Margin Violations

Margin trading allows investors to borrow money from a brokerage firm to buy securities. While this strategy can amplify gains, it also dramatically increases the risk of losses. Unfortunately, many investors are drawn into margin trading without fully understanding the dangers involved. If your broker recommended margin trading without explaining the risks or if your portfolio suffered significant losses due to a margin call, it may be time to speak with a New York margin violations lawyer.

Brokers and brokerage firms have strict duties to disclose how margin works and when margin loans may trigger account liquidation. When these duties are ignored or mishandled, investors may find themselves responsible for losses they did not expect—and in some cases, they may even owe money to the firm. At Malecki Law, our investment loss attorneys have extensive experience reviewing investors’ statements for signs of misconduct and pursuing the appropriate remedies. 

A margin call occurs when the equity in your account drops below the required maintenance level. This level is often set at 25% of the total market value of your account, although firms may impose stricter requirements depending on the securities held. If your equity falls below this threshold, the brokerage firm may demand that you deposit more money or securities to bring the account back into compliance. If you fail to act quickly, the firm has the right to liquidate your holdings—sometimes at the worst possible moment.

Certain types of stocks are not eligible for margin, while others require a much higher equity percentage. If you were not made aware of which stocks could be bought on margin or the implications of falling below equity requirements, your broker may have failed to provide the information required under industry rules. A New York margin violations lawyer can review your account history and determine if you were misled or inadequately informed.

Brokerage firms must follow multiple rules when it comes to margin accounts. For example, FINRA Rule 2264 requires brokers to provide a margin disclosure statement before opening any margin account. If you are a non-institutional investor, this disclosure must also be clearly accessible on the firm’s website. Additionally, under FINRA Rule 4210(g), your brokerage must deliver a risk disclosure statement before the first margin transaction, and you must acknowledge it in writing.

Violations of these requirements can mean the firm is liable for an investor’s losses. In one notable case, the SEC and FINRA fined Morgan Stanley millions of dollars for margin-related violations. Regulators found that the firm improperly used customer funds to reduce its own borrowing costs and lacked appropriate procedures to safeguard those funds. This breach of the SEC’s Customer Protection Rule highlights the serious consequences of margin misuse and regulatory non-compliance.

If you experienced significant investment losses in a margin account and did not receive the required disclosures or guidance, a New York margin violations lawyer at Malecki Law can help you evaluate whether you have a legal claim against the broker or firm.

The risks of margin trading are not always obvious, especially to everyday investors. Margin accounts carry the possibility of owing more than your original investment. A downturn in the market or sudden price movements in the securities you hold can trigger a margin call, leading to forced sales of your investments—often at depressed prices.

If your broker advised you to trade on margin and failed to explain the implications, such as minimum maintenance requirements or how fast a margin call could occur, that advice may have been negligent or even fraudulent. Brokers have an obligation to understand your financial goals, risk tolerance, and investment knowledge before recommending strategies like margin. If they push a high-risk strategy on someone with a conservative investment profile, that may violate Regulation Best Interest.

A qualified New York margin violations lawyer can assess whether your broker acted in your best interest and followed all industry regulations. This includes reviewing your margin agreement, brokerage statements, email communications, and trade confirmations.

Investors who have suffered losses due to margin violations may be entitled to financial recovery. At Malecki Law, our attorneys understand the complexity of FINRA’s margin rules and the responsibilities brokers have when recommending these high-risk strategies. Whether your losses were caused by insufficient disclosure, inappropriate advice, or improper liquidation of your account, we can help you determine whether legal action is warranted and pursue a claim on your behalf. To speak with a New York margin violations lawyer at Malecki Law, call (212) 943-1233 or email jenice@maleckilaw.com.