What is unauthorized trading?

Unauthorized trading occurs when a broker sells or purchases a security without an investor’s knowledge and prior authorization, and it is a form of stockbroker fraud and misconduct. A broker cannot buy or sell a security on your behalf without your permission and without your knowledge. For each and every transaction, you must give your broker permission to make the trade unless you granted the broker written discretion to trade your account. If the broker fails to get your permission prior to the trade, the broker engaged in unauthorized trading and has committed fraud and broker misconduct. It does not matter whether the unauthorized trades were for gains or losses; the conduct is still illegal.

Often, unscrupulous brokers place transactions in customer accounts without authorization, and then call the client to boast about what a great trade they just made. When the client calls to complain, the broker may tell the client that there was no time to call due to the demands of the market. The broker may also blame the transaction on computer error. Regardless of the reason, if your broker entered unauthorized transactions in your account, chances are you have fallen prey to other fraudulent devices by your broker.

If you are the victim of unauthorized trading, take action. Your failure to act could be perceived as tacit approval of the unauthorized trade. You cannot be said to have complained later, knowing that you own a particular security, when its price goes down.

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