How To Detect Stock Broker Fraud

Stock broker frauds are equally prevalent in the field of stock broking

. Brokers handle customers portfolio more on the basis of trust and faith but when the stockbrokers uses client's money for his own selfish purposes, it leads to stock broker frauds.

Stockbrokers acts as agent on behalf of the customers to prevent any stock broker frauds. It is a useful guide that acts in the benefit of the customers and prevent any losses incurred by the actual investors. Brokers play in the market too frequently and often succumb to market conditions to make quick money. They commit frauds and acts of financial misconduct for their personal benefits. This makes the investor poor both in terms of money and faith.

There are many ways in which stock brokers fraud can occur. Stockbrokers are aware of the elements of faith and trust. They can easily 'churn' these sentiments to their benefits, if wanted. Stock brokers aim at making huge commissions from their services without reporting actual excessive trading. He often does this to cover trading expenses. Such trading is not apparent when receiving trading records; nevertheless, the investor is duped.

Stock brokers also commit fraud by making unsuitable and inappropriate investments. The securities and items do not cover the investor's need and requirements. If an investor wants to invest in stable stocks for consistent income, the stock broker needs to do appropriate investments. But in actual conditions, he invests in high risk stocks that are counterproductive and leads to stock broker frauds.

Stock brokers also cheat investor in concentrating in a particular stock or sector when actually he should be having a diversified portfolio to reduce risk exposure. A diversified portfolio balances the losses from one sector by profits from another sector. In a targeted portfolio, the investor faces higher risks of losses if the sector performance experiences any sudden changes or even if it gradually deteriorates. Thus there is a risk of stock brokers committing frauds when the investor not only loses money in investments but also in the form of brokerage.

Misrepresentation is yet another form of stock broker frauds. Stock brokers often misrepresent the material fact about any investment or trade when they find the investor is unaware of the stock market. They may indulge in touting and illegal inside trading that the stock broker might indulge in. There is manipulation and window-dressing to make the stocks appear as desired. He may also indulge in trade over for which he may have no authority or discretion. Thus, he not only commits a fraud in the stock market but also on the investor's faith and trust.

Lastly, the stock broker commits a fraud when he steals investors' money and invests it for his own selfish benefits. He creates hypothetical loss to cover his misdeeds and produces fake records to conceal is misdoings.

by: Ayna Miah

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