It’s a scary statement; stockbrokers will occasionally engage in plainly criminal acts like theft, fraud, and forgery. In essence, your broker comes up with a scheme to steal your money. Often this scheme will involve what is known as “selling away,” meaning the broker’s investment activities are being done on the side and are not being reported to or approved by the brokerage firm that employs him. You have the right to seek recovery for any fraudulent conduct that results in misappropriation of funds by a broker.
Be very careful of investing in outside private placements and initial public offerings that are recommended to you by your broker when the transactions are executed outside the brokerage firm or his employer.
For example, if you have an account with “ABC Securities,” then all investments your broker recommends should go through “ABC Securities,” with no exceptions. It’s that simple. When in doubt, ask your broker’s branch manager or regional supervisor about what’s going on. For even more security, get it in writing.
If you believe that your stockbroker has engaged in the practice of “selling away“, you may have been a victim of securities fraud. You have certain rights which you should be aware of, rights which may provide you an opportunity to recover your losses from your stockbroker or brokerage firm.