FINRA rules specifically prohibit brokers or investment advisors from making discretionary trades without the express written permission of the investor. FINRA also requires brokers to maintain a list of individuals with discretion to trade. If an investment professional fails to secure written permission before executing discretionary trades, those trades are considered “unauthorized.” The unauthorized trading of securities is a form of securities fraud, and brokers and investment professionals may be held liable for unauthorized trades.
Even if written permission to trade has been secured by the investment professional, the trade may still be “unauthorized” if the investment professional used manipulative, deceptive or fraudulent practices to secure the authorization.
Typically, unauthorized trading will occur with other violations of securities law, such as breach of fiduciary duty, negligence, unsuitability and selling away. If determining whether a particular trade or series of trades has been authorized, investment fraud attorneys will examine the documentation signed by the investor. Even if the signed document exists, the attorney should examine the circumstance surrounding the execution of the authorization. Were any promises made to secure the signature? Were any predictions made? Did the investment professional outline any particular investment strategy? Even if a trade has been authorized, the investment professional may still be held liable for unsuitability, negligence, breach of fiduciary duty or some other securities law violation.