Sustaining a capital loss from stocks recommended by your stock broker does not automatically mean that your broker has engaged i broker fraud – but sometimes it does. A dishonest, negligent or misleading stock broker can do serious damage to your assets and cause devastating capital loss. This article explains some of the types of broker fraud.
Under federal securities law, stock brokers are required to understand the investment objectives of their clients and make stock recommendations accordingly. A legitimate broker will always pay attention to their clients' level of risk when making suggestions for stock purchases, such as the client's age, net worth, and level of education. Shady stock brokers will try to sell speculative stocks to clients who have expressed preference in investing in low-risk, steady growth stocks that have less risk of sustaining capital loss.
Just as stock brokers are required to choose suitable stocks for their clients, they're also required to represent stocks accurately. Misrepresentation of stocks – assuring a client that a stock is safe and steady, when it's actually speculative – is a serious form of stock fraud that can result in capital loss by clients who have relied on their brokers' unreliable advice.
Another form of stock fraud is "churning," which refers to excessive activity; this is when your stock broker suggests an excessive or unnecessary amount of transactions or investments. As stock brokers receive a commission, they can receive more money for themselves or their firms when they are able to get their clients to buy multiple stocks. Short investment periods can signal potential churning and put clients at a higher risk of capital loss.
Boiler room operations are another form of stock fraud that invariably results in capital loss for clients. With boiler room operations, stock brokers, who are more like telemarketers, cold call clients and push them to buy a house stock, tricking them into believing this is a valid investment that will bring big money. Boiler room stock brokers have a conflict of interest as they have a personal connection with the firm whose stocks they are pushing. Generally, boiler room stocks are worthless; once their value goes up as a result of the sales generated by cold calling, the firm sells the stocks, makes a profit, leaving victims with capital losses.
To avoid sustaining capital loss, exercise common sense and caution when choosing a stock broker. If your stock broker made initial contact with you, then chances are, you were cold called. If your stock broker is constantly calling you to recommend a new purchase, he's probably churning to make a commission. Finally, watch out for unauthorized trading – if you receive a buy or sell confirmation that you don't remember agreeing to, question your stock broker immediately. If you sustain a capital loss as a result of a dishonest, misleading or negligent stock broker, contact a stock market recovery specialist for assistance with arbitration and mediation.
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If you've suffered capital losses due to someone else's negligence or error, CapitalLoss.com can help. We're the experts in tax and capital loss recovery. Visit us online or give us a call at 1-800-STOCK-LOSS today.
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