Unless you have given formal discretionary authority to your broker or investment advisor in writing, he is not permitted to make trades on your behalf without your prior authoritization of each transaction. If you lose money as a result of such an unauthorized trade, you have a claim against the stockbroker and his firm for the loss.

When you tell your broker to purchase or sell a certain number of shares of a stock, and you tell him to exercise what is called "time and price discretion," he may, within reasonable bounds, decide exactly when to execute your transaction, even in a nondiscretionary account. However, the broker may not decide what to buy or sell or how much without your prior instructions. It is not good enough for him to notify you in a general way that he plans "to increase your position" in a stock or to buy "a good looking technology stock."

Even if you have a discretionary account, your broker is supposed to follow your instructions with respect to the exercise of that discretion. If you have told him, for example, that you do not want to buy anything risky or on margin, the broker has an obligation to respect your instructions.

Where you have lost money as a result of an unauthorized trade, you have a claim that may be worth pursuing.

DISCLAIMER: Vincent DiCarlo, who authored and maintained this site, has entered government service and, as of September 1, 2008, is no longer engaged in the private practice of law.  Therefore, this site is no longer being maintained,  may not be accurate, and should not be relied upon.  It is not now and was not ever intended as legal advice.  It is being provided for historical purposes, and for the benefit of those lawyers who are capable of independently verifying the information and judging the opinions in it, and then reaching their own conclusions.  You are strongly advised to consult qualified legal counsel before adopting any of the ideas or suggestions in this material, which may or may not be applicable in your jurisdiction or to your specific situation, and may no longer be accurate or prudent in any case.  The opinions and statements at this site were solely those of the author.  They were not and are not those of, nor were they nor are they made on behalf of, any agency of government or anyone else.

Copyright © 1998-2008 Vincent DiCarlo