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
Our practice is limited to the representation of investors. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a consultation or an evaluation of your claim. For more information, contact us at (877) SEC-ATTY.
For more information concerning common claims against stockbrokers and investment professionals, please visit us at stockbrokerfraud.com
To learn more about FINRA Securities Arbitration, and the legal process, please visit us at securitiesarbitrations.com
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