What to Do If You Suspect Stockbroker Misconduct

Learn what does and does not constitute misconduct by a financial professional, and what investors should do when they suspect misconduct.

By:  Lori T. Williams, Owner/Managing Attorney of Your Legal Resource, PLLC

We’ve all heard about financial schemes that have devastated families and their finances. From the penny stock and insider trading scandals of the 1990’s, to the accounting scandals of the early 2000′s, (including the Enron debacle), to the Bernie Madoff’s Ponzi Scheme, to the current financial crisis; each has left investors financially devastated and weary of the stock market.  Attorney Michael Marsalese has represented investors and financial advisors in various securities litigation and enforcement actions over the last 27 years, and was involved in obtaining substantial class action recoveries for investors.

The Dodd-Frank Wall Street Reform and The Consumer Protection Act of 2010 was passed to address the recent financial crisis.  The reform includes rules relating to investment adviser performance compensation, and hedge fund regulation.  However, not every unhappy investor has grounds for a lawsuit.

According to Marsalese, “there is a common misconception among the general public and financial professionals alike that good brokers are those who make money for their clients and bad brokers are those whose recommendations are not profitable.  Another misconception is that investors who have suffered losses as a result of relying on the advice of their stockbroker, somehow their broker must have deceived them in some way in order for their losses to be recoverable. These positions are simply not the case.”

While nearly all investors have a goal to increase their net worth, a losing investment does not necessarily equate to a cause of action against the broker for securities fraud, nor does a gain mean there was no broker misconduct. Marsalese believes, “a good broker is one who makes suitable recommendations based upon the client’s needs, objectives, and risk tolerance, and not on the broker’s desire to be a hero.”

The most frequent securities and investment related claims involved in securities arbitration are comprised of one or more of the following causes of action:

  • margin calls
  • churning
  • unauthorized trades
  • breach of fiduciary duty
  • misrepresentation (fraud)
  • negligence
  • breach of contract
  • suitability


Very recently, FINRA has established detailed conduct rules for brokers and their brokerage firms, which include the following:

  • Brokers need to know their customers, including their financial status, investment objectives, and risk tolerance.
  • Brokers should only recommend investments which are consistent with their client’s profile.
  • The failure of a broker or brokerage firm to comply with securities industry rules can be the basis of a negligence claim against the broker and his/her firm, under the “Know-Your-Customer Rule” (FINRA Rule 2090), and the new “Suitability Rule” (FINRA Rule 2111).


Investors should ask an attorney trained in securities litigation the following questions:

  • Should I attempt to resolve the dispute about my investment account with my broker?
  • What can I do if the broker does not respond or address my concerns?
  • Is it too late to take action to protect my investment?
  • Do I need a lawyer to file a claim against my broker, and how much will that cost me?
  • Is pursuing a claim going to make me relive the transaction or consume my life and cause me undue stress?
  • How long will the whole process take?
  • Will I win my case?


Questions a broker or brokerage firm should ask their securities lawyer are:

  • Should I attempt to resolve the dispute about the investment with the investor?
  • Did the customer retain control over the activity in the account?
  • Did the broker/brokerage firm recommend the investment to the customer?
  • Was the account intended to be traded to generate short-term profits versus long-term  income-producing securities?
  • If the customer received confirmations of the trades and did not object, did they ratify the trades?
  • When did the transaction(s) in question occur for statute of limitations purposes?
  • How will this claim affect my securities license?


“If an investor thinks that they have been cheated or otherwise taken advantage of by a financial professional, the first advice I give to the client is to compile all the documents they have relating to the transaction(s) and/or account,” says Marsalese. The investor should then take the following steps:

1)      contact the broker/brokerage directly, in writing to voice their concern;

2)      contact a regulatory organization or governmental agency overseeing that activity (FTC-consumer fraud, State Securities Division);

3)      keep a copy of all correspondences for your own records;

4)      immediately contact a lawyer practicing securities law to discuss the specific steps necessary to receive reparations for the fraud.


“Investors were awarded damages (monetary damages or non-monetary relief) in over half (51 percent) of the arbitration cases decided before a FINRA panel, according to a 2012 summary recently released by FINRA. This seems to reflect a continual upward trend in more investor-friendly FINRA panels. Since 2007, the percentage of FINRA panel decisions in which investors were awarded damages has steadily increased from 37 percent to 46 percent (in 2012 thus far),” says Marsalese.



Michael P. Marsalese  is the managing member of  The Marsalese Law Group, PLLC, in Southfield, Michigan. The Marsalese Law Group represents a wide range of individual and commercial clients, from entrepreneurs to individual investors to publicly-traded companies to privately held corporations to start-up enterprises.  Michael Marsalese has served as general, special or local counsel to public and privately held companies. Mr. Marsalese has been actively engaged in commercial litigation, with a strong emphasis in securities related matters, for more than 27 years. He has sat on Arbitration Panels for the NYSE, NASD, and AAA Board of Arbitrators since 1987. Marsalese served as Assistant General Counsel to several NASD licensed Broker-Dealers, where he was licensed as Registered Representative, Director of Compliance and a General Principal. His duties included overview of SEC and NASD regulations and compliance issues. He also sat on the NASDAQ OTC trading desk before and after the October 17, 1987 market crash, where he actively traded over 300 bank stocks. Mr. Marsalese has taken a lead role in numerous important actions on behalf of defrauded investors and shareholders, and has been responsible for a number of outstanding class action recoveries, which has totaled millions of dollars. Michael Marsalese also counsels and advises registered investment advisors.

Lori T. Williams is a 23 year attorney based in Birmingham, MI. She owns a legal referral and legal consulting business called Your Legal Resource, PLLC. She assists individuals and small businesses in need of legal advice or representation by connecting them with the right legal specialist for their situation. She also provides consulting services for attorneys and other professional service providers on how to generate more business through effective branding, marketing, networking, and by creating strategic partnerships. For more information, visit www.bestlegalresource.com.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.


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