Stock market gambling by customers is problematic. However, investment professionals, including stock brokers, have a duty to refuse even unsolicited transactions when the transactions are inappropriate or unsuitable for a customer based on the financial condition of that customer. In almost all instances, representatives have a duty “to make a serious inquiry into the situation of the customer’s investments and to prevent the dissipation of the customer’s capital by excessive turnover.” Brokers may also have a duty to correct a client’s “erroneous beliefs” about the safety of trading or for failing to stop the client from continued trading once aware of these erroneous beliefs.
The duty to provide adequate warnings about even the customer’s own investment strategies is particularly important when the customer is trading on margin. Securities brokers have been found liable when they advised and assisted customers with conservative investment objectives in establishing a speculative options trading account. Securities brokers have a special duty to warn elderly customers about high costs of switching mutual funds when the broker is aware of a customer’s diminished capacity.
Many viable financial suicide claims include facts where the customer is dealing with one particular broker, who knows or has a duty to know their customer’s actual financial condition, desperation or lack of financial resources. Moreover, securities brokers and brokerage firms are required to pay particular attention to frequent sell outs for the failure to pay for securities, the reoccuring inability to make or meet margin calls, or a customer is using home equity or credit line checks to meet margin calls or purchase securities.
Under these circumstances, the broker may have an affirmative duty to cut a customer off, and stop what has become to be known as “financial suicide.”
See also: Problem Gambling in the Stock Market and Extent of Brokerage Firm Responsibility for Prevention, Marvin A. Steinberg. Ph.D., Connecticut Council on Compulsive Gambling, Judah J. Harris, J.D., Milford, Connecticut, 1994; Gambling and Problem Gambling in the Financial Markets, Marvin A. Steinberg, Ph.D., Connecticut Council on Problem Gambling, July, 1998; Investing and Gambling Problems, “Some Investors May Be At Risk For Gambling Out Of Control In The Stock Market And Other Financial Markets”; Model Employer Management of a Case of Stock Market Gambling , Judah J. Harris, J.D., Milford, Connecticut, Marvin A. Steinberg, Ph.D., Connecticut Council on Compulsive Gambling, 1994.
AboutNicholas Guiliano, Esq.
Nicholas J. Guiliano has more than 25 years of securities related experience, and has represented more than 1,000 public customers in claims against brokerage firms for fraud in connection with the sale of securities principally in arbitration before the Financial Industry Regulatory Authority (“FINRA”) Dispute Resolution, Inc. (formerly known as The National Association of Securities Dealers (“NASD”) Dispute Resolution, and the New York Stock Exchange (“NYSE”) Department of Arbitration.LEARN MORE