Unauthorized Trading

Every customer should be aware that brokers are not permitted to enter transactions in customer accounts without the authorization of the customer. Industry regulations and state and federal laws prohibit unauthorized trading.

Customers should always review their trading confirmations and monthly account statements. If a customer does not recognize a transaction reflected on a confirmation or account statement, the customer should immediately contact her broker and/or the branch manger. Indeed, the “fine print” on the backside of trading confirmations and monthly account statements often states that the client is required to immediately notify the firm of any disputed transactions or the transactions will be deemed as correct.

There are instances in which clients give discretionary trading authority to brokers. Many managed accounts are managed on a discretionary basis by the investment advisor. Additionally, retail customers can grant discretionary authority to their brokers. In both instances, however, the grant of discretionary authority to the broker must be in writing and signed by the client; brokers are not permitted to exercise discretion in customer accounts based on verbal instructions.

Lastly, one exception to the rule on written grants of discretionary authority concerns “time and price” discretion. A customer may verbally give a broker discretion to buy or sell a security in her account. However, the broker and client must agree on a specific quantity of a specific security. Moreover, the grant of discretionary authority only lasts until the end of the trading day on which it was given.

If you discover transactions in your account that you don’t recognize, or if you have questions concerning the handling of your account, contact the securities attorneys at Lubiner, Schmidt & Palumbo for a consultation.