Securities fraud has been around since the Philadelphia Stock Exchange became America’s first stock exchange in 1790. The types of fraud may be different but all are driven by greed and avarice. A recent complaint by a stockbroker at J.P. Morgan Securities reveals some light on the dirty side of the brokerage industry.
The former registered rep with JP Morgan, a relative newcomer in the industry, was employed for only a few months before leaving JP Morgan to join US Bancorp Investments. While at JP Morgan, he claims that the brokerage giant improperly encouraged sales of the firms own funds by withholding commissions on outside transactions.
Is that securities fraud? Maybe.
Unlike investment advisers, stockbrokers are not fiduciaries. While they have a duty to know their customers and make suitable recommendations, they are not required to make recommendations that are “best” for their customer. There is quite a difference between a “suitable investment” and a great one.
Because of the disparity in those definitions and because the SEC has not yet said that stockbrokers are fiduciaries, some stockbrokers may be motivated to recommend investments that pay higher commissions or result in more money for the broker. If Tchan’s allegations are accurate, brokerage firms such as JP Morgan have the same incentive.
Unfortunately, brokerage firms and some stockbrokers are often motivated by their own profits and not their client’s best interests. When a broker dealer twists the arm of an individual broker so much that the broker recommends less than ideal investments, the practice crosses the line from simply a bad business practice to securities fraud.
Unfortunately, the claims against JP Morgan are nothing new. Last summer a New York Times story accused the firm of similar conduct. (The brokerage firm denies the allegations.)
We would like to say that investors should always work with an investment adviser and not a stockbroker although we know many great brokers. It’s important to find a broker with a good track record as well as a good brokerage firm. The Financial Industry Regulatory Authority – FINRA – has a free online tool called BrokerCheck that allows anyone to look at the disciplinary history of both brokerage firms and individual stockbrokers.
While anyone can make a mistake, look for extensive histories of complaints and charges of securities fraud. And remember the larger the firm, the greater the chance of some complaints. We are typically more concerned with a 5 person shop that had 20 complaints than a 1000 broker firm with the same 20 complaints.
If you lost $100,000 or more because of a stockbroker, investment adviser or other financial professional, give us a call. The stockbroker fraud lawyers at Mahany & Ertl have helped many investors get back their hard earned money. We also take cases involving other types of investment and securities fraud and legal and accounting malpractice cases. Most matters can be handled on a contingent fee basis meaning no legal fees unless we recover money for you.
For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). All calls are protected by the attorney – client privilege.
Mahany & Ertl – America’s Fraud Lawyers. Fraud recovery services available in many jurisdictions.
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