Brokerage Firm “Happiness Letters” Are a Sign of Stockbroker Fraud
Here is one even we have not seen in a long time, “Happiness Letters.” According to the Wall Street Journal, however, some brokerage firms still send out these letters when they become concerned that your broker is doing something wrong. If that sounds confusing, just read one of the letters!
Brokerage firms are responsible for the conduct of their employees and agents. If a broker commits fraud, the firm is usually on the hook for damages. Stockbroker fraud comes in many flavors. Some brokers engage in what’s called “selling away,” that is, selling you financial products not approved by the firm. Some churn your account by making excessive trades. The goal of churning is to increase commissions. Others put clients in risky or speculative investments without their client’s consent.
Every brokerage firm has a compliance department. There job is to monitor activity in customer accounts, monitor a brokers’ communications and insure that their brokers are complying with industry standards and the law. If a compliance department thinks something is awry, their duty is to investigate. Apparently some brokerage firms are afraid of what they may find so they send “Happiness Letters.”
To be clear, there is no cause for joy or reason to celebrate if you receive a happiness letter. They are nothing more than CYA letters – as in “cover your ass.” The “ass” that is being covered is theirs, however. Get one of these letters and chances are good that you are a victim of stockbroker fraud.
Typically, the happiness letter is sent by the local branch manager. The letter starts by saying how happy the firm is to have you as a customer and that the manager is always available if you have any questions. Buried in the letter might be some innocuous statement to the effect that it appears your investment objectives may have changed or that your account has “concentrated positions”.
The letters are written so that the brokerage firm can claim they warned you about suspicious activity in your account. Ignore the letter and you might have difficulty seeking damages down the road when you discover stockbroker fraud has occurred.
If brokerage firms were really concerned about what was going on in your account, the branch manager should simply write a letter that says, “Hey Sally, we see an abnormal amount of trades going on in your account, some of them are pretty speculative too. Your broker says these were your idea. If they were not, please call me right away.”
If you receive a happiness letter, go to “red alert” and review your statements carefully. Obviously, if there are unauthorized trades, there is a problem. More often than not, however, any fraud that may have happened is more subtle. Is there an excessive amount of trades? Are the trades speculative and not in keeping with your investment objectives? If you aren’t sure, consult with someone outside the brokerage firm and have him or her review your portfolio and trading activity.
Most stockbroker fraud cases can be handled on a contingent fee basis and can be handled by binding arbitration and often within a year. Even cases that go to trial are usually complete within 14 months.
Need more information? The fraud recovery lawyers at Mahany & Ertl handle a wide variety of fraud cases including stockbroker fraud, Ponzi schemes and legal malpractice. If you were financially harmed by a professional we can help. For more information contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). All inquiries kept in strict confidence.