Unauthorized trading and broker embezzlement get mixed up all the time, but the difference matters when you’re trying to get your money back. Your broker made trades you never asked for. Or money left your account, and you have no idea where it went. Those are two different problems, and they lead to two different types of claims.
At Erez Law, we’ve recovered more than $400 million for investors across the country who were harmed by brokers who broke the rules.
Our team handles cases in English and Spanish, and we work on a contingency fee basis, meaning you pay no attorney fees unless we recover for you. Call us at 305-728-3320 for a free case review.
Key Takeaways About Unauthorized Trading vs. Broker Embezzlement
- Unauthorized trading means trades were placed in your account without your approval; embezzlement means money was taken from your account directly.
- Churning is a specific type of unauthorized trading where a broker makes excessive trades to earn more commissions at your expense.
- Broker embezzlement may include wire fraud, forged signatures, and fake investment products.
- Both types of misconduct may be pursued through FINRA arbitration, but the evidence you need is different for each.
- Knowing which type of misconduct occurred may affect how fast you need to move and what records to gather.
What Is Unauthorized Trading?
Unauthorized trading happens when your broker places trades in your account without getting your permission first. Brokers generally must get your approval before making a trade, unless you’ve given them written permission to act on their own, which is called discretionary authority.
Even with discretionary authority, your broker still has to comply with applicable regulatory obligations and account restrictions. Trades that go far outside your goals or risk level may still cross a line.
What Does Unauthorized Trading Look Like?
Unauthorized trading doesn’t always show up as one obvious bad trade. It often builds as a pattern over time. Here are some of the most common ways it appears in investor accounts:
- Trades in stocks, options, or other products you never discussed or approved
- Account activity during times when you were traveling or unreachable
- Trades that go against the investment strategy you clearly laid out
- Verbal reassurances from your broker that everything was routine, with no paperwork to back it up
These patterns may point to a broker acting outside the limits of their authority. FINRA arbitrators look closely at account records and written communications when reviewing these claims, and a clear paper trail often makes or breaks a case.
What Is Churning and How Is It Different From Unauthorized Trading?
Churning is a specific form of broker misconduct. It happens when a broker makes too many trades in your account, not because the trades help you, but because each trade earns the broker a commission.
FINRA Rule 2111 requires brokers to have a solid reason to believe any recommended trade fits the customer’s needs. Churning breaks this rule and also violates FINRA Rule 2010, which requires brokers to meet high standards of honest conduct. Arbitrators look at how often trades happened, what they cost you, and how fast your account turned over when evaluating a churning claim.
What Is Broker Embezzlement?
Broker embezzlement means your financial advisor or broker took money that was yours. This is direct theft, not a bad investment call or a trade you didn’t approve. Where unauthorized trading involves investments made without your consent, embezzlement involves funds that left your account entirely and went somewhere else.
Ask Erez Law
Can I still file a FINRA claim if I gave my broker discretionary authority?
Yes, you may still have a FINRA claim even if your broker had discretionary authority. Discretionary authority does not give a broker unlimited permission. Trades must still fit your investment goals and risk level under FINRA’s suitability rules. If your broker abused that authority through churning or trades that ignored your profile, that may support a claim.
What if my broker says the trades were just a mistake?
For unauthorized trading, you generally do not need to prove your broker meant to defraud you. A pattern of trades placed without your consent may be enough. For embezzlement, intent to take your money is typically part of the legal standard, but account records often make the story clear regardless of what your broker says.
How long do I have to bring a claim against my broker?
FINRA arbitration claims are generally subject to a six-year window from the date of the event, under FINRA Rule 12206. State deadlines may also apply and may be shorter. Speaking with an attorney sooner preserves your options.
What if the brokerage firm knew what my broker was doing?
A brokerage firm may be held responsible for its broker’s misconduct under a legal principle called respondeat superior, which holds employers liable for employee actions taken within the scope of their work. Firms also carry their own supervisory duties under FINRA rules. A failure to supervise may give rise to a separate claim against the firm itself.
Common Forms of Financial Advisor Theft
Broker theft takes several forms, and each one leaves a different paper trail. Knowing what to look for may help you spot it sooner.
- Wire transfers
- Forged signatures
- Check fraud
- Fake investments
These acts go well beyond a questionable investment recommendation. They may carry civil liability through FINRA arbitration and criminal liability through law enforcement as well. Many investors find that the misconduct went on for months or even years before anything looked obviously wrong.
How Are These Claims Different in FINRA Arbitration?
| Category | Unauthorized Trading Claims | Embezzlement Claims |
| Legal basis | Breach of fiduciary duty, breach of contract, FINRA suitability rule violations | Misappropriation of funds, fraud, theft |
| Key rules | FINRA Rule 2111, SEC Regulation Best Interest | FINRA Rule 2010, state and federal fraud statutes |
| Proof you need | Account records showing unapproved trades, communications contradicting your broker’s account | Wire transfer records, forged documents, account statements showing unauthorized outflows |
| Who may get involved | FINRA arbitration panel | FINRA arbitration panel, SEC, state securities regulators, law enforcement |
| Can run alongside a criminal case? | Rarely | Yes, a civil FINRA claim may proceed even if a criminal case is also open |
| Where claims are filed | FINRA arbitration | FINRA arbitration, and potentially state or federal court |
FAQ for Unauthorized Trading vs. Broker Embezzlement
Is unauthorized trading illegal?
Unauthorized trading may violate both FINRA rules and federal securities law. It generally breaks the broker’s duty to you and may also violate SEC Regulation Best Interest. Whether it rises to criminal conduct depends on the facts, but civil liability in FINRA arbitration is a separate standard that does not require proof of a crime.
What evidence do I need to prove my broker stole from me?
Proving broker embezzlement typically requires account statements showing funds leaving your account, records of transfers you did not authorize, and any documents that were signed or changed without your knowledge. Phone or email records may also show your broker tried to hide the activity. An attorney reviewing your account history may spot issues you missed.
Can I report my broker to regulators and still file an arbitration claim?
Yes, you may report your broker to FINRA, the SEC, or your state securities regulator and still pursue a private arbitration claim at the same time. These are separate processes and do not block each other. A regulatory complaint may also produce records that strengthen your arbitration case.
What if I signed an account agreement I didn’t fully read?
Signing a general account agreement does not mean you agreed to unauthorized trades or gave permission for funds to leave your account. Account agreements do not override a broker’s duty to follow your instructions or comply with FINRA rules.
Does broker embezzlement only happen at small firms?
No. Broker embezzlement has occurred at large, well-known brokerage firms as well as smaller ones. At Erez Law, we have taken on firms including Merrill Lynch, UBS, Morgan Stanley, Wells Fargo Advisors, and LPL Financial. The size of the firm does not determine whether misconduct happened.
Something Looks Wrong in Your Account. Get Answers Before More Time Passes.
Unauthorized trading and broker embezzlement are different problems, with different evidence and different legal paths, but both may support a recovery through FINRA arbitration.
Account records don’t stay organized forever, and the six-year FINRA eligibility window runs whether or not you’ve taken action. Erez Law works with investors across the country to evaluate broker misconduct claims and pursue recovery.
We handle cases in English and Spanish, and our Miami office is reachable at 305-728-3320 or toll-free at 888-840-1571. International clients may text via WhatsApp at 305-336-8068. If your account doesn’t reflect decisions you made, call us for a free consultation.
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