The Fool FAQ

Broker Problems

The Fool FAQ

If I have a portfolio with such-and-such a broker and the broker goes under for some reason, what is my exposure? Granted, they should have the actual stock certificates in some account, but what if they do not? Is there some underlying insurance on brokerage accounts?

All reputable brokers have insurance against such a situation through the SIPC. This typically protects accounts up to $500,000 ($100,000 of that can be in cash). Most brokers then purchase additional private insurance to cover losses beyond that, usually up to millions of dollars.

My broker has been making unauthorized trades in my account. What can I, what should I, do? Please help.

You do not say what kind of account it is, where you maintain the account, how long ago the unauthorized trades took place, nor what you have done about them since you realized the problem. As such I have to make a few assumptions to answer you.

If this is a non-discretionary account--in which your broker is not authorized to trade without your specific authorization, yes, an unauthorized trade violates numerous laws and regulations. If the account is discretionary it is more complicated and you have to show the investment is inappropriate or something of that sort.

If you have just discovered an unauthorized trade and have not yet reported it, I would suggest you quickly write a letter to your broker and point out the unauthorized trade or trades. Be polite, treat it like a clerical error, and ask that the trades be reversed and that you be made whole. That is that your account have the balance it would have had these unauthorized trades never taken place.

As soon as possible, fax a copy of the letter to your broker and one to a superior in the brokerage. Then send copies via certified mail return receipt requested and keep both your fax receipts and the certified receipts in a safe place.

Request that they confirm via return fax that the unauthorized trades are being reversed and that they do so at once.

Should they call you on the phone and promise or confirm something, send them another fax, confirmed by certified letter, detailing the agreement.

You do not say if you are dealing with a reputable brokerage house or if this is a penny stock dealer or something else. If this is a big NYSE member firm the odds are pretty good that it is either a clerical mistake --someone else's orders were punched into your account-- or a rogue trader. If you are responding promptly to your last brokerage statement you should quickly be able to get the trades reversed.

If you are dealing with a less reputable company, you could have a problem. In any case, if you do not receive a satisfactory response within two hours of your fax, I would suggest you send a second fax, this time going to the same people, plus the compliance officer and the President of the brokerage company. Once again, fax the letters, and follow-up by mail with a certified letter return receipt requested. Enclose a copy of your previous letter and state that if you do not get a satisfactory response within two hours of your fax you will report it to the authorities.

Then do so. You can write the SEC, your state securities regulator, the NYSE, the National Association of Securities dealers, etc. In each case, enclose copies of your previous letters and advise them of the exact problem. Fax them and then send via certified mail return receipt requested.

In addition, if you have the slightest doubt that this is not a clerical error, get the money you can out of the account and put in another account at a different brokerage where you have more confidence. Do not leave money with people you do not trust.

I recommend that you immediately take steps to prevent further trading in the account and to get in touch with the compliance department of your brokerage firm.

Who can I complain to about my broker?

If you are having trouble of any kind with a brokerage account, it is probably best to start with the brokerage itself. If a trade wasn't executed properly and it was the brokerage's fault, most will "make you whole," i.e. change your account to reflect the proper price, number of shares, etc. as though the trade were executed as you instructed. Of course, proving you case isn't always that easy so have your documentation ducks in a row.

If the brokerage isn't responsive to your request, you can contact the Securities Exchange Commission via their website at www.sec.gov, and the NYSE at www.nyse.com. Also, call the National Association of Securities dealers at 1-800-289-9999 to get the address of the district NASD office that serves your area. Send them copies of all correspondence. Fax them first and then send via certified mail return receipt requested. The NASD has a Regulations website at www.nasdr.com.