Many people trust a financial adviser or broker to manage their investments. That trust depends on clear communication and informed decisions. If you notice trades that you did not approve, you may wonder whether someone acted without your permission. Learning how unauthorized trading works can help you identify problems early and protect your investments.
What is unauthorized trading?
Unauthorized trading occurs when a broker or investment adviser purchases or sells securities without your consent. In many accounts, you must approve each trade before the broker places it. Even in discretionary accounts, brokers must act within the authority granted and comply with applicable legal and regulatory duties.You give that authority in writing before the broker begins trading.
Federal securities laws prohibit fraudulent or deceptive conduct involving the purchase or sale of securities. One example is Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b). Review your account agreement so you understand who controls trading decisions. Once you know your account type, you can recognize signs that deserve closer attention.
Warning signs to watch for
One unexpected trade does not always mean someone acted improperly. Still, these warning signs deserve a careful review:
- You find trades that you did not approve
- Your account suddenly shows many more trades than usual
- You receive confirmations for transactions that you do not recognize
- Your portfolio includes investments that you never discussed
- Your broker cannot give a clear explanation for recent trades
Review your account statements often so you can spot unusual activity quickly. If you notice a concern, start collecting information right away.
What should you do next?
Keep your own copies of any communications you exchange with your adviser or broker, along with transaction confirmations and account statements.Note the dates of any unexpected transactions and document the discussions you had about them. If you did not grant discretionary authority, your broker generally should not place trades without your approval. FINRA Rule 3260 limits when brokers may exercise discretionary authority over customer accounts.
Regular account reviews can help you identify unauthorized trading before it causes greater losses. Ask questions whenever something seems unusual and keep records of your concerns. If you have questions about this topic, you may consider reaching out to a legal professional for guidance.
