By definition, a broker is liable for making unauthorized trades without the customer’s prior authorization. Absent written discretion, it is a violation of Section 10(b) of the Exchange Act, and Rule 10b-5, as promulgated thereunder, to effect transactions in customer accounts without their prior authorization or consent. See, e.g. Caiola v. Citibank, 295 F.3d 312 (2d Cir. 2002)(“claims under Rule 10b-5 arise when brokers purchase or sell securities on their clients’ behalf without specific authorization.” Saxe v. E.F. Hutton & Co., Inc., 789 F.2d 105, 112 (2d Cir. 1986); Armstrong v. McAlpin, 699 F.2d 79, 90-92 (2d Cir. 1983)( “By definition, a broker who is liable for making unauthorized trades makes them without the customer’s authorization”); Nilsen v. Prudential-Bache Sec., 761 F. Supp. 279, 289-90 (S.D.N.Y. 1991).
Customers also have a duty to review securities purchase and sale confirmations and review their securities accounts. If a stockbroker has placed unauthorized transactions in a customer account, the customer under most circumstances has a duty to act, or duty to complain, or else generally, the customer may be deemed to have ratified these transactions, with actual or imputed knowledge, by doing nothing. Under such circumstances, a customer’s damages may be limited to the time they knew or should have known about the unauthorized transactions.
However, the rules do not contemplate de facto discretion or the acquiescence to a pattern of discretionary trading without a formal trading authority. It is an actionable violation of the rules and is generally indicative of other bad or wrongful conduct.
Unauthorized Trades Attorneys
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