Misappropriation of Customer Funds in New Jersey

Misappropriation of customer funds in New Jersey can take several forms. For example, under federal securities law and FINRA regulations, investors can take legal action if their broker steals their funds for the broker’s personal use.

In fact, just a few months ago, a broker from Elizabeth, Mario Rivero, Jr. [link to the Rivero article] was arrested by federal authorities. They charged Rivero with stealing over $500,000 from several investors.

The government alleged he used the money for personal and gambling expenses.

As another example, the firm could convert customers’ funds (”convert” is a fancy way of saying “steal”) for the firm’s use. In that instance, the conversion was a misappropriation of the customer’s funds.

To help prevent cases of misappropriation, investors should review their account statements regularly. Compare them to last month’s statement. If funds or stocks are missing, that is a red flag to the investor.

Likewise, if there is a sudden and unexpected drop in the overall value of the portfolio, or if there are any other irregularities, investors should act promptly. The investor should contact the branch office manager for the broker who is handling the account.

If the manager does not respond, or does not explain the issue to your satisfaction, our misappropriation of customer funds lawyers can review your account statements. We will also review any other account documents and emails or letters you exchanged with the broker.
We can determine if you have a claim for misappropriation of customer funds and/or securities fraud.

You may be a victim of misappropriation of funds and/or securities fraud. If so, we can file a FINRA arbitration claim against the broker (and possibly the firm) to recover your losses.

Investors should always be wary of investments that require them to make a check payable directly to the broker. In fact, that is a clear sign that something is wrong.

Additionally, brokerage firms have procedures in place for handling checks clients send to open accounts or pay for a trade. However, brokers coming to your house to pick up checks are not in those procedures. The risk is the broker takes the money for their personal use rather than putting that money in the client’s account.

Investors should keep an eye out for withdrawals from their accounts that they do not recall asking for. Unethical brokers might also take steps to conceal the withdrawals.

If you suddenly stop receiving your monthly account statements, call the brokerage office. If your stockbroker sends you “consolidated” or anything less than official monthly customer account statements from your brokerage firm, that is another red flag. Call the branch manager.

Customers need to review all the activity in their account every month when they get their account statements.

As another example, brokers might misappropriate investor funds for a Ponzi scheme [link to Ponzi scheme article]. In a Ponzi scheme, the unscrupulous broker uses the customer’s funds to pay off previous investors in a fake company, promissory note or other fraudulent investment.

Many instances of misappropriation occur when stockbrokers get you to invest in fictitious promissory notes or funds.

As another example, the broker might convince you to invest some other entity which, unknown to you, the stockbroker controls (that’s what Rivero got arrested for).

Securities industry regulations require brokerage firms and their supervisors to properly supervise the activities of their brokers. With misappropriation of customers’ funds, failure to supervise the broker’s activities can lead to a separate claim for failure to supervise against the firm.

This is important for a couple of reasons. With the firm named as a respondent, there is another party the injured customer can hold liable.

Moreover, a broker who is caught misappropriating client funds gets fired and kicked out of the securities industry (as happened to Rivero). Consequently, there is a good chance the customer’s money is gone and the out-of-work broker doesn’t have any money to reimburse the client.

Therefore, the customer can recover damages from the brokerage firm for failure to supervise.

If you believe you have been the victim of misappropriation of customer funds, contact the stockbroker fraud attorneys at Lubiner, Schmidt & Palumbo, LLC, for help. And do so immediately!

Call us at our Cranford office at 908-709-0500 (toll free 844-288-7978) or email us here to set up a consultation.