Asset Management Expert Discusses Unauthorized Trades by Broker

Case Overview

This case involves alleged securities fraud and breach in fiduciary duty in Oregon. The plaintiff was an investor who was working with a broker. The broker was managing a substantial fund, but had begun to move forward with unauthorized trades into highly speculative investments, disregarding her client’s risk tolerance. Over the course of several years, the broker continued speculative and unauthorized trading. During her tenure as a broker, she allegedly allowed a wave of options to expire with no value whatsoever. The broker did not advise the investor of those positions or to liquidate at a loss to retain some of the value.

Questions to the Business expert and their responses

Do you have familiarity with the subject matter described above?

I am an Approved FINRA Dispute Resolution Arbitrator and a Chartered Financial Analyst, and I have held the following NASD/FINRA securities licenses: Series 7 General Securities Representative; Series 55 Equity Trader Representative and Series 63 New York Uniform Agent.

What are the fiduciary duties of the broker and brokerage firm in this instance?

By statute, the broker and brokerage are subject to a suitability standard, which definitely applies. By common law, they are subject to a fiduciary standard.

What measure could have been in place to prevent the outcome?

A few questions that may impact this case include the following: (1) were all the trade tickets sent to the client? (2) were account statements sent on a regular basis? and (3) were there failures in the brokerage firm's compliance procedures that failed to catch unauthorized trading and breaches of account guidelines and the denoted risk profile of account?

About the expert

This highly qualified financial expert has worked in the financial services industry for 29+ years. He earned his BS from Fordham University, MBA from the University of Chicago, and is a Chartered Financial Analyst. This expert is a member of the several professional organizations including the Professional Risk Manager's International Association and the New York Society of Securities Analysts. Formerly, he was Managing Director at Bear Stearns & Company where he monitored risk exposures to hedge fund clients. Responsibilities included measuring the sensitivity of hedge fund portfolios to equities, interest rates, credit spread, volatility and the passage of time by simulating market conditions. Currently this expert is a consultant at a hedge fund advisory.