Damages for Unauthorized Trading, Churning, etc - Transcript

Unauthorized trading, churning, and overconcentration are common claims in investment disputes, often arising from brokers prioritizing their own interests over their clients’. At Malecki Law, we frequently handle these “too much” cases, where excessive trust, trading, or concentration in one area leads to significant financial harm for investors.

Unauthorized trading occurs when a broker makes trades in a client’s account without the client’s prior approval or proper authorization. This often happens when clients place excessive trust in their brokers, allowing them to act without discretion. However, without explicit written authorization, brokers are required to consult their clients before executing any trade.

Key issues in unauthorized trading cases include:

• Lack of Written Authorization: If you wish to give your broker discretion over your account, you must execute formal contracts specifying the scope of their authority. This ensures the brokerage firm monitors and reviews trades more closely.
• Breach of Trust: Unauthorized trading violates the trust placed in brokers and can lead to investments against your best interest, or unnecessary risks.

Investors should always maintain active involvement in their accounts and question any trades they did not explicitly approve.

Churning occurs when a broker engages in excessive trading in an account to generate commissions rather than to benefit the client. This unethical practice often results in high transaction costs, eroding the client’s portfolio value.

Signs of churning include:

• High Trading Volume: An unusually high number of trades in a short period may indicate churning.
• Excessive Fees: Significant commission fees compared to the portfolio’s overall returns.
• Misaligned Interests: Trading patterns that appear to prioritize broker commissions over client goals.

Churning is not only a breach of the broker’s duty to act in the client’s best interest but also a violation of FINRA rules. Investors should regularly review their account statements to identify excessive trading activity.

Overconcentration occurs when a broker places too much of an investor’s portfolio into a single stock, sector, or asset class. While certain sectors may seem promising, overconcentration exposes investors to unnecessary risk, particularly in volatile markets.

Risks associated with overconcentration include:

• Market Volatility: If the concentrated sector or stock performs poorly, the portfolio’s value may plummet.
• Lack of Diversification: A well-diversified portfolio spreads risk across various sectors and asset classes, mitigating the impact of market downturns.
• Ulterior Motives: Brokers may overconcentrate portfolios in sectors that yield higher commissions, such as oil and gas or technology, even if it’s not in the client’s best interest.

Investors should always question why a broker is recommending significant exposure to a single sector or asset class and ensure their portfolios remain diversified.

At Malecki Law, we specialize in representing investors harmed by unauthorized trading, churning, and overconcentration. Our team meticulously reviews account statements, trade records, and brokerage communications to identify misconduct and build strong cases for our clients. If you believe your broker has engaged in unauthorized trading, excessive trading, or overconcentrated your portfolio, contact Malecki Law at (212) 943-1233 or reach out online to schedule a consultation. We are committed to protecting your investments and holding brokers accountable for their actions.

Transcript:

Unauthorized trading cases and churning cases and over concentration cases are what I call the too much cases.

Okay so in unauthorized trading cases you have too much trust in your broker and you’re letting them do whatever they want and they’re not asking you they’re just doing and trading without discretion in your account.

And you should never let that happen because if you want to give them discretion you should execute contracts with them because then their firm will review the case with an eye towards the fact that you have not been consulted in those Investments.

The churning cases is your broker’s doing too much trading so they’re trading more for their own commissions um than they are for what is in your best interest.

So you always have to be mindful that it could be the number of trades or the Commission in one trade and the over concentration is too much of one thing and you have to be really careful of that even if a sector seems to be doing really well tomorrow it might not be and so if you have too much of one thing and you’re not Diversified your portfolio could really swing in a down market and you have to be leery why is this person putting me in so much oil and gas or so much technology.

The riskier the positions the higher the commissions so you have to remember that there may be an ulterior motive to over concentrating you in a sector it’s not in your best interest to have too much of anything.