Forgery, Conversion, and Theft Cases

Forgery may occur when your broker signs documents for you, without your knowledge or authorization. FINRA has published notices warning investors, brokers, and brokerage firms that forgery has been on the rise in the financial services industry.

Conversion occurs when a broker converts your lawfully owned investments into investments for their own use without your permission. For example, a broker would be liable for conversion if he transferred investments from your account to his/her own personal account without your permission.

Generally, theft occurs when your broker wrongfully takes control of your investments or holdings without your knowledge or consent.

FINRA Rules 2150 and 3240 are crucial in preventing broker misconduct as it relates to conversion or theft.

Rule 2150 stipulates that a broker must not make improper use of your investment funds, such as taking your investments for his/her own benefit.

Rule 3240 prohibits brokers from borrowing from or lending to a customer unless an exception applies. The exceptions are outlined in subsection (2)(A)-(E): (A) if you are the broker’s immediate family member; (B) if you are a person or entity that “extends credit in the ordinary course of business” and you are acting “in the course of such business”; (C) both you and your broker are registered representatives of the same member firm; (D) you and your broker have created a lending arrangement based on a “personal relationship”, meaning that the loan at issue could not have been solicited for example; and (E) you and your broker have entered a lending arrangement in a business relationship capacity, “outside of the broker-customer relationship”. If a subsection applies and thus allows your broker to enter a loan agreement with you, you must look to subsection (b). Subsection (b) provides specific requirements for notification and approval. Your broker should be aware of these requirements and ensure that they can satisfy such requirements, before finalizing a loan arrangement with you.

Have you noticed investments missing from your portfolio? Have you noticed investments in your portfolio that you did not authorize your broker to purchase? If so, there may be evidence that your broker undertook one of the above-mentioned violations of law.

If you answered, “yes” or “maybe” to any of the previous questions, it is highly recommended that you consult with an experienced Securities Fraud lawyer, like the ones with Malecki Law, to determine the merits of your case and to verify that your losses are recoverable.