recover the amount taken, plus interest, and in appropriate cases attorneys’ fees. If the firm failed to supervise the broker, the firm is typically liable alongside the individual representative.
What is the statute of limitations on a broker misconduct claim?
FINRA has a six-year eligibility rule: claims must be filed in arbitration within six years of the event giving rise to the claim. California’s statutes of limitations on the underlying civil claims vary by cause of action and can be shorter than six years. Acting quickly preserves the broadest range of options.
Talk to a California Broker Misconduct Lawyer
If your broker stole from your account, traded without authorization, or engaged in conduct that caused serious investment losses, contact Rosenberger + Kawabata. Call (310) 894-6921 or submit an inquiry through our contact form.