When a legal dispute arises over a specific transaction or a set of transactions, it matters whose idea it was to make the trade(s).
In securities law, transactions that are executed by a broker fall into one of the following two: (1) solicited trades and (2) unsolicited trades.
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In this post, we explain the difference between solicited trades and unsolicited trades, as well as why the distinction matters under the law.
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A solicited trade is one in which a registered investment advisor recommended the transaction to their client. In other words, the trade was originally considered, and eventually executed, because the broker thought it was appropriate for their client.
An unsolicited trade is one in which an investor (the client) initiates the transaction by bringing it up as an idea to their registered securities representative. In these cases, the transaction was fundamentally the investor’s idea.
Imagine that you purchased $100,000 worth of a microcap (penny) stock. Unfortunately, very soon after making the trade, you get very bad news about the company, and the stock loses more than seventy percent of its original value.
You want to hold your investment advisor legally liable for your losses. In your view, that stock was an unsuitable investment, and you should never have had so much money invested in the first place. As such, you decide to bring a claim against your broker, seeking FINRA arbitration and full compensation for your investment losses.
In the above scenario, whether or not that microcap stock purchase was a solicited trade or unsolicited trade matters a great deal. As was mentioned previously, if your stock purchase was a solicited transaction, then it was your broker’s idea to make that trade.
In this case, your broker may have pushed you into a trade that was not truly in your best interests. As such, you could have a strong case to hold them liable for your losses.
However, if the stock purchase was an unsolicited transaction, then that means it was your idea. Under these set of facts, it is far more difficult to hold your broker liable for investment losses.
Ultimately, if the trade was your idea, a FINRA arbitration panel likely will be very reluctant to hold brokers responsible for your losses.
To be sure, it is not impossible to hold a broker liable for negligence related to an unsolicited transaction, but still it is far more challenging to prove liability than it is for a solicited trade.
Under FINRA Rule 2010, registered brokers are required to uphold high standards of professional integrity and commercial honor. In practice, this means many different things, including that brokers have a professional obligation to properly mark and report all transactions.
When you place an order (or an order is placed on your account) your broker must write a ‘ticket’ for the trade. Among other information, on the specific ticket, you should be able to find an indication as to whether or not the transaction was a solicited trade or trade unsolicited. Brokers should always mark order tickets properly in case a dispute arises over the transaction at some point in the future.
If you review the past order confirmations that you have received from your brokerage firm, you should be able to find the word ‘solicited’ or ‘unsolicited’ on each of the documents. If you find any trades that have been improperly marked, you need to take action.
Speak to your broker or the compliance department of their member firm and inquire about why the transaction was marked as ‘unsolicited’ when it was actually your broker’s idea. The brokerage firm has an obligation to correct this issue and ensure that it never occurs again.
At Sonn Law Group, our dedicated investment fraud team has helped many victims recover just compensation for their losses. If you were a victim of fraud or broker negligence, please contact our law firm now to schedule a free review of your claim. We have offices in South Florida. Central Florida, Atlanta and Houston, and we represent clients in all fifty states.