Is your broker making unauthorized trades without your permission? Here’s how this can cause major problems for your money.
Unauthorized Trading
Brokers are prohibited from executing trades without a client’s permission. When brokers fail to obtain a client’s permission to buy or sell securities, brokers are making “unauthorized transactions” in conflict with their duties as brokers.
Investment brokers are required to register with the Financial Industry Regulatory Authority (FINRA) in order to lawfully sell investment products to clients. FINRA specifically prohibits brokers from executing unauthorized transactions on behalf of clients. This rule was instituted to protect clients from rogue brokers that use client funds to make harmful trades.
The following story shows how brokers can cause major damage to their clients’ portfolios when they execute unauthorized trades.
Rogue Broker
Keith A. Wakefield is a former investment broker who worked under IFS Securities in Atlanta, Georgia. Wakefield was a high-ranking director who ran the fixed income division at IFS. IFS was a broker-dealer registered in 25 states until it closed down following Wakefield’s actions in 2019.
The Securities and Exchange Commission (SEC) recently charged Wakefield for his disastrous behavior at IFS Securities. In the SEC’s recent press release, Wakefield made unauthorized trades to the detriment of his clients and his firm, causing millions of dollars in losses.
The events reportedly took place between 2017 and 2019, which prompted IFS to shut down and declare bankruptcy after it was unable to return millions of dollars to clients. Wakefield was barred by FINRA shortly thereafter in late 2019, which prohibited Wakefield from selling securities and investments as a licensed broker.
According to the SEC, Wakefield used client funds without their permission to speculate on U.S. Treasury bonds. This resulted in seven-figure losses for the firm, which subsequently led Wakefield to fraudulently obtain over $800K in commissions from his firm, IFS Securities. The SEC claims that Wakefield falsely reported these commissions on the firm’s official books.
Takeaways
This story emphasizes the importance of doing business with the right people, especially in the financial industry. It is crucial to vet your broker before doing business with them, as you are trusting your broker with your hard-earned money.
Although Wakefield didn’t have any previous red flags on his public BrokerCheck profile, many rogue brokers have some sort of red flag that should warn investors of foreseeable harm. We strongly urge investors to be aware of such red flags, including prior customer disputes, regulatory investigations, criminal convictions, and other similar behavior.
Remember, whatever it is, let’s make sure our money is working for us rather than somebody else.