Process for reporting broker misconduct to the SEC


Investing money depends on the parties conducting transactions to operate ethically and legally. The Financial Industry Regulatory Authority is an entity set up by the U.S. Congress to govern brokers and financial dealers in New York and nationwide. This nonprofit agency writes the rules that brokers must observe when handling investments for their clients. Violations of FINRA regulations warrant an investigation of the financial advisor or broker that could lead to a formal complaint to the U.S. Securities and Exchange Commission.

FINRA has established that brokers may only perform a financial transaction without a client’s permission under minimal circumstances. For example, the terms of a margin account might allow an “unauthorized” trade if the firm needs to bring the account up to its required minimum. Outside of this narrow circumstance, however, unauthorized trading will likely represent a regulatory violation.

Someone concerned about unauthorized trading can ask the broker for an explanation. The firm’s management or compliance department may also be notified. A written record of these communications should be maintained. Unless the broker resolves the situation satisfactorily, an investor’s next step is to file a report with the SEC. A report may also be sent to the FINRA Investor Complaint Center.

Anyone uncertain about the activities of a broker may want an independent legal opinion about the matter. The unbiased perspective of an attorney might identify evidence of broker misconduct, such as unauthorized trades or churning. Legal support may prompt a broker to disclose to the client what happened and offer a settlement. An attorney might also prepare documentation for filing formal complaints with regulators. Legal advice may continue to aid the client when attending arbitration proceedings or presenting the case in court.