In a recent customer dispute, clients of Dean Thompson, a broker and investment advisor at Wells Fargo Clearing Services, LLC, alleged that portfolio changes were made without their authorization, resulting in losses and unauthorized fees. The complaint, which covers the period from October 13, 2022, to November 17, 2023, was denied by the firm on January 29, 2024.
According to the allegations, Thompson made unauthorized changes to the clients’ managed accounts, which are also known as wrap accounts. These accounts are typically managed by an in-house money manager at the brokerage firm. The clients claimed that these unauthorized changes caused them to suffer losses and that they were charged fees for these transactions. Unauthorized trading is a serious issue in the financial industry, as it violates the trust between clients and their advisors and can lead to significant financial losses.
In response to the complaint, Thompson stated that the clients had instructed him to update their managed account holdings in response to market declines and that they had signed the required advisory account agreements. He further noted that the clients did not complain until three months later, after the market had moved against their positions.
Understanding FINRA rules and unauthorized trading
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The Financial Industry Regulatory Authority (FINRA) has strict rules in place to protect investors from unauthorized trading. FINRA Rule 2010 requires brokers to observe high standards of commercial honor and just and equitable principles of trade. This rule prohibits brokers from making unauthorized trades in a client’s account.
Unauthorized trading occurs when a broker buys or sells securities in a client’s account without obtaining the client’s prior consent. This practice is a violation of FINRA rules and can result in disciplinary action against the broker, including fines, suspensions, or even a permanent ban from the industry.
In the case of managed accounts, clients grant their brokers discretionary authority to make trades on their behalf. However, this authority is not unlimited, and brokers must still act in accordance with the client’s stated investment objectives and risk tolerance.
The importance of unauthorized trading for investors
Unauthorized trading can have serious consequences for investors, as it can result in significant financial losses and undermine the trust between a client and their broker. Investors rely on their brokers to act in their best interests and to make informed decisions based on their investment goals and risk profile.
When a broker engages in unauthorized trading, they are essentially gambling with their client’s money without their consent. This can lead to substantial losses, particularly if the unauthorized trades are inconsistent with the client’s investment strategy or risk tolerance. According to a Bloomberg article, the U.S. Securities and Exchange Commission (SEC) has made it clear that enforcement against investment fraud and misconduct will be a key priority.
Moreover, unauthorized trading can result in additional fees and commissions that eat into an investor’s returns. In some cases, brokers may engage in excessive trading or churning, which involves making frequent trades in a client’s account to generate commissions, regardless of whether the trades are in the client’s best interest.
Red flags for financial advisor malpractice
Investors should be aware of potential red flags that may indicate financial advisor malpractice, such as unauthorized trading. Some common warning signs include:
- Unexplained or unexpected changes in your portfolio
- Trades that are inconsistent with your investment objectives or risk tolerance
- Excessive trading or churning in your account
- Failure to provide trade confirmations or account statements
- Pressure to make quick decisions or to invest in certain products
Recovering losses through FINRA arbitration
If you suspect that your financial advisor has engaged in unauthorized trading or other forms of malpractice, you may be able to recover your losses through FINRA arbitration. FINRA arbitration is a dispute resolution process that allows investors to seek compensation for losses caused by broker misconduct.
Haselkorn & Thibaut, a national investment fraud law firm with offices in Florida, New York, North Carolina, Arizona, and Texas, is currently investigating the allegations against Dean Thompson and Wells Fargo Clearing Services, LLC. With over 50 years of combined experience and a 98% success rate, Haselkorn & Thibaut has a proven track record of helping investors recover losses through FINRA arbitration.
Investors who believe they may have been victims of unauthorized trading or other forms of financial advisor misconduct are encouraged to contact Haselkorn & Thibaut for a free consultation at 1-888-885-7162 . The firm operates on a “No Recovery, No Fee” basis, meaning that clients only pay if a recovery is made on their behalf. Investors can also check their advisor’s background and disciplinary history by visiting FINRA’s BrokerCheck website and entering their advisor’s name or CRD number.
