Stock broker fraud occurs when a stock broker does not act in the client’s best interest.  Broker fraud occurs when stock brokers put their financial interests before the investor’s interest, and violates the fiduciary relationship.  Investors suffer broker fraud every day.  Continue reading to learn about some of the common forms of broker fraud.

If you have fallen victim to broker fraud, contact Astanehe Law for your free legal consult.  Astanehe Law will fight for you.  You have recourse and Astanehe Law can help you recover your losses.

Federal Antifraud Provisions

The most commonly asserted broker fraud claims are brought under section 10(b) of the Exchange Act and Rule 10b-5 of the Securities Act.  These laws prohibit financial professionals from making lying, acting with deceit, or defrauding their clients when transacting in securities.

To prevail on these claims, an aggrieved investor must prove:

  1. The broker made a misrepresentation, omitted an important fact or attempted to defraud;
  2. In connection with the purchase or sale of a security;
  3. With intent to deceive, manipulate, or defraud;
  4. The investor relied upon the offending statements; and,
  5. The broker’s statements caused damages.

The coverage of these laws support a broad private right of action. Under these laws, investors have legal recourse arising from broker’s untrue statements, deceitful actions, or misleading behavior.

What Else Does the Rule 10b-5 Private Right of Action Apply To?

The private right of action in Rule 10b-5 has broad application. Generally, the rule applies to:

  • Proxy statements.  SEC v. National Securities, 393 U.S. 453 (1969);
  • Misstatements in registration statements.  Herman & MacLean v. Huddleston, 459 U.S. 375 (1983).

A similar liability attaches to broker fraud committed orally or through a prospectus.  §12(2) of the Securities Act.

High Pressure Sales Tactics: Boiler Room Firms

As depicted in the Wolf of Wall Street, some brokerage firms have been known to utilize high pressure sales tactics to increase profit and meet sales goals (Warning clip contains graphic language).  Every investor should be aware of these boiler room operations and avoid conducting business with them.  Common signs of high pressure sales tactics include:

  • Cold calling non-customers to push the sales of securities;
  • Recommending large blocks of speculative securities, often in new companies;
  • Predicting dramatic earnings or rapid increase of a security’s market price;
  • Use of prewritten scripts, including prepared rebuttals to objections;
  • Use of shell companies;
  • High commissions for the sale of securities;
  • Use of sales representatives not registered with FINRA;
  • Heavy reliance on telephone solicitations; and,
  • Long distance cold calling operations. 

Boiler room operations run afoul of the several duties include the brokerage firm’s duty to know its customer, know the recommended securities, the duty of good faith and fair dealing, and the duty to engage in just and equitable principles of trade.  Further, such operations may result in claims of unsuitability, broker negligence, and failure to supervise.

If you have been targeted by a boiler room operation, contact Astanehe Law to discuss all of the options available to you.  Astanehe Law can help you obtain justice and recover the losses you may have suffered.

IPO Manipulation

Financial Professionals often utilize high pressure sales tactics in connection with Initial Public Offerings (“IPOs”), including a heavy reliance on cold calling and by giving higher commission to IPO purchases.  This manipulative behavior encourages sales representatives to sell speculative risky IPOs instead of stable securities to investors. Further, the pre-sell offering generates buying activity once the security comes to market that is designed to inflate the security’s price.

Due to the firm’s manipulation, the market price of the security crashes shortly after the IPO.

If you have suffered losses due a brokerage firm’s IPO Manipulation, contact Astanehe Law immediately for your free consultation.

Trading Ahead

Trading ahead occurs where a broker personally transacts in a security ahead of placing an order for his or her client.  The order is typically large and may alter the market price of the security.  The broker acts to obtain profit or capture a preferential price.

This activity is manipulative and gives rise to numerous claims including, breach of the broker’s fiduciary duty, and the failure to supervise.


Scalping occurs where a financial professional purchases a security before making a buy recommendation, with knowledge that his or her recommendation will help drive up the stock price.  Typically, the advisor sells the stock at a profit after the effects of the recommendation have been realized.

This constitutes fraud and the broker or advisor’s clients have a claim if they suffer loses.  SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180 (1963); Zweig v. Hearst Corp., 594 F. 2d 1261 (9th Cir. 1979).

If your broker or financial advisor failed to disclose his or her interest in a stock they scalped, contact Astanehe Law today for your free consult. You have been damaged and can recover the losses you’ve suffered due to fraud.

Financial Suicide: Dram Shop Liability

Although a somewhat new and once novel liability theory in FINRA arbitrations, Dram Shop complaints are based on the broker’s failure to intercede in a client’s investment decisions.  Claimants argue that the broker had an obligation to protect the customer from their own investment decisions, which were tantamount to unsolicited transitions as they did not involve broker-recommended securities.  

To successfully assert financial suicide, the investor must show that the broker had previously monitored the investment account, exercised discretion over the account, and had generally expansive duties to the investor.

No Upfront Cost for FINRA Arbitration

You will not owe Astanehe Law a penny until after you obtain a successful settlement or judgment. Astanehe Law offers contingency representation which means there is no upfront cost in securing legal representation. Please contact Astanehe Law to learn if your FINRA arbitration claim qualifies for contingency representation.

Astanehe Law Knows Investor Rights

Michael M. Astanehe possesses a zeal for helping investors bring claims against their brokers and brokerage firms.  Mr. Astanehe is an aggressive litigator with several years of civil litigation and arbitration experience.  He is willing to take your broker fraud case to the final arbitration hearing, if necessary.  This ferocity ensures that Astanehe Law will obtain the highest recovery possible for every client.

FINRA arbitration is stressful.  To reduce that stress, Mr. Astanehe provides each client with comprehensive legal service so that they remain fully-informed and comfortable throughout the process.  Astanehe Law strives to make FINRA arbitration as stress-free as possible.

With Astanehe Law on your side, you are poised to obtain the maximum recovery possible.  Contact Astanehe Law today for your free consultation!